Nasdaq Market Overview 5-Jun-2025 Thursday

1- Nasdaq Market Overview 5-Jun-2025 Thursday: A Rollercoaster Ride

Thursday’s trading session was anything but ordinary, with major U.S. stock indexes facing a wave of volatility. The S&P 500 ($SPX), which had posted solid gains earlier in the day, finished down by -0.53% at 4,220.40. Meanwhile, the Dow Jones Industrial Average ($DOWI) saw a more moderate decline of -0.25%, closing at 33,655.74, and the Nasdaq 100 ($IUXX), driven by tech stock weakness, plunged -0.80% to 13,280.75.

Despite early optimism fueled by signs of easing US-China trade tensions, the market reversed course as negative macroeconomic data and concerns about the labour market weighed heavily on sentiment. The June E-mini S&P futures (ESM25) were down by -0.52%, and June E-mini Nasdaq futures (NQM25) lost -0.84% as overnight trading mirrored the intraday sell-off.

2- Tesla’s Tumultuous Drop Drags Tech Sector Down

On Thursday, Tesla (TSLA) became the focal point of the broader market sell-off, suffering a dramatic decline of -14.08%, closing at $191.73. This plunge was triggered by a proposal from President Trump to end government contracts and subsidies for Elon Musk’s companies, which include Tesla and SpaceX. While these subsidies have historically been crucial for the company’s growth, the potential removal of this financial support created a cloud of uncertainty over Tesla’s future prospects. Investors reacted swiftly, pushing the stock to a significant loss and triggering a domino effect across the technology sector.

Tesla’s fall wasn’t just a reflection of political risk; it also signalled deeper concerns about the company’s ability to maintain its premium valuation without the expected government support. Despite its impressive growth trajectory, Tesla has always been heavily dependent on government incentives, particularly for its electric vehicle (EV) production. With global EV adoption ramping up and growing competition, investors were already cautious about the sustainability of Tesla’s market-leading position, and the news about potential cuts to subsidies seemed to amplify these concerns.

From a technical analysis perspective, Tesla’s decline broke multiple key levels of support. The stock breached its 50-day moving average (MA) at $205 and fell well below its 200-day moving average at $211, both of which had previously acted as critical levels of price support. The break of these levels is a strong bearish signal, indicating that further downside could be in play unless a reversal takes place. In addition, the stock’s Relative Strength Index (RSI), which had been hovering around 40 before the drop, plunged deeper into oversold territory, signalling that the stock was significantly undervalued in the short term. This oversold condition suggests that a short-term rebound could be possible, but the long-term outlook remains fragile without clear catalysts for growth.

The Moving Average Convergence Divergence (MACD) indicator also turned negative, reflecting a bearish trend. The MACD line crossed below the signal line, which typically signals that bearish momentum could persist in the near term. Investors may now be looking for a potential bottoming pattern or consolidation in the stock to gauge whether Tesla can recover or if the broader weakness in the tech sector will continue to pressure the stock further.

• Broader Tech Sector Impact

Tesla’s steep decline had a cascading effect on other technology stocks, particularly those within the EV, clean energy, and high-growth sectors. As one of the most heavily watched and influential stocks in the tech world, Tesla’s drop sent shockwaves across the broader market, particularly within semiconductor stocks like Nvidia (NVDA), Advanced Micro Devices (AMD), and Marvell Technology (MRVL), which all closed lower on the day.

The Nasdaq 100, which is heavily weighted towards technology stocks, was down -0.80% on the day, largely due to the impact of Tesla and other tech giants. As Nvidia dropped -1.4% to $285.52, Advanced Micro Devices (AMD) fell -2.1% to $87.15, both stocks began to show signs of weakness, breaking below short-term support levels. These stocks had previously been riding high due to the growth in data centres, AI, and the broader shift towards cloud computing, but the ripple effect from Tesla’s drop exacerbated concerns about a broader correction in the tech sector.

Furthermore, Tesla’s decline also contributed to a shift in investor sentiment towards risk-off behaviour. With the tech-heavy Nasdaq suffering a sizeable loss, traders began to reevaluate their positions in high-growth, high-risk sectors and reassess their portfolios. As investors pulled back from tech, money flowed into more defensive sectors, such as consumer staples and utilities, which tend to perform better during periods of market uncertainty.

