Nasdaq Breaks Through to Fresh Multi-Week Highs Despite Hostile Backdrop

The Nasdaq has broken through to fresh multi-week highs despite a hostile backdrop for long-duration stocks. The index has risen around 1.8% over the past fortnight, while US Treasury yields have increased by 38 basis points and the US dollar has gained just over 1%. This unexpected strength in the Nasdaq can be attributed to improving technicals, falling crude oil prices, and a rotation away from cyclical sectors towards more structural earnings plays.

The relationship between crude oil prices and the Nasdaq has been closely tied, with the rolling correlation between daily moves in Nasdaq futures and Brent falling to around -0.75 over the past 10 sessions. This is near the extreme lower tail of the historical distribution going back to 1999, suggesting that attention has shifted heavily towards what's happening in crude.

A divergence has developed between tech stocks and more cyclical parts of the market, with semiconductor outperformance reaching historical extremes. The Philadelphia Semiconductor Index (SOX) has gained around 7% since September 14, while the US industrials ETF XLI has been broadly flat. This suggests that higher borrowing costs are creating greater headwinds for sectors whose earnings are more closely tied to the economic cycle.

The Nasdaq is now eyeing a potential retest of the broader downtrend running from the highs set in early June, which comes in around 30,000 today. The oscillators point to gradually building upside momentum, with RSI (14) moving back above the neutral 50 level and MACD staging a bullish crossover.