Bloomberg
Warning for bears seen at Nasdaq 100 speed at 2000 peak
(Bloomberg) – A setback in the Nasdaq 100 that recovered up to half of its $ 1.5 billion losses from its February high was not enough to deter skeptics. Analysts are actually warning that the index could be even worse. Their concern comes from the bond market, where rising yields are putting pressure on wealthy stocks, such as the tech companies that populate the Nasdaq benchmark. According to a study by Ned Davis Research, an increase of ten base income returns by 50 basis points could lead to a bear market for the index, or to a decline of as much as 20%. sectors such as energy that are likely to benefit. One way to see the impact of the rotation from technology is to plan the relative height of Nasdaq against the S&P 500, a gap that recently briefly exceeded its 2000 level. For DoubleLine Capital MP founder Jeffrey Gundlach, it’s a sign that another collapse could be predicted. While one-day rallies – Tuesday 4% and Thursday 2.4% – raised the Nasdaq 100 to its first profit in four weeks are not calming nerves. After all, big days are not uncommon during a deteriorating trend. In 2000, when the market started with a three-year collapse, the index had 27 sessions where it rose by at least 4%. This is compared to six such days in 1999, when prices doubled. ” The early stages of a bear market are usually marked by cruel gatherings, and what ultimately matters is how far the processions go and not how fast it moves within a single session. , ”Says Michael Shaoul, CEO of Marketfield Asset Management LLC. “Evidence continues to grow that the technology sector has finally relinquished its position as a global leader.” The Nasdaq 100 is poised to follow the S&P 500 for a second month in a row. In a week in which the technological benchmark fell into a 10% correction, other indices kept track of everything from small capitals to banks, transportation to industry, to records. On Wednesday, a version of the S&P 500 that removes the bias of market capitalization – which Apple Inc. treated the same as News Corp – an all-time high, even though the Nasdaq 100 was about 8% lower than its February record, a difference not seen in two decades. This raises alarm for everyone who has experienced the dot-com crash. At the time, when the Nasdaq 100 began to fall in March 2000, the equivalent S&P 500 was still moving forward and only peaked 14 months later – a sign that money was being pushed away from the technological tables that had risen on the internet. bubble. Eventually, the Nasdaq 100 lost half its value. “People should not be comforted by the fact that almost all the other products except the technology group are performing well,” said Matt Maley, chief market strategist at Miller Tobacco + Co. “If technology continues to underperform the group, and it will eventually outweigh the rest of the stock market.” To be sure, as expensive as it looks now, software and Internet stocks do not match the extremes seen 20 years ago And thanks to innovations such as cloud computing and automation, their earnings are expanding, as opposed to shrinking or non-existent, as in 2000. But the booming economy, backed by vaccines and government support, coupled with rising effects, could cause problems for the market means While some strategists have set aside the return risk and said that technology stocks have over time shown a volatile relationship with the treasury, Joe Kalish, global macro strategist at Ned Davis Research, has found that the Nasdaq 100’s return on the front earnings since 2014 – – the reverse of its price-earnings ratio, the higher it is, the cheaper the shares – has almost ended with the predicted rate for corporate bonds. In its model, if the Treasury’s ten-year rate of return rises to 2% this year, in turn, Baa-rated bond rates could be raised to 4.5%, a scenario where the Nasdaq 100 will have to fall as much as 20% to stay attractive, all the same. If yields climb but the Nasdaq does not move, it indicates an overvaluation, Kalish said. He added that his model flashes warnings correctly in 1987 and 2000. Based on the price-to-earnings ratio, the Nasdaq 100 is not cheap compared to others. shares, even after the recent downturn. With a multiple of 28, the premium on the S&P 500 was about 7% above its five-year average. Furthermore, the growth advantage that sustained the technological performance in 2009 other than one year is poised to disappear – at least for the next two years – as pandemic-stricken companies such as airlines and automakers roar back. Profits from software and Internet companies are expected to expand 22% and 12% in 2022 this year. Both are behind the broad S&P 500, where earnings forecasts are set to rise by 24% and 15% respectively, according to data compiled by Bloomberg Intelligence. Of course, with the latest federal emergency relief package approved, cash can flood into stocks again, thus preventing losses due to snowballing. But with the Nasdaq 100 knocking on the door of its relative peak, it would be a mistake not to consider the downside risk, according to Jim Paulsen, chief investment strategist at Leuthold Group. “New-age investments are at a major crossroads,” he said. “After a long period of extensive performance by the Nasdaq and technology stocks, it is not unreasonable to foresee a phase of underperformance, consolidation or even a complete collapse.” For more articles like this, please visit us at bloomberg.com. Sign up now to stay ahead with the most trusted business news source. © 2021 Bloomberg LP