Nasdaq 100 has entered a bull market and has made fortunes for the investors who bought the dip. The tech-heavy index is up over 20% from its December lows and has helped dip-buyers mint money. Meanwhile, ‘Big Short’ investor Michael Burry is one of the few industry experts who not only admitted his ‘wrong call’ but also congratulated the dip-buyers.
Michael Burry tweeted, “I was wrong to say sell”, referring to the one-word tweet on January 31, “Sell”, a stern message to stock market investors after January ended on a high. After a brief lull, the momentum continued in March and tech stocks are roaring back so far.
This year, investors seem to have revised their allocations as a result of the banking instability, and tech companies have outperformed other indices. In contrast to the S&P 500’s 5.5% rise and the DJIA’s 0.9% fall, the tech-focused Nasdaq 100 has gained 19% so far this year.
The top 5 stocks that have gained over 50% YTD are NVIDIA Corporation, Meta Platforms, Tesla, Seagen and Warner Bros. Discovery. NVIDIA tops the chart with nearly 84% returns YTD. Overall, 2023 is turning out to be the second best year for dip-buyers especially in the tech stocks that bore the maximum brunt in 2022.
But, what is driving tech stocks higher? The Federal Reserve has aggressively increased interest rates over the past year in its fight against inflation, which has put pressure on tech companies. Nevertheless, current recession worries brought on by the banking crisis are also fueling hopes that the Fed would reduce its rate increases or possibly start cutting rates later this year, which is why tech stocks are rising.
Will the run continue, only time will tell. Neither the core-inflation statistics nor the job numbers indicate that the Fed should slow down. Market sentiment will be determined by how rate hikes shape up in line with new incoming macro-data for the Fed, which is still the Fed’s major concern.
Dip buyers in quality stocks may not have much to lose unless the Fed adapts an approach that can derail the economy, which looks unlikely for now.