• The Future Outlook for Tesla

While Thursday’s drop may have been driven by specific concerns related to government subsidies, there are broader issues facing Tesla that investors need to consider. The competitive landscape in the electric vehicle space is intensifying, with automakers like Ford (F), General Motors (GM), and Rivian (RIVN) ramping up their EV production. These competitors are not only challenging Tesla’s dominance but also bringing new technological innovations that could undercut Tesla’s market share. Moreover, the ongoing semiconductor shortage continues to impact global car production, adding additional layers of complexity to Tesla’s supply chain and production capacity.

From a fundamental analysis standpoint, Tesla remains a high-risk, high-reward stock. Despite the challenges, Tesla’s price-to-earnings (P/E) ratio remains significantly elevated compared to its traditional automaker counterparts. This high valuation is a reflection of Tesla’s growth potential and leadership in the EV sector, but it also increases the stock’s sensitivity to external shocks, such as changes in government policy or shifts in market sentiment.

On the bullish side, Tesla’s continued innovation in autonomous driving, energy storage, and solar technology could support future growth. However, the bearish case is strengthened by increased competition and potential regulatory headwinds, especially if subsidies are indeed scaled back or eliminated entirely.

• Technical Support and Resistance Levels for Tesla

As Tesla’s stock faces pressure, traders and technical analysts are watching for critical levels of support and resistance. The next support zone for Tesla is seen at around $175, where the previous consolidation occurred earlier in the year. If this level breaks, the stock could face further downside risk, potentially targeting the $160 level, which marks the lows from earlier in the year.

On the upside, $205 remains a key resistance level, which Tesla needs to break above for any meaningful recovery. A clear break and hold above this level would signal that the stock might be regaining its bullish momentum, but until then, any rallies are likely to be met with selling pressure, especially if broader market conditions remain weak.

3- Labor Market Worries Weigh on Market Sentiment

The labour market data released Thursday added another layer of concern to an already volatile market. U.S. weekly initial jobless claims unexpectedly rose by +8,000 to 247,000, the highest level seen in 7-3/4 months. This increase marked a shift in the labour market dynamics, coming at a time when markets had been hoping for continued strength in job creation and lower unemployment. Expectations had been for jobless claims to decline to 235,000, so this unexpected rise sparked immediate alarm in the market, signalling that the labour market might not be as resilient as previously thought.

The rise in jobless claims is a lagging economic indicator, but its significance cannot be understated. Jobless claims are often a leading signal of changes in employment trends and a potentially slowing economy. With rising claims, market participants began to fear that consumer spending, which accounts for a large portion of U.S. GDP, could face headwinds. After all, higher unemployment often leads to reduced disposable income, which can ripple through the economy, affecting everything from retail sales to housing markets.

• The Immediate Impact on Market Sentiment

The market, which had opened the day with some optimism following news of potential trade talks between the U.S. and China, quickly reversed course. The S&P 500 dropped below 4,250, a critical support level that had been holding strong for the last few weeks. The Dow Jones Industrial Average also struggled, shedding over -0.25%, and the Nasdaq 100 took a hard hit, falling -0.80% as investors grew concerned about the broader implications of a softening labour market.

From a technical analysis perspective, the rising jobless claims spooked traders, pushing key indexes into bearish territory. The S&P 500’s failure to hold above 4,250 and its subsequent drop below the 50-day moving average (MA) at 4,200 raised alarms for more downside. This breakdown below the 50-day MA signalled potential further weakness, with the next support level likely around 4,150. The Relative Strength Index (RSI) also confirmed this shift in sentiment, as it dropped below the 50 level, indicating weakening bullish momentum and increasing the probability of further downward movement.

• Labor Market’s Role in Fed’s Policy Outlook

The labour market has long been a key variable for the Federal Reserve in determining its monetary policy. The U.S. Federal Reserve has raised interest rates multiple times to combat inflation, but it has also been closely monitoring labour market data to gauge the impact of its rate hikes. Strong employment numbers have been one of the bright spots in the economy, and any signs of deterioration have significant implications for the Fed’s future decisions.

The rise in jobless claims increases the likelihood that the Federal Reserve may become more cautious with its rate hike plans. Some analysts believe that this data could lead the Fed to rethink its hawkish stance, which has seen interest rates rise to 4.40% in recent months. If the labour market continues to weaken, the Fed may be forced to pause its tightening cycle or even consider cutting rates to support growth.

