The Nasdaq 100 index slipped below the psychologically important 29,000 level on Monday, closing at 28,880.80, down 0.84%, as the technology-heavy gauge gave back ground following a sharp rally driven by artificial intelligence and semiconductor stocks. The decline marked a breach of a key support level that technical analysts had been watching closely, raising questions about the sustainability of the recent uptrend.
The index's retreat comes amid a narrow rally that has been heavily concentrated in a handful of AI and chip names. Those stocks have grown large enough to sway the broader market when sentiment shifts, and Monday's move reflected a cautious turn among traders. The Philadelphia Semiconductor Index, which had surged 64% since late March, saw some of its leaders pull back, with Micron Technology and Advanced Micro Devices both more than doubling over that period and Intel nearly tripling.
Nvidia, the bellwether of the AI trade, is now squarely in focus. Its quarterly earnings report, due Wednesday, is seen as the next major test for the market. A strong result could reignite buying interest, while a disappointment might deepen the selloff. The stock has been a key driver of the Nasdaq 100's recent gains, and its performance is closely tied to the broader AI spending cycle.
Bond markets also played a role in Monday's action. The 10-year Treasury yield eased to 4.573% after hitting 4.631% earlier in the session, providing some relief for growth stocks that are sensitive to higher discount rates. However, yields remain elevated relative to recent levels, and analysts warn that rising rates can reduce the present value of future earnings for AI-focused companies. "Yields are driving the story right now," said Robert Pavlik, senior portfolio manager at Dakota Wealth, in comments to Reuters. "Rising rates take a bite out of future earnings for AI-focused growth names by cutting their present value."
Commodity markets also moved, with Brent crude falling nearly 2%, according to Reuters, helping to ease inflation concerns that had weighed on equities last week. The pullback in oil prices gave stocks a slight reprieve after a period of heightened inflation worries.
Technical analysis points to key levels ahead. DailyForex analyst Christopher Lewis noted that staying above 29,000 could help the index push higher, but higher U.S. rates may take some shine off tech stocks. InteractiveCrypto's Joanna Newman identified 29,000 as initial support, with 28,000 as the next level below, and resistance near the previous high of 29,630 and the 30,000 mark. She also noted that the relative strength index (RSI) stood at 75.81, typically considered an overbought reading.
The broader context remains challenging. Investors have increased bets on a Federal Reserve rate hike by January following higher-than-expected inflation data, with CME FedWatch data showing odds near 60% for a hike. Stocks dropped on Friday after hitting AI-driven highs, with the Nasdaq Composite ending down 1.54% and snapping a six-week winning streak. "The market had gotten way ahead of itself," said Kenny Polcari, chief market strategist at Slatestone Wealth, calling it a "momentum AI trade."
Despite the pullback, the outlook is not entirely bearish. If yields continue to ease or Nvidia delivers a strong quarter, dip buyers may attempt another run at 29,630 or even 30,000 on the Nasdaq 100. However, if rates tick higher again or chip stocks stall, the index could test the 28,000 area next.
The Nasdaq 100 tracks 100 of the largest non-financial companies listed on the Nasdaq exchange, including major tech, retail, and biotech names, both U.S. and international. Its performance is closely watched as a barometer of the technology sector and growth-oriented stocks.
