This March will be another difficult month for investors. With the U.S. 10-year bond yield topping 1.6% and an improving economic outlook focusing investors’ attention on lower-cost boom-cycle stocks, technology stocks are facing increasing uncertainty.
Since the collapse of U.S. stocks last year during the Epidemic, the Nasdaq 100 index in March so far 10 trading days, there are 8 trading days of gains and losses of more than 1%, the degree of volatility, since the outbreak of the epidemic last year triggered the U.S. stocks into a bear market has never been seen before.
Matt Miskin, co-investment strategist at John Hancock Investment Management, said: “Events over the past year have affected the direction of the stock market, so investors should remain cautious when these technology giants experience price corrections. Without fundamentals driving them, it will be difficult for tech stocks to return strongly.”
The Nasdaq 100 index fell 2.9% on Monday, rose 4% on Tuesday, then changed course for the next three consecutive trading days, accumulating a 0.9% decline over the week.
What worries investors is not that the Nasdaq 100 index fell, but the threat of the U.S. bond yield. When the U.S. 10-year bond yield climbs higher, technology stocks usually fall, in the opposite direction.
U.S. 10-year bond yield rose to 1.642% on Friday, approaching a new one-year high level. The rise in colonial interest rates gives investors an incentive to shift their money to the bond market, which offers relatively stable returns, while Inflation tends to dampen the expected future earnings of growth companies.
Investment strategists at Ned Davis Research warned that if the U.S. 10-year bond yield rises to 2%, it could cause the Nasdaq 100 to fall back to 20%.
Matt Maley, chief market strategist at New York investment firm Miller Tabak, also believes that technology stocks are unlikely to see a sub-double-digit pullback.
The tech bubble scenario must be eliminated,” Maley said. Since the rally in technology stocks since last March, there has not been an unhealthy trend. Now the Time is ripe for a pullback, but I’m not sure if it will pull back 10% or 15%. After such a large pullback, it will be able to lay a solid foundation for future moves.”
Another major headwind affecting the movement of technology stocks is the rotation of cyclical value versus long-term stocks, which has occurred at the beginning of almost every previous economic cycle.
Overall, the Nasdaq 100 is down 0.2% for the month, while the S&P is up 3.5%, the largest gap between the two since April 2016.
This affects investors’ expectations for future price volatility. The volatility of the Nasdaq futures on the Chicago Board Options Exchange (CBOE) is hovering around 30, while the panic index is at 21, with the gap between the two reaching its highest level since last September.
Glenmede investment chief Michael Reynolds believes market volatility will continue. “Growth stocks were outperforming value stocks even before the outbreak began, and that has accelerated since the outbreak. But we’re seeing the opposite now, with a significant rise in yield rates, and growth stocks are very sensitive to rising yield rates.”
Jack Ablin, chief investment officer at Cresset Capital, said that despite the poor performance of technology stocks, there has been an influx of money into more speculative assets, such as bitcoin, which has nearly doubled in value this year.
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