As the Nasdaq 100 index is nearly 2% away from its all-time high, analysis suggests that it’s “easier to digest” the index’s premium valuation given the growth optimism for 2025 and 2026.

What Happened: According to Adam Turnquist, the chief technical strategist at LPL Financial, the Nasdaq 100’s forward 12-month price-to-earnings ratio at 26.6 was above its 10-year average P/E of 22.0.

“However, a jump in expected operating margins from 18.0% in 2024 to 23.8% in 2025 and 25.6% in 2026 makes the premium valuation easier to digest (along with the AI-themed tailwinds),” explained Turnquist.

Apart from this, he highlights that the buying pressure on the index was also “widespread,” as only eight stocks are lower since the April 8th low, while the average gain for the rest of the index has been about 25% in the same period.

From a technical perspective, Turnquist suggests that the index’s “Momentum remains bullish after the recent reset from overbought levels.” The Nasdaq 100 has rallied out of a bear market in less than two months.

This recovery was a result of the administration's pivot to delay reciprocal tariffs in April, progress in trade negotiations, and strong tech earnings, which revealed no signs of a slowdown in artificial intelligence demand or related capital expenditure spending.

“The NDX vs. S&P 500 ratio chart recently bounced off support and recaptured the 50-/200-dmas. A breakout above the July 2024 highs would indicate a new uptrend is developing, favoring NDX leadership ahead,” said Turnquist.

See Also: Magnificent 7 Drive 54% Of Market Cap Gains In S&P 500 Since April Lows: ‘The Market Cannot Survive Without Big Tech’

Why It Matters: According to the Benzinga Pro data, the Invesco QQQ Trust, Series 1 ( QQQ ) , tracking the Nasdaq 100 index, was trading above its short and long-term simple daily moving averages.

Its relative strength index at 58.97 was in the neutral territory, whereas its MACD line of 3.90 was above the signal line, suggesting that its 12-day exponential moving average was above its 26-day EMA.

These technical indicators signaled a largely bullish trend for QQQ.

Price Action: The SPDR S&P 500 ETF Trust ( SPY ) and QQQ, which track the S&P 500 index and Nasdaq 100 index, respectively, ended on a mixed note on Wednesday. The SPY was down 0.027% at $595.93, while the QQQ advanced 0.28% to $528.77, according to Benzinga Pro data.

The futures of the S&P 500, Nasdaq 100, and Dow Jones were lower on Thursday.

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