The Nasdaq 100 index is hovering near its highest level on record after the real US yields declined to a record low and strong quarterly results from Tesla. The index is trading at $15,125, bringing its total year-to-date return to almost 20%.
US real yields
The Nasdaq 100 rose to a record high as investors focused on the real yield. The real yield on the 10-year US Treasuries declined further below zero on Monday. This figure measures the returns investors expect to receive after factoring in inflation. It declined to -1.12%.
At the same time, the nominal US bond yields have also declined substantially. The 10-year yield declined to 1.25%, which was substantially lower than the year-to-date high of 1.77%.
This performance is mostly due to the rising number of Covid-19 cases in the US. Recent data has shown that many states have seen an uptick in cases. This trend is being blamed on the highly infectious Delta variant and the overall loosening of restrictions.
Falling bond yields is a positive thing for the Nasdaq 100 index because it is made up of technology companies. That is because it signals that inflation will remain under pressure for some time. In fact, a key gauge known as inflation expectations has started to ease. The gauge shows what businesses, consumers, and investors expect to pay in the next ten years.
At the same time, a low rate of inflation is usually a signal that the Federal Reserve will maintain a dovish stance. Low interest rates and an expansionary monetary policy are usually positive for high-risk technology stocks that make up the Nasdaq 100 index. Indeed, the expansionary policy by the Fed was the main reason why most assets like cryptocurrencies and commodities jumped to record highs this year.
The Fed will start its monetary policy meeting on Tuesday and deliver its decision on Wednesday. Analysts expect that the bank will maintain a dovish stance as inflation expectations drop and as the number of Covid-19 cases rises.
Tech earnings ahead
The Nasdaq 100 index also rose after the solid quarterly results by Tesla. The company surprised Wall Street when it reported substantial revenue and earnings growth even as costs rose. The firm said it sold 201,304 cars in the second quarter while its total operating profit rose to $1.3 billion.
Its net income rose sharply to more than $1.14 billion, while its EPS came in at $1.45. Most importantly, the firm announced that it managed to expand its gross margin even as costs rose.
The Nasdaq index will react to a bunch of corporate earnings scheduled for this and coming weeks. This week, the top stocks to watch will be the likes of Microsoft, Advanced Micro Devices (AMD), Apple, General Electric, Humana, Shopify, and Pfizer, among others. Judging by the earning season so far, there is a high probability that the companies will report strong quarterly results.
Nasdaq 100 index analysis
The daily chart shows that the Nasdaq 100 index has been in a strong upward trend recently. It moved above the important resistance at $14,085, which was the highest level in April.
At the same time, the index continued rising above the 50-day and 25-day Moving Average, while the Relative Strength Index has gone to the overbought level of 71. Therefore, the index will likely keep rising as bulls target the next key resistance at $16,000.
