Sector Snapshot: Tech Industry

The current climate

The Nasdaq-100 index closed down 3.7% last week as disappointing earnings from Tesla (TSLA) and Alphabet (GOOGL) shook investor confidence. Tesla reported a 45% drop in profit and a significant miss on analyst estimates, causing its stock to plummet by 10%. Alphabet also experienced a downturn, with its shares falling by 7.5% on concerns over high AI spending and YouTube’s weaker-than-expected performance.

Some downward pressure

The underperformance of major tech companies has dampened enthusiasm for tech stocks. Investors are pricing in potential Federal Reserve rate cuts in September, but recent earnings reports from tech giants have cast a shadow. Upcoming economic data releases like PMI readings and the Fed's preferred inflation gauge will likely further influence market sentiment.

Investors are shifting away from mega-cap tech stocks to small-cap and cyclical sectors. The market is in a "show me" phase regarding AI profitability and productivity gains.

Traders should watch for sector rotation and monitor earnings for signs of AI-driven results. The market's recovery will likely hinge on upcoming economic data and the Fed's policy stance. Market participants can remain vigilant and consider diversifying their portfolios to manage risk in this uncertain environment.

A technical analysis

The Nasdaq-100 Index is currently straddling a critical 50% retracement level at 19,023, a pivotal point that could determine the index's direction.

If the index moves above this level, it will indicate strong buyer interest, potentially driving it toward the 50-day moving average at 19,433.

Conversely, failing to hold above 19,023 could signal a lack of buyers, leading to further selling pressure. Initial targets in a downward move include 18,725 and the 200-day moving average at 17,549.

How traders respond to this level will be crucial in setting the future trajectory of the index.

Potential U.S. election impacts 

If Vice President Kamala Harris were to be elected president, it is expected that the policy environment for various sectors would largely continue as-is.

Harris might also focus on tighter vehicle emission limits, scrutinizing big tech, and consumer regulations.

Harris's administration could also enhance data security measures and demand more transparency from tech companies regarding their data collection and usage practices. 

A Trump presidency could potentially benefit major tech companies like Amazon, Alphabet, Apple, Meta, and Microsoft. Trump's administration could appoint antitrust chiefs with a more business-friendly stance compared to Biden's aggressive enforcement.

This could ease hurdles for mergers and acquisitions in an increasingly lenient regulatory environment. The reduced enforcement of antitrust laws could lead to fewer obstacles for tech giants in maintaining their market dominance and pursuing growth strategies.

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