SpaceX's index inclusion, SK Hynix's Nasdaq debut and Alphabet's Dow addition over the next two weeks could inject fresh momentum, but AI capex skepticism and stagflation risks linger beneath the surface.
The E-mini Nasdaq 100 futures (NQ) are poised to stage a comeback on Monday following the second-worst weekly performance in more than a year. Ahead of the cash market open, the NQ contract tied to the Nasdaq 100 Index, comprising 100 of the biggest non-financial tech companies, was last seen trading up over 1.25%.
MarketFramework data shows, Micro NQ (MNQ) and NQ futures were among the most actively traded contracts last week. Those long on the NQ contract pipped their short counterparts by just six percentage points.
The June 26 NQ sell-off was an artificial intelligence (AI) valuation reset, driven by semiconductor weakness, profit-taking and skepticism over the returns on massive AI capital expenditure. Jittery investors demanded proof of returns on the over $400 billion in capital spending committed by the biggest techs that are part of the Magnificent Seven group.
Adding fuel to the fire was the post-initial public offering (IPO) collapse in the shares of Elon Musk-owned newly public rocket company SpaceX, talent exodus in Google parent Alphabet (GOOGL), the sharp plunge in tech-heavy Kospi Index of South Korea early last week and price increases announced for most of Apple products, with the exception of the flagship iPhone. Apple blamed higher memory and component prices for the action, and investors took the action as a cue for AI-driven chip inflation, with some even seeing it as a sign of demand weakness.
The broader skepticism in AI trade took a further hit from ChatGPT parent OpenAI’s rumored plans to delay a public debut.
Geopolitical Respite Meets Macro Reality
After a weekend marked by military exchanges, Washington and Tehran agreed to pause hostilities and proceed with peace talks in Doha, a move that reassured investors that the conflict may be shifting from the battlefield back to the negotiating table.
The resumption of oil flows through the Strait of Hormuz even in the event of a lasting peace in the region may not happen overnight. The International Maritime Organization, an arm of the United Nations, reportedly said about 80 mines could lie in the international waterway of the strait.
Any renewed escalation could send crude prices higher. After dropping nearly 10% last week, the West Texas Intermediate crude oil futures contract (CL) is finding some bid in the early New York session on Monday.
That said, the sentiment reversal could also be propped up by a few catalysts that unfold over the next few days. Alphabet is set to join the blue-chip Dow Jones Industrial Average, SpaceX will join the NDX before the market opens on July 7, and South Korean memory chip giant SK Hynix’s Nasdaq debut is scheduled for July 10.
GOOGL’s Dow debut has only limited impact on NQ futures, the effect on the contract is more psychological than mechanical. But SpaceX joining the Nasdaq 100 is more important as the underlying index is tracked by a number of passive vehicles such as Invesco QQQ ETF (QQQ). It is estimated that about $4 billion of passive buying could be triggered by this index rebalancing.
If the reception to SK Hynix listing is positive, it will be perceived as a confirmation that AI infrastructure demand remains robust. This will also prove healthy for the semiconductor supply chain, which includes companies such as Nvidia and Micron.
But before that any tech resurgence faces a stern test in the form of the June non-farm report, which is scheduled for release on Thursday instead of the customary Friday release. The preponement is due to the observance of the U.S. Independence Day holiday on Friday.
What June Report Holds For Market
Economists, on average, expect that the economy may have added 114,000 jobs in June, sharply slower than the 172,00 growth pace of the previous month. The May report printed a number that was nearly double the consensus estimate, raising rate hike odds. This triggered a sell-off in the market, which aggravated the post-Broadcom earnings weakness.
May NFP Report, Broadcom Deflates NQ Rally
Source: TradingView
The unemployment rate is expected to stay put at 4.3%, and the yearly rate of the average hourly earnings is expected to tick up to 3.5% from 3.4% in May.
The market will view the report through the Federal Reserve policy lens, following the recent AI sell-off. Here’s how the various possibilities could mean for the market:
- In-line print (between 100,000 to 150,000 job growth and steady wages): The September rate hike odds remain steady. A relief rally could materialize but gains could be capped due to the impending start of the third-quarter earnings seasons, which will shed more light on the AI rally’s sustainability.
- Hot print: A job gain of more than 150,000 and an acceleration in wage growth will push up the odds of a September hike to 80%, with the 10-year Treasury yield potentially retesting the 4.54% level.
- Soft Print: If the economy adds 80,000 or fewer jobs and wage growth ticks up, yields fall, the U.S.Dollar Index will recede and the growth trade will return to be in favor. This will firm up the NDX above the 30K level, rendering the geopolitics-fueled rally more durable.
- Soft Job Growth But Hot Wages: Job growth disappoints but average hourly earnings accelerate will bring stagflation back in play. New Fed Chair Kevin Warsh has no clean path; markets price the worst of both worlds. NQ selloff resumes, gold volatile, yield curve steepens.
Watch out for This Distortion In Jobs Data
Several firms noted the FIFA World Cup in the U.S. as a likely source of the May payroll beat: leisure and hospitality alone added 70,000 of the 172,000 total. With the tournament now underway, a similar boost to June's print cannot be ruled out, which means the headline number may again overstate underlying labor market strength, a nuance the Fed will need to parse carefully and traders should factor into their reaction.
Bulls Eye 30,000 With 20-Day SMA in Sight
The NQ futures are trading between the 20-day and 50-day simple moving averages (SMAs). With the current price at 29,724 sitting closer to the 20-day SMA resistance, the near-term bias leans modestly bullish. If the contract succeeds in moving above the 20-day SMA at 29,911, it could attempt to break above the 30,000 psychological resistance. A sustainable close above that level could bring the 30,800–31,000 resistance area into play.
Source: TradingView
The immediate support will be around the 50-day SMA at 29,083, followed by 28,224 — a level that has held as support on two tests in mid-June. Further down, support lies around 27,540, and then the contract's 100-day SMA at 26,943 and 200-day SMA at 26,131.