I lean towards continued volatility first, with a reasonable chance of a rebound later in the week rather than a clean breakout immediately.
The macro set-up is unusually binary. The Fed is still expected by most economists to hold rates steady, but markets are assigning roughly a 25% probability of a hike at this week's meeting. That is significant. Lower oil prices following the US-Iran pause are helping, with Brent dropping sharply towards US$90, which reduces one source of inflation pressure.
The bigger issue for QQQ may actually be Big Tech rather than the Fed. Microsoft, Meta, Amazon and Apple report this week, after Alphabet and Tesla were punished heavily despite growth because investors disliked their enormous AI-related spending. The market has therefore changed its question from "How fast is AI revenue growing?" to "How much cash must you burn to generate that growth?"
That creates three broad scenarios:
Fed holds + Big Tech beats with disciplined capex: strongest combination. QQQ could quickly recover Friday's decline and challenge its recent highs.
Fed holds but hyperscalers announce another capex surge: probably choppy or lower. Excellent revenue alone may no longer satisfy investors.
Fed hikes or signals tightening + disappointing tech guidance: the dangerous combination. Long-duration technology valuations would face pressure from both higher discount rates and weaker earnings expectations.
There is already some evidence of relief today. Nasdaq futures were up around 1.4% as falling oil prices lowered yields and improved risk sentiment.
My base case: 55% rebound/sideways-up, 45% further risk unwind. I would not interpret Friday's 1.12% QQQ decline as a confirmed trend reversal yet. But this week is a much more important test than an ordinary earnings week because rates, AI capex and Mag-7 earnings are all testing the same stretched technology valuations simultaneously.
The key signal I would watch is not simply whether Microsoft, Meta and Amazon beat estimates. It is how their shares react to good results. If strong numbers are again sold aggressively, as happened with Alphabet, that would be much stronger evidence that the market is entering a broader valuation de-rating rather than experiencing a temporary correction.
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