In this Stockhead series, Josh Gilbert – market analyst at global investment platform eToro – gives investors the scoop on all things Nasdaq related; the key market themes, along with popular investment trends based on eToro’s data and insights.

It was a tough week for the Nasdaq 100, with the index tumbling more than 4% on Tuesday and Wednesday sessions.

The federal reserve minutes were more hawkish than some had expected as they laid out their plans to shrink its huge balance sheet.

Figuring out the Fed

The minutes gave us some clues about how the Fed views rate hikes and policy.

Although there were no huge surprises, they did show the Fed is serious about fighting inflation through rapid and aggressive policy changes.

The market has already priced in a number of hikes this year, with the expectation that interest rates will be at 2.5% come the year-end, but there is still a wealth of uncertainty to consider, and the Fed’s hawkish tone has spooked investors this week.

However, investors should remember that the Fed has been clear in stating they are flexible and will be transparent about further hikes.

It would be hard to envisage seeing a more aggressive hike than 50bps at the next meeting, and the market has already priced in a 50bps hike at the next meeting.

So the risks for investors are that the Fed is falling behind the curve, letting inflation get out of hand and having to tighten policy faster than markets are anticipating.

Keep calm & carry on

Despite everything, equities have seen a sharp rebound out of ‘correction’ territory in recent weeks and have been impressively resilient in the face of surging inflation, a hawkish Fed pivot, war in Europe, and renewed China weakness.

It was a problematic Q1 for investors, but we believe the outlook is improving as we head into Q2.

Valuations are lower, markets have now priced 2.5% of hikes this year, and earnings growth is still strong.

Our central view is that a de-escalating Ukraine crisis will ease high geopolitical uncertainty and commodity prices.

Global growth will stay robust as Covid lockdowns loosen and China’s zero-covid policy relaxes.

Still, volatility will remain elevated as monetary stimulus fades, and it will continue to be a challenging year for investors.

Technology stocks, particularly ‘disruptive tech’ (think Cathie Wood and ARK), will come under pressure given their lofty valuations, whereas big tech is likely to stay more resilient.

Edit button forthcoming?

In terms of news flow, one of the week’s standouts was the emergence of Elon Musk’s 9.2% stake in Twitter, valued at around USD$3billion, making him the largest shareholder.

The news triggered a Twitter share price surge, climbing as much as 30 per cent this week.

This could be a significant step in helping to elevate Twitter to the next level of growth. It has a fantastic platform with millions of users, but has always struggled to monetise its user base.

It remains to be seen what Musk has plans for his stake, but after also being announced by CEO Parag Agrawal as a member of the board, he’s likely to have a fair amount of involvement.