However, the Fed’s comments have been mixed. Federal Reserve Governor Kugler remarked on Thursday that “disinflation has slowed,” indicating that inflationary pressures are still a concern. His statement suggests that while the Fed is aware of labour market weakness, it may not be willing to back off from its tightening path too soon. This creates a dovish vs. hawkish dichotomy, where markets are caught between the risk of rising rates and the potential for economic stagnation.

• The Broader Economic Impact: A Concerning Trend?

The increase in jobless claims is not an isolated event but part of a broader trend that could signal an impending slowdown. Historically, rising jobless claims are often seen ahead of a recessionary environment, as businesses begin to lay off workers in response to decreased demand, inflationary pressures, or supply chain disruptions. For investors, rising jobless claims coupled with slower wage growth could prompt a flight to safety, with capital shifting away from riskier assets like stocks and into bonds, gold, and other defensive assets.

This scenario likely results in a recessionary bearish trend, with sectors like consumer discretionary, technology, and finance feeling the most pressure. In technical terms, this would lead to sector rotation, where money moves into more defensive plays such as utilities, healthcare, and consumer staples — sectors that tend to hold up better during economic slowdowns. As of Thursday, XLY (Consumer Discretionary ETF) and XLF (Financials ETF) showed clear weakness, down -1.2% and -0.9%, respectively, further reflecting concerns about the labour market and the broader economy.

• Key Technical Indicators to Watch

The most immediate impact of the rise in jobless claims is on the short-term technical outlook for the major stock indices. The S&P 500, after failing to hold above 4,250, has now broken below 4,200, a critical psychological level. If the index continues to falter, traders will be eyeing the 4,150 level as the next area of support. A further breakdown below this could lead to a deeper retracement, possibly targeting 4,100 and 4,050 in the near term.

Looking at volatility, the CBOE Volatility Index (VIX), often referred to as the “fear gauge,” rose sharply after the jobless claims data was released, signalling increased market anxiety. A sustained increase in the VIX above the 20 threshold could signal that market participants expect more volatility in the weeks ahead, especially as additional labour market data and economic reports are released.

• Implications for Sector Performance

As labour market concerns mount, defensive sectors outperform cyclical ones. Stocks in healthcare, utilities, and consumer staples typically outperform during periods of economic uncertainty, as they provide essential goods and services that are less sensitive to economic cycles.

On the other hand, cyclical stocks such as those in the consumer discretionary, financial, and industrial sectors may continue to face downward pressure. These sectors are typically more sensitive to changes in economic activity and labour market conditions. For example, Walmart (WMT), a major player in the consumer staples space, might see more favourable growth as more cautious consumers flock to stores for essentials. Technology stocks, particularly high-growth names like Tesla (TSLA) and Nvidia (NVDA), which have already shown weakness due to broader market concerns, could continue to struggle if labour market trends worsen.

4- Bearish Economic Data: Q1 Productivity Revision

Thursday’s economic data revealed a concerning revision to Q1 nonfarm productivity, which was revised downward from -0.8% to -1.5%, marking a sharp deterioration in the country’s productivity growth. This downward revision to productivity represents a stark shift in economic momentum, with implications for both inflation and corporate profitability. The negative revision further amplified concerns that the U.S. economy may be slowing down more than expected, which triggered a broad market sell-off and an intensification of bearish sentiment.

• The Importance of Nonfarm Productivity

Nonfarm productivity is a critical measure of economic efficiency, reflecting the number of goods and services produced per hour of labour. A decrease in productivity means that the economy is producing less output for the same amount of work, which can lead to higher production costs and diminished growth potential. Declining productivity typically leads to higher unit labour costs, which is a signal of inflationary pressures in the economy. For companies, rising labour costs with stagnant productivity can result in squeezed margins, prompting businesses to raise prices to maintain profitability—further contributing to inflation.

The -1.5% revision represents a significant negative divergence from previous expectations, and it signals that the economy is potentially on a less stable footing than earlier assessments had indicated. In terms of technical market impact, this unexpected decline prompted an immediate drop in stock prices as investors reassessed their expectations of future earnings growth, particularly in sectors where labour costs are a large component of total expenses.

