The leaders of the decade-long bull run in US equities are back at an all-time high. The Nasdaq 100 closed at a record of 7 680.72 on Wednesday, surpassing its August 2018 peak and extending its year-to-date gain past 21%.
The last thrust was paced by just two stocks. Strip out Apple and Qualcomm, which agreed on a settlement to resolve litigation, and almost all of the 0.3% gain would vanish. The equal-weight version of the Nasdaq 100 closed lower, indicating poor breadth.
Not only is the tech-heavy gauge at an all-time high, but it’s also ascended to its best level relative to the S&P 500 since the dot-com bubble.
Earnings season for Nasdaq 100-listed firms kicks into high gear next week with the likes of Microsoft, Facebook and Twitter reporting. The options market hints at the potential to build on its gains as companies release results.
The implied volatility of calls that would be in the money should the index rise a little less than 5% over the next month is relatively elevated compared to calls that provide exposure to a 2.5% advance. That’s a sign of greed surfacing after already gaudy returns to begin 2019.
“Tech has several key attributes, which basically is why it keeps leading the market higher; in a certain respect the tech rally is the market rally. However, it’s falling in love with itself in a way that makes me tactically uncomfortable,’’ said Michael Purves, chief global strategist at Weeden & Co. “If earnings season comes in strong, for tech the upside is probably going to be pretty limited.’’
The setup in technology is reminiscent of July 2018, he added, when tech valuations became quite rich relative to the S&P 500. Indeed, the forward price-earnings premium for the Nasdaq 100 is approaching a similar extreme as it was then. — Reported by Luke Kawa, (c) 2019 Bloomberg LP