Nasdaq 100 Forecast: NDX Falls as the tech rout continues and oil prices soar

US futures         

Dow futures -1.1%, S&P 500 futures -0.6%  & Nasdaq futures  -0.3%

European futures

FTSE -0.65%,  DAX  -1.2%

• US stocks extend declines in a risk-off mood.
• Worries over the funding of the AI trade continue to hit tech stocks.
• Rising oil prices add to inflationary pressures ahead of the Fed rate decision next week
• Oil prices jump on Middle East supply worries

U.S. stocks point lower as AI sell-off weighs on sentiment

U.S. stocks are pointing to a modestly lower open after a sharp AI sell-off yesterday, as telecom stocks slide.

Caution prevails after a rout in AI-linked stocks over concerns about the sector's massive funding requirements. Recent moves in AI-related stocks have been volatile. Last week, AI-related shares fell sharply over worries surrounding CoreWeave's debt burden and the cost of financing AI investment, before upbeat earnings from SpaceX helped drive a recovery on Wednesday. However, those gains reversed on Thursday, with the tech-heavy Nasdaq down almost 3%. Meta fell 8% after reporting its first cash outflow in over a decade, amid worries over the extent of its AI-related expenditure.

Market focus will remain on earnings season next week, with major companies such as Microsoft, Alphabet and Amazon reporting. Their results could have implications for broader market sentiment, particularly as investors look for evidence that heavy AI spending is generating sufficient returns.

The sell-off in AI has fuelled a rotation into safe-haven Treasuries, pulling yields below 5%, with Treasuries recording their best day in more than a year on Thursday. Yields are modestly higher today.

A run of softer U.S. data, including weakening consumer confidence, softer payroll growth and a drop in pending home sales, could be an early sign that higher borrowing costs are starting to slow the economy.

Attention is turning to U.S. PMI data this afternoon ahead of next week’s Federal Reserve rate decision. The Fed is expected to leave rates unchanged, with a hawkish lean, while a rate hike is expected before the end of the year.

Corporate movers

Moderna is falling over 5% on Friday, having fallen 25% yesterday, following a leak of partial data on its closely watched cancer vaccine developed with Merck. Both stocks are under pressure, even though the full data released on Thursday appeared meaningful for patients and positive relative to Wall Street expectations.

Telecom stocks are under pressure, with AT&T down 4%, T-Mobile down 4% and Verizon falling 3% on reports that SpaceX is in private talks to lease 80,000 cell towers. SpaceX is attempting to build the fourth nationwide wireless carrier by combining its Starlink direct-to-device network with ground infrastructure.

SpaceX is rising after getting a boost from an analyst upgrade on Wall Street. Philip Capital double-upgraded the stock to Buy from Sell, lifting its price target to $250 from $75 following stronger-than-expected gains in its AI business.

Nasdaq 100 forecast – technical analysis

After reaching a record high of 31,365, the Nasdaq reversed lower, falling below the 50 EMA before finding support around the 29,000 support zone. The recent recovery from this level once again faced rejection at the 50 EMA, reinforcing the bearish bias, and the price is now testing the 29,000 support zone again.

A break below here turns attention to 28,300, the June low, and the 200 EMA at 28,117. Should sellers take out this level, they could gain traction towards 27,050.

FX markets – USD rises, GBP/USD falls

The USD is rising on Friday, tracking Treasury yields, which have edged higher. The U.S. dollar is benefiting from safe-haven flows as well as higher oil prices, given the U.S.'s position as an oil producer.

EUR/USD is falling towards 1.12 and is set to decline 0.5% across the week. Eurozone PMI figures came in weaker than expected. Although business activity remained in expansion, the composite PMI fell more than expected to 51.9, down from 53.1 in September. The index remains above 50, however, indicating continued expansion.

Growth concerns are mostly centred on France, where the PMI dropped from 51.1 to 48.4, a level associated with contraction in the eurozone's second-largest economy. Concerns over fiscal and political uncertainty in France have weighed on the euro across the week. Attention is now turning to the ECB rate decision next week, where the central bank is expected to leave rates unchanged.

GBP/USD is falling amid a stronger U.S. dollar and after disappointing UK retail sales data. Retail sales fell 0.4% month-on-month in September, more than expected, as consumer confidence tumbles and higher fuel prices pressure household budgets. Still, the pound is on track to gain across the week after stickier-than-expected inflation data and evidence that the UK labour market was starting to stabilise. Attention now turns to John Healey's budget next week as the next catalyst.

Oil rises as Middle East tensions lift supply concerns

Oil prices are rising on Friday, with Brent reaching its highest level in five months as further Houthi attacks in Saudi Arabia fuel concerns over disruption to energy supplies.

Brent rose to $115 a barrel, its highest level since May, while WTI trades above $100 a barrel. Brent is on track to gain 4% across the week, while WTI is poised to close 0.5% lower.

The market remains worried about an escalation in the Middle East, which could trigger renewed supply disruptions. Further reports that the U.S. could escalate hostilities after the midterm elections are increasing the risk premium in oil prices.