• Impact on the Federal Reserve’s Policy Outlook

From a macroeconomic perspective, this productivity revision poses challenges for the Federal Reserve. While the Fed has been focused on combating inflation through rate hikes, slowing productivity growth could complicate their policy decisions. With productivity falling and labour costs rising, inflationary pressures could persist for longer than anticipated.

The Federal Reserve’s dual mandate is to achieve maximum employment and stable prices, but low productivity growth hampers its ability to achieve the latter, even if it raises interest rates. As such, the Fed’s policy stance becomes more complicated—especially given the potential for stagflation, a situation where inflation remains high, but economic growth stagnates. The market’s reaction to the Q1 productivity revision reflects this uncertainty, as investors start to worry that the Fed’s actions may not be sufficient to bring inflation down without causing significant economic harm.

• Unit Labor Costs: The Other Side of the Coin

Adding fuel to the fire, the revision to Q1 unit labour costs was an upward one, jumping to 6.6% from the previously reported 5.7%. Unit labour costs measure the cost of labour per unit of output, and a rising reading is a clear indicator of inflationary pressure. The higher-than-expected rise in unit labour costs exacerbates concerns about wage-price inflation, where higher wages drive up prices, which in turn leads to demands for even higher wages.

From a technical analysis perspective, rising unit labour costs often signal a worsening earnings outlook for companies, particularly those with labour-intensive business models. Sectors such as consumer discretionary, technology, and financials, which have high labour costs, are particularly vulnerable to a profit squeeze if unit labour costs continue to rise without a corresponding increase in productivity. This is a key issue for traders and investors to monitor, as it directly impacts corporate margins and, ultimately, stock valuations.

• Technical Market Response to the Data

In response to the productivity and labour cost revisions, the broader market reacted sharply, with major indexes like the S&P 500, Dow Jones Industrial Average, and Nasdaq 100 all experiencing significant losses. From a charting perspective, the S&P 500 broke through a crucial support level at 4,250, which had been acting as a floor for the market over the past month. The 50-day moving average (MA), which had previously provided support, was decisively breached, signalling a potential trend reversal.

The RSI (Relative Strength Index) on the S&P 500 and Nasdaq 100 also declined below the 50 level, indicating that momentum is now firmly bearish. When the RSI crosses below 50, it typically signals a shift in momentum, suggesting that the market could continue to face downward pressure in the short to medium term. The MACD (Moving Average Convergence Divergence) also turned negative, with the MACD line crossing below the signal line, further confirming the bearish crossover and indicating the likelihood of further downside moves in the indices.

• Broader Economic Implications: A Slowdown on the Horizon?

The larger concern stemming from the Q1 productivity revision is that it could signal a broader economic slowdown. Historically, low productivity growth has been associated with slower economic expansion and a decrease in long-term growth potential. If the economy is not becoming more efficient, it implies that the U.S. might be facing diminishing returns from its labour force, which could undermine future GDP growth and profitability.

With higher unit labour costs coupled with lower productivity, companies may struggle to maintain their profit margins without raising prices, which could exacerbate inflation. This creates a scenario where economic stagflation becomes more probable, where the economy experiences sluggish growth but persistent inflation.

From a sector perspective, the consumer staples and utilities sectors tend to perform better in such an environment, as they are less dependent on cyclical economic growth and are more insulated from rising labour costs. Conversely, growth stocks, particularly in technology and consumer discretionary sectors, could face headwinds as margins tighten and economic growth slows. These stocks may see multiple compressions as the market reassesses their valuations in light of declining productivity and rising labour costs.

• Technical Support and Resistance Levels

From a technical analysis standpoint, the market’s reaction to the Q1 productivity revision will be critical in determining the next move for major indexes. After the breakdown below 4,250 on the S&P 500, the next major support level lies around 4,150, with 4,100 and 4,050 providing further downside targets. If the market fails to find support at these levels, we could see a more significant retracement towards 4,000, which is a key psychological level.

On the upside, 4,250 remains a key resistance level. If the market were to rebound, a retest of the 50-day moving average at 4,300 could offer a near-term resistance zone. However, the broader trend remains bearish unless the S&P 500 can break above this level and sustain momentum.

