The Dow Jones is up 4.6% in the previous 5 days versus 0.7% for the Nasdaq-100. And this divergence in momentum could proceed so long as financial authorities remain in the regime of containing inflation somewhat than pushing it up as they’ve been doing since 2009.

The behaviour of the markets in February and May 2020 was the newest reminder that shares might fall altogether, however restoration is carefully depending on modified circumstances. Then, thanks to financial stimulus, the destiny was on the aspect of โ€œgrowth stocksโ€, extensively represented in the Nasdaq-100, and now could shift to โ€œvalue stocksโ€, that are extra in the Dow Jones or the Russell 1000 Value.

However, till October, there was not a lot sense in choosing leaders as inventory indices had been declining and the most evident manner to protect capital was to purchase {dollars}. Nevertheless, at the finish of September, it appears the markets entered a brand new cycle.

After including about 12% to the lows of late September, the Dow Jones index moved past the corrective pullback, above 61.8% retracement of the amplitude from peak to trough of the first three quarters of this yr.

The Nasdaq-100 began the retreat earlier (in November 2021) and has misplaced extra (37.7% from the peak to the backside and is now -34% under its all-time excessive), proper now close to its October begin ranges. The shedding streak continues right here, like the 2000-2002 episode.

In the inventory indices momentum, it would seem like the hole between the Dow Jones and the Nasdaq-100 is closing by means of a extra substantial rise of the former and an apathy or perhaps a additional decline of the latter.

In the worst-case situation for the Nasdaq-100, it will return to the 8000 space, mimicking the full reversion to the mega-rally start line because it did in 2002 and finishing the “Head & Shoulders” sample.

However, in our view, a extra seemingly situation is that the Nasdaq-100 will flat or “stumble” in the coming quarters on the again of a brisk march of the Dow Jones, which might return to all-time highs as early as the first quarter of subsequent yr.

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