Nasdaq soars to new heights: What investors should know

ON FEB 19, both the S&P 500 and Nasdaq-100 achieved record highs, climbing by 0.2 per cent and 0.1 per cent, respectively. Their upward movements occurred as investors assessed the minutes of the latest US Federal Reserve meeting and reacted to renewed tariff threats from US President Donald Trump.

The Dow Jones Industrial Average also advanced, adding 73 points to its tally. Insights from the Fed’s January meeting minutes indicated that officials are considering a slowdown or pause in the reduction of the central bank’s substantial US$6.8 trillion asset portfolio.

This deliberation stems from the complexities surrounding the federal debt ceiling, which could lead to significant fluctuations in bank reserves.

The Fed has been actively reducing these reserves since mid-2022 to reverse the quantitative easing measures implemented during the pandemic.

The minutes reflect a cautious approach, with officials expressing satisfaction in maintaining interest rates while acknowledging that trade policies could influence inflation trends.

Investors should closely monitor potential shifts in the Fed’s approach as changes in interest rates and liquidity in the market could impact market sentiment and investment strategies.

Additionally, the US Treasury’s cash balance management may contribute to money market volatility, which could further complicate the Fed’s efforts to establish appropriate reserve levels.

Higher yields from interest rates can lead to increased borrowing costs, potentially diverting investment from stocks to bonds, and affecting the stock market’s performance. Overall, the Fed remains in a wait-and-see mode, as it seeks additional data to guide future policy adjustments.

The Nasdaq-100 Index remains in a strong uptrend, trading within a rising trend channel that reflects increasing investor optimism. The absence of immediate resistance levels on the price chart suggests the potential for further gains in the medium to long term.

In the event of a pullback, the 20,600-20,700 level serves as a key support zone, with trades closely watching the US$22,000 level as a pivotal support area. Should the index break below this threshold, the 50-day simple moving average (SMA) near the US$21,500 level could provide additional support.

Given the current market structure, a buy-on-dips strategy appears favourable, as the index continues to demonstrate technical strength. If the momentum persists, the Nasdaq-100 could break higher, possibly targeting the US$22,500 level.

Overall, the index maintains a technically positive outlook for the medium to long term, with market participants focusing on Fed policy developments, trade negotiations, and macroeconomic trends as key drivers of future performance.

The writer is equities specialist, Phillip Securities