Tech Stocks Retreat as Fed Policy Shift Clouds Outlook

NASDAQ 100 US6311011026

The Nasdaq 100 opened the trading week on Monday under significant pressure, with a broad sell-off dragging the technology-heavy index lower. The downturn was triggered by shifting expectations for U.S. monetary policy, while persistent investor skepticism over massive AI investments added to the negative sentiment.

As of 9:35 AM EST, the index traded notably below Friday's closing level of 25,552 points. Futures had already indicated weakness in pre-market activity, declining by approximately 0.9%.

A key driver behind the market's shift was the nomination of Kevin Warsh, known for his independent stance, to lead the Federal Reserve. This development prompted a sharp reversal in so-called "safe haven" trades. Prices for gold and silver, which had previously risen on concerns over potential political influence on the central bank, retreated sharply. Concurrently, the U.S. dollar strengthened.

This environment creates additional headwinds for technology equities. The prospect of a more restrictive monetary policy collides with already stretched valuations across the tech sector, raising questions about future growth.

Major Constituents Face Selling Pressure

Losses were widespread among the market's largest technology companies, often referred to as the "Magnificent Seven":

• Nvidia shares fell 1.5% in pre-market trading, weighed down by reports of abandoned investment plans involving OpenAI.
• Tesla declined around 2%.
• Microsoft continued to weaken despite recently surpassing earnings expectations; investor focus remained on signs of slowing growth in its cloud computing segment.

The breadth of the decline highlights a fundamental question preoccupying the market: can the future profits generated by artificial intelligence justify the enormous capital expenditures currently being undertaken by these corporate giants?

Technical Outlook Weakens

From a chart perspective, the Nasdaq 100 has broken below a previously held upward channel. Analysts now identify a critical daily support level at 25,405 points. A sustained breach of this level could trigger further selling, with subsequent downside targets seen at 25,051 and 24,774 points.

The Relative Strength Index is exhibiting a bearish divergence. Market technicians are warning of a potential double-top pattern formation. While the On-Balance Volume indicator remains above its trendline, the strength of recent recovery attempts has been diminishing.

A Week of Potential Volatility Ahead

Beyond the recalibrated Fed outlook, the debate over AI profitability remains the dominant theme for technology shares. A modest positive influence comes from easing geopolitical tensions between the U.S. and Iran, which pushed oil prices lower. However, this development is receiving scant attention from equity investors.

The upcoming week brings the monthly U.S. jobs report and further corporate earnings releases. Whether the Nasdaq 100 can defend the 25,405-point support level is likely to set the tone for near-term price action.