The Nasdaq 100 Just Entered a New Bull Market – and a Top Analyst Says Tech Names Look Like the New Security Trade
Nothing is more appropriate on a Friday than a dose of market optimism. Phil Rosen here.
Yes, it’s true – the Nasdaq 100 officially closed this week up 20% from its December low, which means technically we’re now in a bull market.
Today is not the time to be lazy – let’s jump in.
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1. At least one corner of the market is booming again, And investors can thank the Fed for spurring tech stocks’ second-best quarter in the last decade.
The tech-heavy Nasdaq 100 has gained nearly 17% during the first three months of the year, and Wednesday marked the first time in nearly three years that it entered a bull market, extending those gains on Thursday.
The last time the index did this well was in April 2020, in the early days of the pandemic.
Between then and June 2020, the Nasdaq rose more than 30% as the government injected cash into the economy and made speculative bets on high-growth names.
In response to the March turmoil that began with the collapse of a Silicon Valley bank, traders have begun predicting higher odds of an interest rate cut this year as the central bank grapples with the effects of the crisis.
Those rate forecasts have bolstered tech names, and mega-caps like Apple and Microsoft have pulled the Nasdaq up.
Nicholas Colas, co-founder of Datatrack Researchreported Thursday that signs of financial stress have historically prompted investors to buy more stocks.
In a note to clients, he highlighted that the St. Louis Fed Financial Stress Index is currently hovering in the same ballpark as it was in July and August 2002, as well as October 2011 — two other periods of financial stress.
“Adding period stock exposure like this has always been profitable over a 3-5 holding horizon, even though the near term has sometimes been rocky (2001 – 2002, for example),” Kolas said.
“This strategy works because financial stress always attracts a fiscal and/or monetary response. This puts the current elevated reading into a useful perspective: Buying the stock here assumes that a Fed policy response (lower rate ) will be.”
Wedbush analyst Dan IvesTech stocks really are the new safe haven for investors.
“While this sounds like twilight zone commentary to many investors, tech stocks with the Big Tech name have become the new security trade,” Ives, a managing director and senior equity research analyst at Wedbush, wrote in a note.
Tech was pretty insulated from the turmoil stemming from the SVB explosion in March, and massive job cuts at many large companies and massive cash piles have tech names looking pretty attractive to investors these days.
“The numbers for 2023 have been de-risked by the management teams,” Ives said in emailed comments. “And these tech stocks are owned and still remain in that camp in our opinion.”
What is your investment outlook for the second quarter of the year? Tweet me (@philrosenn) or email me (prose[email protected]) To tell me.
In other news:
2. US stock futures rose early on Friday, as investors prepare for the release of the personal consumption expenditure index, the Fed’s favorite inflation gauge. Here are the latest moves in the market.
3. On the Docket: All reporting by United Energy Group, Dignity plc, and others.
4. Strategists at Jefferies recommend this batch of low-priced, low-risk stocks. According to the firm, these names are poised for a sharp rebound and long-term outperformance. Here is a list of 12 stocks.
5. The FDIC could fill the $23 billion gap left by the SVB and Signature Bank rescues to the banks. The Wall Street giant could face a special valuation after a string of financial failures tore holes in the regulator’s Deposit Insurance Fund. Get full details.
6. Despite sanctions, Russia continues to use Western insurance services to ship its oil. Meanwhile, critics have criticized the Russian oil price cap for being ineffective, as it has had little effect on Russia’s war revenues. Bloomberg reported that more than half of Russian ships are still being insured by Western firms.
7. Short sellers made paper profits of $14 billion against bank stocks last month. As Silicon Valley banks imploded, some small-focus investors were cashing in in a big way. S3 Partners said that shorting bank names in March “produced an extensive number of profitable trades, returning +17.2% in less than a month.”
8. Jeremy Grantham’s GMO said now is the time to jump back into bank stocks. “Risks will remain, but the banking sector will survive and some banks will actually benefit from the current stress,” the company said. Here are two banks that are trading at 90% cheap valuations compared to historical norms.
9. A senior economist at Interactive Brokers said home prices across the country could fall 11% next year. Housing affordability is at its lowest level since the housing crisis of the mid-2000s, and mortgage rates are expected to remain high. The Economist explained why a crash of the size of 2008 would not happen.
10. Signature Bank stock reopened for trading this week and rallied wildly. Trading for the stock resumed on Tuesday after being halted on March 13. It opened at $0.41 and fell as low as $0.09. It was trading above $70 a few weeks ago.
Curated by Phil Rosen in New York. Feedback or Suggestions? do @philrosenn or email [email protected],
Edited by Max Adams (@maxradams) in New York and Hallam Bullock (@hallam_bullock) in London.