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Bear warning seen with the speed of the Nasdaq 100 set at 2000 Peak
(Bloomberg) – A rebound in the Nasdaq 100 that recouped up to half of its $ 1.5 trillion loss from its February high was not enough to deter skeptics. In fact, analysts warn that the index could face more hits, with their concern emanating from the bond market, where rising yields have put pressure on richly valued stocks such as the tech companies that populate the gauge. Nasdaq. According to a study by Ned Davis Research, a 50 basis point increase in 10-year Treasury yields could lead to a bear market for the index, or a drop of up to 20%. sectors such as energy that are likely to benefit. One way to see the impact of this spin out of tech is to plot the relative altitude of the Nasdaq to the S&P 500, a gap that, after briefly exceeding its level from 2000, has recently narrowed. For Jeffrey Gundlach, founder of DoubleLine Capital LP, this is a sign that another collapse may be in store. do not calm the nerves. After all, great days are not uncommon during a downtrend. In 2000, when the market began a three-year crash, the index had 27 sessions where it rose by at least 4%. That compared to six of those days in 1999 when prices doubled. “The early stages of a bear market are usually punctuated with fierce rallies, and what ultimately matters is how far the rallies extend, not how fast they move in a single session. Said Michael Shaoul, President and CEO of Marketfield Asset Management LLC. “Evidence continues to mount that the tech industry has finally abandoned its position as a key global leader.” The Nasdaq 100 is set to follow the S&P 500 for a second consecutive month. In a week when the high-tech gauge fell into a 10% correction, other indexes were tracking everything from small caps to banks, transportation to industrials, hit record highs. On Wednesday, a version of the S&P 500 that eliminates market capitalization bias – treating Apple Inc. the same as News Corp. – hit an all-time high even as the Nasdaq 100 was about 8% below its February high, a divergence not seen for two decades, raising alarm bells for anyone who experienced the dot-com crash. At the time, when the Nasdaq 100 began to fall in March 2000, the equally weighted S&P 500 continued to advance and did not peak until 14 months later – a sign that money was being diverted from tech giants that have skyrocketed the internet. bubble. In the end, the Nasdaq 100 lost half of its value. “People shouldn’t take comfort in the fact that almost everything else besides the tech group is working fine,” said Matt Maley, chief market strategist at Miller Tabak + Co. “If the technology The group continues to grow. underperforming, that will end up weighing on the rest of the stock market. ”Certainly, as expensive as they may seem today, the values of software and the Internet do not correspond to the extremes observed 20 years ago. to innovations like cloud computing and automation, their profits are expanding, instead of contracting or non-existent, as they were in 2000. But the stronger economy, backed by vaccines and support from the government, as well as rising bond yields could cause problems for the market. While some strategists have dismissed the risk of return, saying that technology stocks have shown an inconsistent relationship with Treasuries. Over time, Joe Kalish, chief global macro-strategy strategist at Ned Davis Research, found that since 2014, the forecast return of the Nasdaq 100 – – the inverse of its price-earnings ratio where the higher it is , the cheaper stocks are cheaper – has moved at almost the same pace as the forecast for corporate bond rates In his model, if 10-year Treasury yields rise to 2% this year, this in turn , could drive long-term Baa-rated bond yields to 4.5%, a scenario where the Nasdaq 100 would have to fall to 20% to remain attractive, all other things being equal. If yields climbed but the Nasdaq did not move, it would indicate an overvaluation, Kalish said, adding that his model correctly displayed the warnings in 1987 and 2000 stocks, even after the last pullback. At a multiple of 28, its premium over the S&P 500 was about 7% above its five-year average, and the growth advantage that has supported the technology’s outperformance for all but one year since. 2009 is on the verge of extinction – at least for the next two years – as pandemic-stricken companies like airlines and automakers come back with a vengeance. Profits of software and internet companies are expected to rise 22% this year and 12% in 2022. Both lag the S&P 500, where profits are expected to rise 24% and 15% respectively, according to data compiled by Bloomberg Intelligence. Of course, with the last approved federal relief program, cash could once again be invested in stocks, preventing losses from snowballing. Still, with the Nasdaq 100 knocking on the door of its relative peak, it would be a mistake to ignore downside risk, according to Jim Paulsen, chief investment strategist at Leuthold Group. he said. “After a prolonged period of extended Nasdaq and tech outperformance, it is not unreasonable to predict a phase of underperformance, consolidation or even outright collapse.” For more articles like this, please visit us at bloomberg.com ahead of time with the most trusted source of business information. © 2021 Bloomberg LP
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