Nasdaq Stuck in Neutral as Hawkish Expectations and Middle East Tensions Dominate

The Nasdaq has been stuck in a rangebound mode for four months due to two main factors: Fed tightening risks and the US-Iran war.

Both of these negative drivers were exacerbated by heavy positioning, making the market more susceptible to deleveraging when macro conditions changed.

A hawkish speech from Fed Chair Warsh recently retightened financial conditions and led to a significant increase in interest rate expectations.

The probabilities for a rate hike in September jumped from 33% to 60%, with only a soft US CPI report potentially bringing the probabilities below 50%

This would deter the Fed from hiking at the upcoming meeting, but if the probabilities stay above 50%, the Fed might be forced to hike regardless, which could send the market lower.