The Nasdaq 100 index ended the year on a negative note, slumping by over 5% from its highest level in 2024. On the first trading day of the year, it was trading at $21,000, as traders refocused on the potential risks and opportunities of the new year. So, is the tech-heavy Nasdaq 100 index a good investment in 2025?
Nasdaq 100 index technical analysis
The daily chart shows that the Nasdaq 100 index has suffered a deep reversal in the past few days. After peaking at $22,140 in December, it has fallen by over 5% to the current $21,000.
The index has moved below the lower side of the ascending channel, which closely resembles the rising wedge pattern. A rising wedge is a popular reversal sign that usually leads to a strong bearish breakout of an asset.
It also formed a pattern resembling a double-top chart pattern, another risky one. Most importantly, oscillators have pointed downwards. The two lines of the MACD indicators have made a bearish crossover, while the Relative Strength Index (RSI) has dropped below 50.
Therefore, after soaring by over 20% for two straight years, there are odds that this will be a down year for the tech-heavy index. If this happens, the first point to watch will be at $20,700, the highest swing on July 11. A break below that level will lead to more losses to the psychological level at $20,000.
On the other hand, more gains for the Nasdaq 100 will be confirmed if it moves above the all-time high of $22,142.
Risks and opportunities for the Nasdaq 100 index
Read more: Here’s one reason why the SPY, QQQ, DIA ETFs may plunge in 2025
Several opportunities will power the Nasdaq 100 index. First, Donald Trump will be sworn in on January 20th, becoming the 47th president of the United States. His appointment will introduce a new era of big changes that may positively impact the technology sector.
The most important change will be on deregulation, where he plans to slash most of them. One approach will be to be more friendly to mergers and acquisitions, which may trigger more consolidation, boosting the stock market. Trump also plans to cut more taxes, which will be a positive thing.
However, the risk is that his other pledges will hurt companies and lead to more volatility in the stock market. For example, his plans to cut taxes and impose tariffs may lead to higher inflation, forcing the Fed to delay its interest rate cuts.
The second potential opportunity is on corporate earnings, which are expected to be strong during the year. Most companies have issued positive guidance, which could lead to a more robust earnings season and higher prices.
On the other side, the Nasdaq 100 index may drop as the artificial intelligence theme that has fueled the stock market slow. Firms like Microsoft and Amazon that have been spending heavily on chips, could start to lower their investments since there are signs that AI uptake is slowing.
The other risk for the Nasdaq 100 index is that firms are quite overvalued. Data shows that the index has a price-to-earnings ratio of 31.56, which is fairly expensive.Most importantly, as we have written before, the bond market is another big risk that could sink the Nasdaq 100 index. A Trump-triggered inflation and a hawkish Federal Reserve will likely push bond yields significantly higher in 2025. Indeed, short and long-term bond yields have continued rising and are at their highest levels in months. As we saw in 2022, high yields often affect the stock market.
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