Valuation worries are being realised now as economic recovery takes up shape and bond yields rise.
The technology-heavy NASDAQ 100 index has turned negative year-to-date, giving up all gains made so far this year as investors turn cautious over rising bond yields and stretched valuations. The NASDAQ 100 index turned negative on Wednesday this week, closing at 12,683 points. Even though the index gained 1.64% on Friday, it failed to close above 12,694 — which is where it stood at the beginning of this year. NASDAQ 100 has been on the fall for three consecutive sessions now, falling 8.2% during the period.
FAANG stocks among victims of bearish sentiment
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The recent three weeks of consecutive down-turn has even taken the big tech names as its victims. Facebook’s stock price is down 2.3% in the last three weeks; Apple has tanked 10.3%; Amazon 8.4%; and Netflix 7.2%. Meanwhile, Google is flat with a positive bias during the same time period, making it the best performing FAANG stock. Elon Musk’s Tesla has also come under attack by the bears, falling a whopping 31.5% since the beginning of February. Tesla’s stock price slumped 17% just in the last five trading sessions.
Some of the worst performers on NASDAQ, since the beginning of the year, include Verisk Analytics, down 17%; Costco, down 16%; Check Point Software 12%; Qualcomm 12%; and Pepsico 8%. Even the shares of Amazon, Facebook, and Apple are in negative territory now, on a year-to-date basis. On the other hand, Applied Materials, Baidu, American Airlines, Wester Digital are all the top gainers on the index, surging over 30% each so far in 2021.
What’s causing the fall
Valuation worries are being realised now as economic recovery takes up shape and bond yields rise. A recent blog by Morgan Stanley analysts noted that as recovery picks up pace, investors are bound to switch from larger companies where valuations are now stretched. The US 10 Year G-Sec Yields have surpassed 1.5%.
“The market is always at the mercy of earning and while I expect earning to pick up across the board, what we saw last year in large tech and the stay at home basket will not be repeated,” said Stephen Innes, Chief Global Market Strategist at Axi. According to a Bloomberg report, the PE ratio for Nasdaq 100 is now around 27x, above the five-year average of about 21. The NASDAQ 100 index is still 81% higher than its March 2020 lows.