The Nasdaq 100 just entered a fresh bull market - and a top analyst says tech names look like the new safety trade
Nothing's more fitting on a Friday than a dose of market optimism. Phil Rosen here.
Yes, it's true — the Nasdaq 100 officially closed 20% above its December low this week, which means we are technically now in a bull market.
No time to dawdle today — let's jump in.
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1. There's at least one corner of the market running with the bulls again, and investors can thank the Fed for fueling tech stocks to their second-best quarter in the last decade.
The tech-heavy Nasdaq 100 has gained roughly 17% through the first three months of the year, and Wednesday marked the first time in nearly three years that it entered a bull market, extending those gains on Thursday.
The last time the index did this well was in April 2020 in the early days of the pandemic.
Between then and June 2020, the Nasdaq soared more than 30% as the government injected cash into the economy and fueled speculative bets on high growth names.
In response to March's turmoil that began with the fall of Silicon Valley Bank, traders have started predicting higher odds of interest rate cuts this year as the central bank confronts the effects of the crisis.
Those rate forecasts have bolstered tech names, and mega-caps like Apple and Microsoft have pulled the Nasdaq higher.
Nicholas Colas, the cofounder of DataTrek Research, pointed out Thursday that signs of financial stress have historically prompted investors to buy more stocks.
In a note to clients, he highlighted that the St. Louis Fed Financial Stress Index is currently hovering in the same ballpark as it was in July and August 2002, as well as October 2011 — two other periods of financial stress.
"Adding stock exposure at such periods has always been profitable over a 3-5 holding horizon, even if the nearer term has sometimes been rocky (2001 – 2002, for example)," Colas said.
"This strategy works because financial stress always draws a fiscal and/or monetary response. That puts the current elevated reading into a useful perspective: buying stocks here assumes there will be a Fed policy response (lower rates) in the very near future."
To Wedbush analyst Dan Ives, tech stocks are actually the new safe haven for investors.
"While it sounds like Twilight Zone comment to many investors, tech stocks have become the new safety trade with Big Tech names a major beneficiary of this dynamic," Ives, a managing director and senior equity research analyst at Wedbush, wrote in a note.
Tech was fairly insulated from the tumult in March stemming from the SVB implosion, and steep job cuts and a massive cash pile at many big companies have tech names looking pretty attractive to investors these days.
"Numbers for 2023 have been de-risked by management teams," Ives said in emailed comments. "And these tech stocks have been under owned and still remain in that camp in our opinion."
What's your investment outlook for the second quarter of the year? Tweet me (@philrosenn) or email me (firstname.lastname@example.org) to let me know.
In other news:
2. US stock futures rise early Friday, as investors brace for the release of the personal consumption expenditures index, the Fed's preferred inflation gauge. Here are the latest market moves.
3. On the docket: United Energy Group, Dignity PLC, and more, all reporting.
4. Jefferies strategists just recommended this batch of underpriced, lower-risk stocks. These names are poised for a sharp rebound and long-term outperformance according to the firm. Here is the list of 12 stocks.
5. The FDIC might make banks fill the $23 billion hole left by its rescue of SVB and Signature Bank. Wall Street giants may face a special assessment after a slew of financial failures blew a hole in the regulator's deposit insurance fund. Get the full details.
6. Despite sanctions, Russia has continued to use Western insurance services to ship its oil. Meanwhile, critics have blasted the Russian oil price cap for being ineffective, as it's had little impact on Russia's war revenue. Bloomberg reported that more than half of Russian ships are still being insured by Western firms.
7. Short sellers generated paper profit of $14 billion betting against bank stocks over the last month. As Silicon Valley Bank imploded, some short-focused investors were cashing in big. Shorting bank names in March produced a "wide swath of profitable trades that returned +17.2% in less than a month," S3 Partners said.
8. Jeremey Grantham's GMO said now is the time to jump back into bank stocks. "Risks remain, but the banking sector will survive and some banks will actually benefit from current stresses," the company said. Here are two banks it said are trading at valuations 90% cheaper than historical norms.
9. A senior economist at Interactive Brokers said home prices across the country could fall 11% over the next year. Housing affordability is at its lowest levels since the mid-2000s' housing crisis, and mortgage rates are expected to stay elevated. The economist explained why a 2008-sized crash won't come to fruition.
10. Signature Bank stock reopened for trading this week and has had a wild ride. Trading resumed for the stock on Tuesday after being halted on March 13. It opened at $0.41 and crashed to as low as $0.09. A few weeks ago it was trading above $70.
Curated by Phil Rosen in New York. Feedback or tips? Tweet @philrosenn or email email@example.com.
Edited by Max Adams (@maxradams) in New York and Hallam Bullock (@hallam_bullock) in London.
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