US indices entered the weekend on the backfoot as investors await the upcoming Federal Open Market Committee rate decision in the week ahead. While no change to the interest rate range is expected, minor tweaks to the bond-buying, balance sheet expansion and maturity of held securities may become the focus of the market’s attention instead. The Federal Reserve’s monetary policy operations have become increasingly vast in the wake of coronavirus which has added another layer of complexity to the monetary policy adjustments.
The increased operations have also resulted in a rapidly expanding balance sheet, one that remains a key tailwind behind US equities. As other fundamental forces have come and gone, the Fed’s accommodation has remained and is likely a large part of the stellar performance the Dow Jones, Nasdaq 100 and S&P 500 have enjoyed this year. Thus, any perceived pullback in the Fed’s willingness to buoy the economy could seriously undermine the three indices.
Dow Jones Price Chart: 4 – Hour Time Frame (September 2020 – December 2020)
Nasdaq 100 Forecast
The Nasdaq 100 suffered a modest decline last week despite a white-hot IPO market that has seen remarkable gains in recently-launched technology stocks. AirBnB was the most recent addition to the market and quickly doubled from its opening price. Valued beneath $20 billion in March, the company briefly enjoyed a valuation greater than $100 billion – an alarming increase amidst a global pandemic.
Nasdaq 100 Price Chart: 4 – Hour Time Frame (August 2020 – December 2020)
While great for AirBnB shareholders, the recent propensity for stocks to soar after their initial public offering could hint at exuberance in the market. Similarly, other stocks like Tesla continue to trade at staggering valuations relative to their profits which further suggests some irrationality may be present in the market. Despite the warnings, stocks have continued higher for months and while they may be susceptible to shorter-term pullbacks, the longer-term trend remains higher.In the meantime, follow @PeterHanksFXon Twitter for updates and analysis.
The DAX 30 is headed into a relatively quiet week in terms of event risk and it may merely follow price action experienced in the Dow Jones, Nasdaq 100 and even FTSE 100. That being said, the technical landscape might hold insightful cluesfor price action in the week ahead.
DAX 30 Price Chart: 4 – Hour Time Frame (September 2020 – December 2020)
FTSE 100 Forecast
The FTSE 100 will likely look to Brexit concerns and the looming Bank of England rate decision. Both events have the potential to drastically shake up the index’s price outlook, but expectations are measured. Little change is expected from the BOE and a Brexit deal seems unlikely at this time.
FTSE 100 Price Chart: 4 – Hour Time Frame (August 2020 – December 2020)
Still, it is possible UK and EU officials can strike a last-minute deal, but any agreement might be watered down from prior arrangements which could leave FTSE 100 investors unimpressed. Either way, the index heads into the week with a lot of event risk on the table which could give rise to heightened volatility – a welcome environment for shorter-term traders.