Evercore is bullish: The historic bull market of the NASDAQ 100 Index will continue

According to the Zhitong Finance APP, since the beginning of 2023, the NASDAQ 100 Index has nearly doubled, adding $14 trillion in value. Despite ongoing concerns in the market about rising bond yields, Rich Ross, the head of technical analysis at Evercore ISI, is confident about further gains in the index.

Last week, as investors analyzed economic data for clues on the next interest rate cut by the Federal Reserve following Trump's victory, U.S. Treasury yields surged to multi-month highs. Trump's victory has raised market concerns about his economic plans, such as high import tariffs and mass deportations of low-wage undocumented workers, which are seen as potentially inflationary and detrimental to economic growth, thereby limiting the Fed's ability to lower borrowing costs. This not only weakened the appeal of interest rate-sensitive sectors, particularly the high-valuation tech sector, but also sparked widespread discussion in the market.

However, the yield on the 10-year U.S. Treasury bond has retreated after reaching a relatively strong index, bringing a glimmer of hope to the market. Rich Ross pointed out that with positive technical signals, both the NASDAQ 100 Index and the S&P 500 Index seem poised to set historical highs in the first quarter. He firmly believes, "Ultimately, technology remains ahead and will continue to lead the market higher."

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According to data compiled by Bloomberg, as of Tuesday, the tech-heavy benchmark index has surpassed its 200-day moving average for 467 consecutive trading days, marking the second-longest streak since the index was established forty years ago.

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Currently, the index is trading about 10% above its long-term support level, a level considered relatively stable by technical analysts. Previously, the index was once 20% above this line in July, a level that preceded a sell-off before the summer downturn.

The coming weeks will be a critical period for the stock market. On one hand, major tech companies are preparing to announce quarterly earnings; on the other hand, the Federal Reserve will make its next policy decision on January 29. As the earnings season progresses, investors are closely watching corporate executives' expectations for the coming months.

Next week is the busiest week of the quarter, with companies like Apple Inc. (AAPL.US), Microsoft Corp. (MSFT.US), and Meta Platforms Inc. (META.US) set to release their earnings reports.

To gauge the next move of the NASDAQ 100 Index, John Kolovos, head of technical strategy at Macro Risk Advisors, is monitoring the largest NASDAQ 100 Index (QQQ.US) exchange-traded fund. He believes that the technical support level for this ETF is between $485 and $495, close to its November low In his view, any pullback above these thresholds may provide a buying opportunity on dips.

Kolovos pointed out, "The decline in yields is conducive to broadening market breadth and increasing participation in the stock market." Technical analysts are also watching whether Apple will receive buying support as it approaches the 200-day moving average.

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Meanwhile, the yield on the 10-year U.S. Treasury bond has fallen more than 20 basis points after briefly breaking above 4.8% (higher than the 2024 peak) last week, hovering around 4.57% on Tuesday. For Kolovos, the next key support level for the benchmark bond yield is 4.5%, close to its 50-day moving average and the high from November.

He is also watching 4.8% and the 5% peak at the end of 2023 as resistance levels. The 14-day relative strength reading for the 10-year yield broke above 70 two weeks ago, which some technicians view as a sign of overheating.

Notably, the NASDAQ 100 index is currently about 2.4% lower than its record high in December. Meanwhile, semiconductor stocks—a sector highly favored by Evercore ISI's Ross—have reached new highs relative to software stocks. This indicates that traders are re-buying shares of chip manufacturers like NVIDIA (NVDA.US), which have been major drivers of the bull market for over two years.

In fact, data compiled by Bloomberg shows that the VanEck Semiconductor ETF (SMH.US), which holds leaders in the chip sector like NVIDIA (NVDA.US), Applied Materials (AMAT.US), and Advanced Micro Devices (AMD.US), has outperformed the iShares Expanded Tech-Software Sector ETF (IGV.US) in five of the past six weeks.

Ross noted, "The impact of rising interest rates on small-cap and cyclical stocks is unique. Therefore, when we move past the pressure of rising rates, the market's first reaction is to buy back those beaten-down stocks. And when the dust settles, we will ultimately return to those strong long-term trends, abundant cash, and the significant moats held by large tech companies."