• The Bigger Picture: Implications for the Economy and Market

The negative revision to Q1 productivity and the rise in unit labour costs are clear signals that the U.S. economy is facing challenges. If these trends continue, the risk of inflationary pressure and slower growth becomes even more pronounced. For investors, this data suggests that corporate earnings growth may struggle to meet expectations, especially in labour-intensive sectors.

Furthermore, the rising unit labour costs are particularly problematic for companies in sectors with high labour exposure, such as consumer goods, manufacturing, and technology. This will likely pressure stock prices in those sectors, especially if productivity growth remains weak.

For traders and long-term investors, these developments necessitate a reassessment of both market risk and sector positioning. A more defensive approach, focusing on dividend-paying stocks, consumer staples, and utilities, might make sense in an environment where productivity growth is stagnant and inflation pressures remain.

• Bearish Economic Data Signals Further Caution

The downward revision in Q1 nonfarm productivity and the upward revision to unit labour costs marks a significant shift in the economic landscape, with both short-term and long-term implications for the U.S. economy and the broader market. The technical breakdown in the S&P 500 below 4,250 is a clear signal of bearish sentiment, and unless there is a reversal in these economic trends, investors should brace for potential further downside.

For now, the key to navigating the market lies in monitoring further productivity data, wage inflation trends, and the Fed’s response. As the market reassesses its expectations of economic growth and inflation, volatility is likely to remain elevated, and traders should stay vigilant for signs of either further weakness or a potential rebound. For long-term investors, a more conservative approach may be warranted until there are clearer signs of economic stabilization and productivity improvement.

5- Bond Yields Surge Amidst Rising Inflation Concerns

On Thursday, bond yields surged across the curve, with the 10-year U.S. Treasury yield rising +4 basis points to 4.40%, marking a notable shift in the market’s sentiment. The rise in bond yields was driven by a combination of factors, including hawkish Federal Reserve comments, persistent inflation concerns, and negative carryover from European bond markets. This uptick in yields has significant implications for both the equity and bond markets, as rising yields put upward pressure on borrowing costs, which can dampen economic growth and increase the risk of financial market turbulence.

• The Connection Between Bond Yields and Inflation

The surge in bond yields comes as investors remain wary of inflationary pressures that have yet to subside. Inflation, which has been a major concern for the Federal Reserve, has shown signs of being sticky despite the Fed’s aggressive rate-hike cycle. Bond yields are particularly sensitive to inflation, as they reflect expectations for future real interest rates after accounting for inflation. When inflation expectations rise, bond investors demand higher yields to compensate for the eroding purchasing power of future coupon payments.

In essence, when bond yields rise, it reflects investor anticipation of higher inflation or expectations that the Fed will need to hike rates further to curb inflation. The 10-year Treasury yield, often seen as a benchmark for long-term rates, reached its highest level since October 2022, signalling that the market is bracing for a prolonged period of higher rates and inflation. The surge in yields also suggests that the bond market is pricing in the likelihood of stagflation, where inflation remains persistent even as economic growth slows.

• Impact of Rising Yields on the Stock Market

Rising bond yields typically have an inverse relationship with the stock market, particularly in sectors sensitive to borrowing costs, such as technology, consumer discretionary, and real estate. As bond yields rise, the discount rate applied to future corporate earnings increases, which leads to lower stock valuations. This is especially true for high-growth stocks, whose valuations are highly dependent on future earnings growth.

On Thursday, the Nasdaq 100 (which is heavily weighted towards tech stocks) fell by -0.80%, primarily due to the rise in bond yields. Stocks like Tesla (TSLA) and Nvidia (NVDA), which are particularly sensitive to changes in interest rates, were hit hard. Nvidia, for instance, dropped -1.4% to $285.52 as rising bond yields increased the discount rate for their future earnings, leading to a recalibration of their stock price.

From a technical perspective, the rise in bond yields directly contributed to the breakdown of key support levels in major equity indices. The S&P 500 fell below 4,250, a critical support zone, and the Nasdaq 100 saw its recent rally fizzle out as it failed to break above the 13,500 resistance level. Rising yields have turned risk-on sentiment into risk-off sentiment, triggering sector rotation as investors pull out of high-risk stocks and allocate capital into more defensive sectors, like utilities, consumer staples, and healthcare.

