Tech stocks are in a correction—and more pain could be on the way, the index’s chart shows.
an index of large-capitalization technology stocks, has fallen about 9% since its all-time high on February 12. Then interest rates started spiking, and it’s been downhill ever since. That makes sense. Higher interest rates erode the value of future cash flows over time, and many companies in the Nasdaq 100 expect a large bulk of their profits to come farther out into the future than value companies.
Some investors have been arguing that it’s time to buy the dip in big tech, the pain may get worse before easing. Just 14% of stocks on the Nasdaq 100 are trading above their 20-day moving averages, according to Frank Cappelleri, Instinet’s chief market technician, and the index looks primed for more downside. The index began the day just above 12,700, little changed from where it began this year after having topped out at just under 14,000 on Feb. 12. “The NDX did trigger a bearish topping pattern yesterday,” Cappelleri wrote in a Thursday note. He noted at the time that the Nasdaq 100 could drop another 8% from there, which would bring it to 11670.
Good timing. After starting the day slightly higher, the Nasdaq 100 has continued tumbling, with the selloff picking up steam after Federal Reserve Chair Jerome Powell spoke and didn’t offer anything but platitudes when asked about rising bond yields. The 10-year yield has climbed 0.07 percentage points to 1.54% today, while the Nasdaq 100 has dropped 2.4% to 12380.34. The
DOW JONES GLO(BA)L/DJIA”>
Dow Jones Industrial Average,
by comparison, has fallen 521.85 points, or 1.7%.
One factor that can pull tech stocks out of their rut would be a calmer interest rate market. Rates can keep rising as inflation and economic demand firm up, but a more gradual rise—not a sudden spikes—would be welcomed by stock investors.
For the near-term, caution is warranted.
Write to Jacob Sonenshine at firstname.lastname@example.org