Where we are: Nasdaq 100 futures are currently trading around 18,250, extending losses from last week’s pullback. The index is holding above the overnight low of 18,200 but remains well below Friday’s NY close of 18,350. This recent weakness follows a period of record highs, suggesting some profit-taking and a shift in risk sentiment. Traders are watching the 18,000 level as key support.
What’s driving it: Rising US Treasury yields are weighing on the Nasdaq 100, as the 2-year yield sits at 4% and the 10-year at 4.47%. The real yield on 10-year TIPS, now at 2%, is adding further pressure, particularly on growth stocks, as it raises the discount rate applied to future earnings. While the Fed remains on hold, the market is pricing in a prolonged period of restrictive rates, spurred in part by geopolitical tensions and their impact on energy prices and inflation expectations. The net-short positioning may also be a factor, suggesting that any positive surprise could trigger a short squeeze, but for now, the pressure is downward.
- US 10Y real yield at 2% continues to pressure tech valuations.
- WTI crude at $101.56, fueled by US-Iran tensions, maintains inflationary pressures.
- Nasdaq 100 net non-commercial positioning is crowded short at the 0th percentile, raising squeeze risk on any bullish surprise.
NY session focus: All eyes will be on Nvidia earnings after Wednesday’s close, but before that, the near-term focus is on risk sentiment and how the market absorbs the rise in yields. Watch for the 10:00 ET release of the NAHB Housing Market Index for further insight into the health of the US economy. Key levels to watch are 18,200 as initial support and 18,400 as immediate resistance. The trade that’s working is shorting rallies, while the trade at risk is chasing the downside given the crowded short positioning. The pain trade would be a dovish surprise on the Nvidia earnings call triggering a violent short squeeze.