NASDAQ 100 AND UBER OUTLOOK:
- The Nasdaq 100 gains modestly after Monday’s sharp losses, but sentiment remains cautious ahead of the FOMC rate decision
- No change in monetary policy is expected, but the central bank is likely to offer clues about its tapering plans. Meanwhile, the Fed’s dot–plot could show a more pronounced monetary tightening path, a negative event for tech stocks
- Separately, Uber jumped more than 11% after the company indicated it could post an adjusted profit this quarter
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The Nasdaq 100 regained some ground on Tuesday, rising 0.1% to 15.027 at the market close, after falling 2.1% on Monday, its biggest loss since May. At the start of the week, concerns that Evergrande, one of China’s largest property developers, will default on its obligations and trigger financial contagion weighed on sentiment, driving safe-haven demand and dragging down equities around the world.
However, overblown fears appear to be receding as investors begin to bet that the Chinese government will not let the real estate giant fail, but will help orchestrate a debt restructuring deal at some point to avoid a systemic liquidity crisis; after all, a spillover into the broader economy is not in the best interest of the CCP.
Despite less anxiety, traders remain cautious ahead of a major risk event on Wednesday: the September FOMC monetary policy decision. No change in the federal funds rate is expected, but the central bank could offer “heavy clues” that a plan to taper asset purchases will be announced imminently, perhaps at the November meeting, provided the economy continues to evolve favorably.
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Any signal that the bank is ready to take the punch-bowl away is likely to nudge bond yields higher and hurt technology companies with elevated valuations. This, in turn, could become a moderate headwind for the Nasdaq 100 index. In general, rising yields tend to be detrimental to equity valuations for two reasons: 1) higher returns in the bond market mean more competition for stocks, 2) when yields rise, companies’ future cash flows are worth less in present time when discounted at a higher rate.
While the “language around tapering” will be much scrutinized, the Fed’s updated dot plot could carry more significance, especially as the central bank will present its 2024 rate projections for the first time. If median expectations for 2022 and 2023 increase and members also foresee numerous rate hikes in 2024, the market could lose its footing and correct lower in the near term, with tech and growth stocks being hit the hardest.
UBER SURGES ON UPGRADED GUIDANCE
Distancing our attention from index performance, Uber Technologies (UBER) had its best day since November 2020, rallying more than 11% to $44.4 after the company upgraded its guidance and indicated that it could reach a key measure of profitability sooner than anticipated, citing strong improvements in both Mobility and Delivery.
According to new SEC filings, Uber now expects third quarter adjusted EBITDA to be between a loss of $25 million and a profit of $25 million, following previous guidance of “better than a loss of $100 million” in August.
The prospect of the ride-hailing company reaching a milestone and posting an adjusted profit this quarter despite the fact that many large firms have delayed going back to the office in many metropolitan cities suggests there may be ample room for improvements heading into 2022. This leaves Uber shares, which have fallen more than 25% from their June peak, in a good position to take the lead once the economy further normalizes.
Lastly, while it is true that any hawkish surprise from the Fed may disproportionately hit tech stocks, any turbulence will be transitory. That said, Uber is likely to command strength over the long term as its earnings outlook continues to improve.
From a technical point of view, after bouncing off Fibonacci support at $38/39 last week, Uber has exploded higher, piercing a key resistance near $42 on Tuesday. This bullish breakout has opened the door for more upside with $44.6 being the immediate focus, followed by $47.80.
On the downside, the first support to consider appears at $42, a level that previously acted as resistance. Should this floor be taken out, Uber could be on its way to retest its September lows, although the bearish scenario appears less likely at this time.
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—Written by Diego Colman, DailyFX Market Strategist