Dual Boost from Fiscal & Monetary Policy: Nasdaq Index Gaining Strong Support?

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Fed rate cut expectations and strong corporate earnings have brought a double boost to the market. This optimistic sentiment seems to provide strong support for the Nasdaq Composite Index. The market widely expects the Fed to initiate rate cuts at the latest by the end of 2025 . However, beneath the optimism, concerns lurk. Industry headwinds and data divergences are introducing new variables and challenges to the market, adding uncertainty to future trends.

Key Takeaways

• Potential Fed rate cuts, plus corporate profitability, provide support for the Nasdaq Index.
• Tech companies are now more cost-efficient, and surging AI demand is boosting their earnings.
• AI-related companies are performing well, but other tech firms may lag.
• The semiconductor industry sees some hot segments and others facing difficulties.
• The Nasdaq Composite is experiencing volatility, so investors need to watch market changes carefully.

Monetary Policy Boost: Rate Cut Expectations and Valuation Expansion

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Changes in macroeconomic data are key indicators for market predictions of the Fed’s monetary policy direction. Recent labor market and inflation data paint a picture of moderate economic cooling, further strengthening market expectations for rate cuts.

Economic Data Cooling Reinforces Rate Cut Consensus

The latest labor market data signals economic slowdown. According to the ADP Employment Report , US private businesses unexpectedly cut 32,000 jobs in November 2025, with small businesses seeing a sharp drop of 120,000 jobs. This shows companies, especially small ones, are becoming more cautious in hiring.

On the other hand, initial jobless claims fell to 191,000 by the end of November, reaching a recent low. This data seems contradictory to the ADP report, but the market generally interprets it as the labor market returning to normal from overheating, rather than a new contraction.

On inflation, the Fed’s preferred Personal Consumption Expenditures (PCE) Price Index annual rate ticked up slightly to 2.7% in August.

Despite the slight uptick, overall levels remain relatively moderate and have not shaken the market consensus on Fed rate cuts.

Declining Rate Expectations Expand Tech Valuations

Rate cut expectations are a major positive for the tech-heavy Nasdaq Index. The reason is that tech stock values are largely based on expectations of future cash flows.

Valuation Quick Fact: When valuing a company, future expected profits are discounted to present value using a “discount rate.” Lower rates mean lower discount rates, making future profits worth more today.

When markets expect rates to fall, investors use lower discount rates to value tech companies’ future potential. This boosts valuations, especially for high-growth companies that are not yet highly profitable.

However, this optimism appears already priced in. As of early December 2025, the Nasdaq-100’s P/E ratio (P/E) has reached 34.09 , significantly above the 10-year average. This indicates the market is in an “expensive” zone, suggesting the rate cut positives may already be largely digested.

Corporate Fundamentals Boost: Cost Optimization and AI Demand

Beyond monetary policy tailwinds, improvements in tech giants’ own fundamentals have injected another stabilizing force. Shifting from unchecked growth to cost- and efficiency-focused operations, combined with the explosive demand for artificial intelligence (AI), forms a fundamental positive supporting share prices.

Corporate Cost Discipline Improves Profitability

After years of rapid expansion and massive hiring, many tech companies hit the brakes in 2024, focusing on operational efficiency.

Many large tech firms call this the “Year of Efficiency.” Through team restructuring, streamlining non-core businesses, and strict expense controls, companies have successfully improved profit structures.

This shift in cost discipline means that even during periods of slowing revenue growth, corporate profitability remains stable or even improves. This gives investors stronger confidence that these companies can withstand potential economic headwinds.

AI and Cloud Demand Support Corporate Revenue

If cost optimization is “defense,” then AI-driven demand is powerful “offense.” AI, particularly generative AI applications, is exploding market demand and becoming the core engine for tech company revenue growth.

Chip giant Nvidia’s earnings are a microcosm. Its stunning data center business growth directly reflects the market’s thirst for AI computing power.

This AI wave is also driving cloud provider performance. Companies are deploying AI models on the cloud, boosting revenue for Amazon, Microsoft, and Google.

Looking ahead, AI and cloud market potential remains huge. Market forecasts show sustained high growth in the coming years.

Strong AI demand not only brings real revenue contributions to tech giants but also provides solid fundamental support for the Nasdaq Index’s long-term trend.

Market Divergence Intensifies: Challenges for the Nasdaq Composite

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Despite tailwinds from macro policy and AI trends, the market is not uniformly rising. Closer inspection reveals clear divergence beneath the optimism. Selective fund chasing and sector headwinds are posing new challenges for the Nasdaq Composite, causing high-level consolidation as the market digests positives and assesses risks.

