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NASDAQ 100 forecast for 2020: can the momentum weather the upcoming earnings season?

18:18, 21 April 2020

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NASDAQ 100 forecast 2020

US tech 100 news: what factors drive the price fluctuations

The NASDAQ 100 is a popular index that tracks the 100 biggest non-financial companies listed on the Nasdaq stock market. Some of its most popular constituents, among others, are Microsoft (MSFT), Alphabet (GOOGL), Facebook (FB), and Intel (INTC).

As with all indices, the performance of the NASDAQ 100 Index depends mostly on the performance of its constituents. However, the movements of some companies tend to have more impact on it than others. For example, companies like Microsoft (MSFT), Apple (AAPL), and Amazon (AMZN) have a weighting of 11.9 per cent, 11.04 per cent, and 10.3 per cent in the index respectively. In comparison, more than 70 companies have a weighting of less than 1 per cent.

Therefore, the strong performance of Amazon and Microsoft this year has helped offset the weak performance of smaller companies like United Airlines (UAL), American Airlines (AAL), and Marriott International (MAR). The index has dropped by less than a percentage point year-to-date while the Dow Jones (US30) and S&P 500 (US500) have dropped by more than 10 per cent.

NASDAQ 100 forecast for 2020

Several important news stories have contributed to moving the US 100 Index this year. Firstly, the coronavirus pandemic has led to increased sales by Amazon. The company reportedly makes more than $11,000 every second as more people shop on the platform. This has seen its stock price rise by more than 28 per cent this year.

Second, many software-as-a-service (SAAS) businesses have done well during the virus outbreak because more companies are encouraging their staff to work from home. Some of the key beneficiaries in the index are Citrix (CTXS), Microsoft (MSFT), and Adobe (ADBE).

Third, many gaming-related firms have done well because many people have been playing more games. Some of the gaming-related companies in the index are Advanced Micro Devices (AMD), Electronic Arts (EA), and NVIDIA (NVDA).

The main laggards in the NASDAQ 100 are airline stocks like American Airlines and travel-related companies like Expedia (EXPE), TripAdvisor (TRIP), and Marriott International. These firms have been affected severely by travelling bans placed around the globe. The stock prices of these companies will likely continue to suffer as the current lockdowns continue.

NASDAQ 100 analysis: performance since the start of 2020

The NASDAQ 100 had a great 2019 as momentum returned to technology stocks. Last year, the index rose by more than 37 per cent while the Dow Jones and S&P 500 gained only 20 per cent and 28 per cent respectively. This stellar performance was driven mostly by the strong performance of Apple and Microsoft, which soared by more than 50 per cent.

NASDAQ 100 forecast for 2020

The index started well this year since most investors were expecting the strong NASDAQ trend to continue, with the index reaching its all-time high of $9,718 on February 20.

However, the sentiment soured at the end of February as investors started coming to terms with the impact of the coronavirus pandemic. The index declined by more than 28 per cent between the end of February and the third week of March. This was the fastest 20 per cent drop in the index's 35-year history.

In the past 30 days, the NASDAQ 100 has risen by more than 20 per cent because investors have been receptive to news from Washington. The best performers in the past thirty days were Tesla (TSLA), Incyte (INCY), Ulta Beauty (ULTA), Lululemon (LULU), Lam Research (LRCX), and AMD (AMD). These six companies have gained more than 40 per cent.

NASDAQ 100 forecast for 2020: news to keep on your radar

The next few weeks will be important for the index as most companies will start releasing their earnings. Investors expect the figures to be weak going by the sluggish results posted by banks last week. 

This week, several companies in the index like Netflix (NFLX), Alphabet, and United Airlines will release their earnings. These companies will be followed by other heavyweights like Microsoft, Amazon, Apple, and Tesla, which will release theirs in the following week. Extremely weak earnings and guidance by these companies will likely push the index lower.

The NASDAQ 100 forecast will also depend on how fast the American economy can reopen. We expect that a continued shutdown will have a negative impact on the index. While Donald Trump laid out a plan for reopening the economy, the increasing number of infections and deaths means that the country could potentially be locked down for more weeks. We believe the country's recovery to be relatively slow since many industries, like airlines and hospitality, will take more time to get back on track.

The invention of a drug or vaccine to treat the virus could have a positive impact on the index. Last week, it was reported that a drug by Gilead Sciences (GILD) was showing strong signs that it could cure the disease. If this is confirmed, we expect the index to continue rising throughout the year.

NASDAQ 100 predictions for 2020: so, what happens next?

There are two sides to how the NASDAQ 100 and US stocks will perform in the next part of the year. On the one hand, there are analysts who believe that the current rally will not last. In a recent article in the Wall Street Journal, Mark Hubert said that stocks would likely revisit their YTD lows. In another article, he said that he expected stocks to hit bottom in August.

On the other hand, some analysts believe that stocks may have already reached their lowest and are likely to rebound soon. In a recent interview, Ed Yardeni, the respected strategist, said that US stocks showed signs of hitting bottom. Other respected hedge fund managers like Bill Ackman, Leon Cooperman, and David Tepper too said that the market might have reached their lowest levels.

Meanwhile, the US tech 100 predictions by Long Forecast is that the index will weaken throughout the year. The online forecasting service predicts the index to end April at $7,861, which is 950 points below where it is trading at now. Worse, the forecast says that the index will end the year at about $8,321, which is almost 500 points below the current price.

NASDAQ 100 forecast for 2020

However, a compilation of multiple technical indicators on the monthly chart shows that the index will likely continue rising this year.

NASDAQ 100 forecast for 2020

US tech 100 forecast: technical analysis

The daily chart shows that the NASDAQ 100 Index has moved above the 50-day and 100-day exponential moving averages. Volatility, as measured by the Average True Range (ATR) has also been falling. It has also moved above the 61.8 per cent Fibonacci Retracement level. Therefore, in the short term, the index may attempt to retest the 71.8 per cent retracement level at $9,140.

NASDAQ 100 forecast for 2020

The bottom line

The coming months will likely be volatile for the NASDAQ 100. Investors will mostly focus on the trend of coronavirus infections and whether a cure will be found. Also, they will pay attention to corporate earnings, especially from top constituent companies. Finally, most analysts will be following the unfolding political environment in the US.

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