That the US’s biggest companies are technology firms whose businesses stood up to lockdowns has been good news for its stock market. For the Nasdaq 100 Index, it’s been salvation.
Shocking as it seems, the gauge is roughly 1% away from erasing its 2020 drop, a decline that at its worst point swelled to 20%. The benchmark jumped 3.7% as of 12.20pm in New York Tuesday, busting through its average price over the last 50, 100 and 200 days en route to a 60% retracing of its peak-to-trough swoon.
The rebound is a repudiation of one of the US stock market’s oldest bear cases, that a concentration of gains in companies like Apple and Alphabet doomed the Nasdaq to greater pain once the rout came. Instead, their stay-at-home orientation and solid balance sheets have shielded them from the bear market.
Weighting systems explain the size of the rebound. Amazon.com had surged more than 20% this year, and Tuesday notched fresh all-time highs. The company makes up a 10th of the benchmark, and by one definition accounts for 120% of this year’s positive performance. Gains in shares of Microsoft, Tesla and Netflix have helped, too.
The Nasdaq 100 fell less than the S&P 500 and Dow Jones Industrial Average on the way down, and in the first three months of the year had its best quarter versus the S&P 500 since 2009. On Monday, the tech-heavy benchmark gained more than 1% while the S&P 500 fell 1%, a divergence never seen before.
The S&P 500 is still down 12% from the start of the year, while the Dow is off by 16%, but the megacap momentum is forcing some market watchers to rethink how far any rally can go. Michael Purves, the CEO at Tallbacken Capital Advisors, raised his short-term trading target for the S&P 500 to 3 100 on Tuesday, after the index passed his previous mark of 2 800.
Strong momentum
“Why the change? The underlying momentum is strong,” he wrote to clients. “While some of this has been short covering, there is a stronger underlying current at work as well — notice the big cap tech performance yesterday.”
Microsoft, up 8% this year, has seen usage of its cloud services surge. Netflix, up 25% in 2020, has been deemed a beneficiary of stay-at-home orders. Exposure to Tesla (which isn’t included in the S&P 500 or Dow) has helped too, up 75% this year after stronger than expected deliveries in the first quarter fuelled a rebound.
Exchange-traded fund investors have taken notice. The Invesco QQQ Trust Series 1 ETF, which tracks the Nasdaq 100 Index, took in US$5.4-billion in March, the most for any month in 19 years. Last week, tech ETFs in aggregate saw another $2.7-billion enter their coffers, the second most of any sector over the period behind health-care funds.
“Right now, it’s giving investors a lot of comfort to see tech as one of the leaders,” Bruce Bittles, chief investment strategist at Baird, said by phone. “The market will have a lot of a trouble with the notion that tech could give up its status. Eventually the enthusiasm can cool — who knows?” — Reported by Sarah Ponczek, with assistance from Elena Popina, (c) 2020 Bloomberg LP
