The NASDAQ 100 index has been under severe selling pressure throughout 2022 as concerns about the impact of the Federal Reserve’s aggressive interest rate hikes on corporate earnings and the broader economy have been rising. Central banks have started what is likely to turn out to be the most aggressive cycle of interest rate hikes since the late 1980s.

The spectre of significantly higher interest rates this year has sent shockwaves through global markets as investors fear that central banks efforts to contain inflation will end in recession. The interest rate sensitive benchmark has been the hardest hit of the U.S. indices, declining from a high of 16,767 posted in November 2021 to a low of 10,440 in mid-October 2022, erasing more than 37% of its value.

The market is currently pricing in the fourth-straight 75 basis points increase when the Fed meets on the 1 – 2 of November. While the Fed is clearly not done with raising interest rates as inflation remains uncomfortably high, the tech heavy index rallied sharply on Friday, ignited by hopes that the Fed could start slowing the pace of rate hikes in December. Market participants welcomed a report from the Wall Street Journal last week that hinted some Fed officials are concerned about overtightening. San Francisco Fed President Mary Daly was among those who have this view, saying that the central bank should start discussing the potential of a smaller rate hike in December.

For as long as government bond yields are rising equity markets are likely to remain under selling pressure. We suspect markets could start to turn the corner whenever the tightening cycle approaches terminal levels.

Earnings season in the U.S. is kicking into a higher gear with four of the biggest companies by market cap, constituents of the NASDAQ 100, reporting earnings results this week. Microsoft and Alphabet are due to report on Tuesday the 25th of October, followed by Amazon and Apple on Thursday the 27th of October. Given their heavy weightings on the NASDAQ 100 their performance could be crucial for the future direction of the index.

The US economy contracted an annualized 0.6% on QoQ in Q2 2022, matching the second estimate, and confirming the economy technically entered a recession, following a 1.6% drop in Q1.

On Thursday, the 27th of October, the U.S. Bureau of Economic Analysis will release its first look at Q3 GDP, with the economy expected to have expanded at a rate of 2.5% after two consecutive quarters of contraction in the first half of the year.