ALB Limited 22.05.2023

Target for NASDAQ100 Index is 15.000

Last year, NASDAQ 100, which was the index that experienced the highest value loss among global stock market indices, is currently positioned as one of the most rapidly rising world indices with an opposite pricing trend. Especially due to the sensitive nature of growth stocks within the index, which are priced with high multiples, and their responsiveness to interest rates, the Federal Reserve's tight monetary policy has had the most impact on the NASDAQ 100 index.

The performance of the NASDAQ 100 index as of the beginning of the year is provided in comparison with the S&P 500, Dow Jones Industrial Average, and Russell 2000 indices at the graph below 
This year, NASDAQ 100 has seen a significant rise with a 26% gain, making it the top-performing index in the United States by a wide margin, and it is recovering from last year's losses. While Dow Jones and Russell 2000 have maintained a flat positive performance, the S&P 500 has experienced a 9% increase this year. The NASDAQ index, which is more sensitive to interest rates compared to others, and the outperformance of the stocks within it, may also indicate important signals in terms of the potential transition from the Federal Reserve's hawkish stance to a more dovish one.

The graph below shows the trend of the NASDAQ 100 index together with the Federal Reserve's policy interest rate.

During the period of loose monetary policy when the Federal Reserve lowered the federal funds rate target range to 0%-0.25% in March 2020 and kept it within that range for two years, NASDAQ was breaking record after record. However, as the tightening cycle began in March 2022, the graph shows that the NASDAQ 100 index entered a downward trend. Even after reaching a low point at around 10,440 in October 2022, the Federal Reserve continued to raise interest rates. However, in October 2022, the inversion of the 10-year minus 3-month Treasury bond yield spread in the U.S. bond market, signaling a recession, strengthened expectations that the Fed would eventually have to lower interest rates. This was one of the main reasons for the dip in U.S. stock market indices, especially NASDAQ, in the October-November period of last year. We can also say, particularly based on Powell's statements on May 19th, that the Fed's interest rate hike cycle is coming to an end and a "wait-and-see" period is beginning. This situation will serve as a significant upward catalyst for U.S. indices, especially NASDAQ, in the coming period.


The graph above shows the trajectory of analysts' net profit revisions for NASDAQ companies, and the noteworthy detail is that upward or downward revisions in earnings estimates coincide with trend changes in the price graph of the NASDAQ 100 index. The 12-month net profit estimates for companies included in the index experienced a dip in February this year, but they started to rise again with upward revisions by analysts. The net profit estimates for companies within NASDAQ reached their peak in April 2022 and were on a declining trend until February of this year. The period of approximately 10 months with lower profit expectations seems to have come to an end in the first quarter of this year. Analysts' forecasts in the United States now indicate higher corporate earnings compared to February. Despite the Federal Reserve raising interest rates to the highest level in 16 years, credit tightening caused by the banking crisis, and ongoing discussions about recession and stagflation, we can say that the forecasts for companies within NASDAQ have entered a more optimistic period, which is directly reflected in the pricing of the NASDAQ index.


According to research reflected in the Bloomberg terminal, analysts remain optimistic and maintain a "Buy" recommendation for 69 out of the companies included in the NASDAQ 100 index. There are no "Sell" recommendations for the stocks within the index, while there is a "Hold" recommendation for 32 stocks.

Based on the average of potential target price studies, the 12-month target price for the NASDAQ 100 index is at 14,993 points. The current average target price of around 15,000 points indicates a potential return of 8.6% in USD terms for the index. Considering the current situation where the 10-year Treasury bond yield in the US is at 3.6%, an 8.6% potential return over a 12-month period can be considered reasonable for a risky asset. However, it should be noted that the potential return of the index is lower compared to previous years.

Technically, the NASDAQ 100 index is in a clear uptrend, currently trading approximately 33% above its October low of 10,440, and it is moving within a pronounced "Bull Market." The index is around 17% below its historical peak of 16,764 points, and the average of 12-month target prices is 15,000 points, which is quite close to the level of 15,200, where sharp selling began at the end of March 2022. If the market maintains its current momentum, we can say that the target range for the trend would be 15,000-15,200.

Below, the 50-day exponential moving average, which may serve as a technical indicator for the end of corrective movements since the beginning of the year, could be considered as a "trailing stop" method. As long as the index remains above the 50-day exponential moving average, currently intersecting at the 13,000 level, it is possible to say that the optimism will continue and the target of 15,000 will be maintained.

Tags: NASDAQ, Analysis

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