• The Role of the Federal Reserve and Hawkish Comments

The surge in bond yields was also influenced by comments from Federal Reserve officials who maintained a hawkish stance on inflation. On Thursday, Federal Reserve Governor Kugler expressed concerns about inflation, stating that disinflation has slowed and suggested that the Fed may have to continue its rate-hiking cycle for a prolonged period. These comments reignited fears that the Fed’s actions, though aimed at controlling inflation, could lead to economic stagnation or even recession in the near term.

From a technical analysis standpoint, this hawkish commentary resulted in a spike in yields across the yield curve, with the 2-year Treasury yield climbing above 5.00%. The 2-year yield is highly sensitive to short-term rate expectations, and its rise above 5% indicates that markets are pricing in at least one more rate hike from the Fed, likely in the upcoming June FOMC meeting.

• Negative Carryover from European Markets

The bond yield surge was not confined to the U.S. market. In Europe, the 10-year German bund yield rose +5.5 basis points to 2.582% as European Central Bank (ECB) President Christine Lagarde reiterated that the ECB was nearing the end of its rate-cutting cycle. This hawkish stance by the ECB contributed to the rise in U.S. yields as investors anticipated a tighter global monetary environment. German bunds, like U.S. Treasuries, are viewed as a safe haven, and their rise in yield was indicative of growing inflation expectations globally.

This global bond sell-off increased global bond yields, which in turn elevated U.S. yields as investors adjusted their portfolios in anticipation of higher inflation and tighter monetary policy. The move in global bond markets created a spillover effect in U.S. Treasuries, contributing to the sell-off in risk assets like equities.

• Technical Impact of Rising Yields on the U.S. Bond Market

From a technical analysis perspective, the 10-year U.S. Treasury yield has broken through key resistance levels, most notably the 4.30% level, and is now eyeing 4.50% as the next major resistance point. The RSI on the 10-year yield has surged into the overbought zone (above 70), indicating that the market may be slightly overextended. However, given the persistent inflationary concerns, yields could continue to rise, with 4.50% being the next significant target for yields.

On the U.S. 2-year Treasury yield, the recent surge above 5.00% has confirmed that the market is pricing in further Fed tightening. The RSI on the 2-year yield is also in overbought territory, suggesting that we may see some consolidation or even a pullback in yields in the short term. However, unless inflation shows clear signs of moderation, the 2-year yield is likely to remain elevated, maintaining pressure on the broader stock market.

• Implications for Borrowing Costs and Corporate Profitability

Rising bond yields have direct implications for corporate borrowing costs. With the 10-year Treasury yield at 4.40%, borrowing rates for corporates are also climbing. The cost of capital is now higher for companies looking to finance new projects or refinance existing debt. For companies in interest rate-sensitive sectors such as real estate, utilities, and consumer discretionary, higher borrowing costs can negatively impact profit margins, leading to earnings downgrades.

From a technical standpoint, rising borrowing costs often result in multiple compressions, as higher rates reduce the present value of future earnings. This is particularly problematic for growth stocks whose valuations are based on long-term earnings projections. With bond yields rising, the price-to-earnings (P/E) ratios for many high-growth tech stocks have already begun to contract, with companies like Tesla (TSLA), Nvidia (NVDA), and Advanced Micro Devices (AMD) facing significant headwinds.

• Market Outlook: The Battle Between Inflation and Growth

The surge in bond yields has created a delicate balance between inflation fears and growth concerns. On the one hand, the market is still grappling with persistent inflation, which has kept bond yields elevated and forced the Federal Reserve into a more hawkish stance. On the other hand, higher yields are beginning to weigh on corporate profitability and economic growth, which could lead to a slowdown or even a recession.

From a technical analysis perspective, the S&P 500 and Nasdaq 100 are both at critical support levels, with the S&P 500 breaking below 4,250 and the Nasdaq 100 failing to break above 13,500. A sustained rise in bond yields could force these indices lower as valuation multiples contract, and investor sentiment turns more cautious.

However, if inflation begins to cool, or if the Fed signals a shift towards a more dovish policy, we could see bond yields stabilize or even reverse course, which would likely boost equity markets. In the meantime, sector rotation continues to dominate as investors favour defensive stocks and value sectors like utilities, healthcare, and consumer staples while pulling back from higher-risk growth names.