US share markets are likely to continue to see high volatility this year 2022, and are still in choppy waters. The US Federal Reserve commentary on impending monetary tightening has brought a harsh reality check upon growth stocks investors. They are now coming to realise that maybe any price is not the right price for high growth stocks, especially when such companies are not growing, according to Steve Sosnick, Chief Strategist, Interactive Brokers. Given the volatility in US stock markets, and uncertainty in high growth stocks, it is time for investors to somewhat de-risk their portfolios in favour of cash generating investments, Steve Sosnick told FinancialExpress.com.

Also read: Building US stocks portfolio for next decade: S&P 500 or Nasdaq? Which one should you invest in? | INTERVIEW

Tech heavy Nasdaq takes greater beating than broader S&P 500

The Nasdaq 100 index has fallen more than 15 per cent since mid-November, when the US Fed expressed concern about inflation and said they would be willing to raise interest rates if prices keep rising. The broader S&P 500 has fallen less than 8 per cent in the same time. So far this year, the tech-heavy Nasdaq 100 has plunged 15.10 per cent, S&P 500 tanked nearly 7 per cent, while the Dow Jones Industrial Average lost over 4.5 per cent on a year-to-date (YTD) basis. The Federal Open Markets Committee (FOMC) on 26 January meeting left the key interest rates near zero. But the Fed warned that it would soon begin raising the Fed Funds target rate to combat persistent inflation related to the COVID-hobbled supply chain.

Risk-reward factor changed; investors no longer chasing growth at any price

Steve Sosnick said that now the risk-reward factor has changed. Investors are realising that growth is needed for growth stocks, and the US Federal Reserve fiscal stimulus supporting the growth stocks so far can’t be ignored. They are now preferring growth stocks over value stocks. He advised investors to take some risk off from their portfolio, and try looking at adding some dividend-paying securities. Federal Reserve officials last month agreed that, with inflation tightening its grip on the economy and employment strong, it was time to raise interest rates, but also that any decisions would depend on a meeting-by-meeting analysis of inflation and other data, according to the minutes of the 25-26 January policy meeting, according to Reuters.

Diversified portfolio a better option

While the Nasdaq and S&P 500 performances may not be dramatically different – because of the heavyweight stocks that are common in both – Steve Sosnick said that investing in S&P 500 could be a better option because of businesses and geographical diversification. S&P 500 is a broader index with a cross section of industries; it is globally diversified too. Investing in SPX helps to build a broader portfolio,” he said.

Nasdaq outperformed S&P 500 in last 10 years, and 2 years

The S&P 500 index has more than tripled investors’ money in the last 10 years, soaring 220 per cent, to 4,349, from 1,361 levels as on 21 February 2012. While it has rallied nearly 30 per cent from 3,3361 levels in the last two years. In comparison, tech-heavy Nasdaq 100 has outperformed S&P 500 in both 10-year and 2-year timeframe. The tech-heavy Nasdaq 100 has surged over five times, skyrocketing 436 per cent from 2,594 levels in a decade.It has surged nearly 45 per cent, rising from 9,617 to 13,902.75 (last closing level), in the last two years. It remains uncertain if Nasdaq would continue the same outperformance.