Nasdaq Index: Tesla and Alphabet Lead Tech Stocks Higher Despite Inflation

Nasdaq Bounces Back as AI Names Lead the Recovery

The Nasdaq Composite climbed more than 1% Wednesday and pushed back toward record highs. The S&P 500 also moved higher. The Dow slipped slightly as defensive sectors gave back ground. One day after the biggest selloff since late March, the AI trade came right back and did not apologize for it.

Alphabet gained 2.6%. Tesla jumped 3.6%. The Philadelphia Semiconductor Index surged 2.3% and tested a fresh record high. The inflation data was hot again. Rates are going higher not lower. None of that stopped the buyers.

Technical Outlook

After a one-day setback, the Nasdaq Composite Index resumed its rally, hitting 26,423.21 shortly after the mid-session. The new minor bottom is 25,739.22. Inside this minor range is a new pivot at 26,081.22.

The price action the past two days is actually good for both bullish traders and bearish counter-trend traders. For the bulls, we have a resumption of the uptrend, but swing traders can now naturally move up their protective stops to under 25,739.22, reducing exposure to the downside.

For bearish traders, a break down under 25,739.22 will change the minor trend to down and also shift momentum to the downside.

Late in the session today, I’ll be watching trader reaction to the minor pivot at 26,081.22. A sustained move above this level will indicate the presence of buyers into the close. If it fails late, sellers could press it below yesterday’s close at 26,088.20.

Wednesday’s renewed strength shows just how powerful the rally is, but don’t ignore yesterday’s one-day setback, because that indicates there are profit-takers out there, who could eventually bail out when stocks get too expensive.

Two Hot Inflation Prints and the Market Bought Anyway

April Producer Price Index came in above expectations marking the biggest monthly increase since early 2022. That landed one day after April CPI printed the sharpest annual increase in three years. Two consecutive hot inflation reports would normally be enough to send growth stocks lower. Wednesday the Nasdaq went higher. That divergence is worth paying attention to because it tells you exactly how strong the AI momentum trade is right now. The inflation data is real. The rate risk is real. The buyers do not care yet.

Traders now see a 34.3% chance of a rate hike by December, up from around 15% just one week ago. That is a significant shift in rate expectations in a short period of time. Normally that kind of move in hike probability hits technology stocks hard. Wednesday it did not. The AI trade is running on a different set of assumptions than the rest of the market and until earnings disappoint or guidance turns cautious, that disconnect holds.

Warsh at the Fed Is the Next Variable

Kevin Warsh was confirmed to the Fed board by the Senate Tuesday. Jerome Powell’s term expires Friday. Traders are preparing for the possibility that Warsh becomes the next Fed chair and some believe a Warsh-led Fed takes a tougher stance on inflation than the current one. That adds another layer to the higher for longer narrative that has been building all week.

I’ve watched markets adjust to Fed leadership changes before and the adjustment is rarely smooth. Investors who are positioned for rate cuts that are not coming and a Fed chair transition at the same time are carrying more risk than the Nasdaq’s Wednesday close suggests.

The US-China Summit Traders Are Actually Watching

Trump arrived in Beijing for a summit with Xi Jinping with Nvidia CEO Jensen Huang and Tesla CEO Elon Musk in the delegation. Investors are watching for any sign of improving business ties between the U.S. and China in the technology sector.

Trump said before the meetings that he did not expect to ask China for help on the Iran situation. That matters for oil. China is the largest buyer of Iranian crude and has more direct influence in Tehran than Washington does. If the Beijing summit produces nothing on the Iran front, the Strait of Hormuz stays restricted, oil stays elevated and the inflation story that two reports confirmed this week does not get better next month.

The Market Under the Surface

Declining stocks outnumbered advancing stocks on both exchanges Wednesday. The Nasdaq recorded 79 new highs but also 163 new lows. The index is near a record high and more stocks are hitting new lows than new highs. That is a narrow rally running on a small group of large technology names and it has been this way for weeks.

Nebius Group surged nearly 19% after reporting quarterly revenue growth nearly eight times higher than a year ago. That kind of number in an AI cloud company is exactly what keeps the momentum buyers engaged. One more print like that and the narrow leadership question gets pushed further down the road.

What to Watch

The minor pivot at 26,081.22 is the level to watch into Wednesday’s close. A sustained move above it confirms buyers are in control heading into the final hour. A failure there and sellers could press below yesterday’s close at 26,088.20.

The new minor bottom at 25,739.22 is the line that defines whether Tuesday was a one-day setback or the start of something larger. Hold above it and the uptrend stays intact. Lose it and the minor trend shifts down and the momentum question gets answered in a way the bulls are not going to like.

The inflation data is stacking up. The rate hike odds are moving. The Fed chair transition is happening Friday. Watch the close.

More Information in our Economic Calendar.