Industry Performance Divergence and Fund Rotation

One of the market’s most prominent features is funds highly concentrated in a few AI giants. Rather than broad rotation, it’s more like a “selective party.”

According to BlackRock’s investment views, funds continue flowing into US growth stocks benefiting from AI, rather than shifting to value stocks or bonds. AI-driven tech companies, with strong fundamentals, remain the market focus. This high concentration driven by a few leaders makes upward momentum hard to reverse short-term.

This means while the index appears strong, the rise is mainly from a handful of companies like Nvidia and Meta. Many non-AI tech stocks, or even AI-hyped but not yet sustainably profitable firms like C3.ai and Palantir, show relatively weak performance. This divergence shows investor sentiment is not blindly optimistic but strictly screening for real profitability.

Potential Impact of Semiconductor Headwinds

Semiconductors, as the cornerstone of tech, heavily influence the Nasdaq Composite. However, the industry is currently experiencing an “ice and fire” split.

On one hand, AI-related areas are scorching hot.

• High-Bandwidth Memory (HBM): Due to surging AI server demand, HBM supply is tight, with prices expected to rise through 2026. SK Hynix’s 2026 capacity is already fully booked.
• DDR5 Memory: Also benefiting from AI data center demand, supply remains tight, with prices potentially surging 30–50% per quarter in H1 2026.
• Chip Giant Differentiation: While Nvidia leads in AI chips, AMD is catching up. AMD’s Instinct GPUs, with cost advantages, have attracted massive orders from Microsoft and Meta — analysts forecast high compound growth in revenue over coming years.

On the other hand, traditional semiconductor areas face significant headwinds, especially “Semiconductors – Analog & Mixed Signal.”

Data shows this sub-industry’s earnings expectations have been sharply revised down over the past year, with market performance far lagging the broader index. This stark internal contrast highlights structural challenges in the semiconductor supply chain and could drag on the overall index.

Nasdaq Composite’s Consolidation Pattern

Amid intertwined bull/bear factors, the Nasdaq Composite recently shows high-level volatility and alternating gains/losses — a “consolidation pattern.” This reflects the market digesting known rate cut positives while weighing potential industry risks.

From technical analysis, the index fluctuates within a clear range.

According to ProTrendLines analysis, the main support is around 19,172.69, with secondary resistance at 19,687.24. The index needs to break these key levels decisively to establish the next trend direction.

Coping Strategy: In this volatile market, flexible fund allocation is crucial. For example, when investors judge AI concept stocks are overvalued and need partial profit-taking, they need to quickly transfer funds from US securities accounts. Tools like Biyapay can help — it assists users in managing assets across regions, such as conveniently moving funds from the US market to a licensed Hong Kong bank account, allowing quick redeployment during pullbacks to seize new opportunities.

In summary, the current Nasdaq Composite is at a crossroads. While enjoying the AI feast, participants remain vigilant on risks — making single-sided rises unlikely short-term.

In summary, monetary policy rate cut expectations and corporate cost discipline do provide support for the Nasdaq Composite, but not an invincible rise guarantee.

The current market pattern is “tailwind” and “headwind” coexistence. On one hand, AI trend positives; on the other, policy uncertainty and internal industry data divergences pose challenges.

Investors should remain cautious amid optimism. Fed Chair Powell has hinted that a December cut is not set in stone ; upcoming CPI and employment reports will be key. Closely monitoring fundamentals is core to judging if the index can break consolidation.

FAQ

Does the Nasdaq Index Really Have Strong Support?

Support does exist, but it’s not invincible. Rate cut expectations and corporate earnings provide foundational backing. However, industry divergence and high valuations are potential risks. The market is currently in a consolidation phase digesting positives and assessing risks — not a one-way rise.

How Long Will AI’s Positive Impact on Tech Stocks Last?

AI’s influence is long-term and structural. From chips to cloud services, strong demand brings real revenue. As long as AI technology continues innovating and expanding applications, this trend will provide long-term fundamental support for tech stocks.

What Do Semiconductor Headwinds Mean?

This indicates internal divergence in the semiconductor industry. AI-related chip demand is hot, but traditional areas (like analog chips) face inventory adjustment pressures. Investors must note not all semiconductor companies benefit from the AI wave — choose carefully.

What’s the Difference Between Fund Rotation and Concentration?

The current market is more fund concentration. Funds aren’t broadly rotating across industries but heavily focused on a few AI giants. This shows cautious investor attitudes — chasing only companies with clear profit prospects, not overall market optimism.