The prior medium-term uptrend phase of the Nasdaq 100 from August 2024 to February 2025 has been supported by the momentum factor of the US stock market. This finding can be seen by plotting a relative strength (ratio chart) of the S&P 500 momentum exchange-traded fund (ETF) over the mega-cap weighted S&P 500 ETF
The prior outperformance of the S&P 500 momentum ETF over the S&P 500 ETF was depicted by its rising ratio chart that moved in direct tandem with the Nasdaq 100’s medium-term trend phase from August 2024 to February 2025.
On the week of 10 March 2025, the outperformance of the S&P 500 momentum ETF had started to dwindle as its ratio chart against the S&P 500 ETF had rolled under its former key ascending support, which in turn, saw the Nasdaq 100 tumble below its key 200-day moving average.
In contrast, over the same period (the week of 10 March), the value factor of the US stock market started to outperform, as depicted by the relative strength (ratio chart) of the S&P 500 momentum exchange-traded fund (ETF) over the S&P 500 ETF broke above its former key descending resistance (see Fig 1).
The Dow Jones Industrial Average tends to be viewed as a more “value-oriented” barometer benchmark US stock index due to its higher weightage of value-related sectors, such as Financials and Health, over the Nasdaq 100; these two sectors have a combined weightage of close to 40%.
However, the value factor has failed to propel up the Dow Jones Industrial Average as it has moved in direct synchronisation with the bearish movement inflicted on the Nasdaq 100, as it too broke below its key 200-day moving average on the week of 10 March and continued to trade below it at this time of writing.
The main driver of the Dow Jones Industrial Average at this juncture seems to be dictated by the macro factors (undiversifiable risks), where the US Treasury yield curve (10-year yield minus 2-year yield) has shaped a bear steepening movement.
The steepening of the US Treasury yield has been driven by the 10-year US Treasury yield, which rose by 21 basis points (bps) from the week of 10 March till today, and in comparison, the 2-year US Treasury yield has fallen by 24 bps.
The current bear steepening of the US Treasury yield curve is a negative signal for the broader US stock market, especially when viewed in the context of recent economic indicators. Preliminary data from the University of Michigan’s Consumer Sentiment and Inflation Expectations for April point to rising stagflation risks, characterized by slowing growth alongside persistent inflation. A continued steepening of the yield curve suggests a higher cost of funding, which, combined with weaker growth prospects, could weigh heavily on corporate earnings in the coming quarters.
