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Nasdaq 100 enters bull market, following worst year since 2008

Yahoo Finance’s Jared Blikre joins the Live show to break down the Nasdaq 100's performance since 2008.

Video transcript

[MUSIC PLAYING]

JULIE HYMAN: Well. The Nasdaq 100 has entered a bull market. It's on pace for its best quarter since 2020. The S&P 500 is also rallying, reversing most of its losses from the banking crisis. Our Jared Blikre is here at the Wi-Fi interactive with the breakdown and to talk to us about it here.

JARED BLIKRE: Yes.

JULIE HYMAN: Jared, really interesting here. It looks like that like we were talking about the best quarter since 2020. Possibly the best first quarter going all the way back to 2008 for the Nasdaq 100. But we'll have to see how it goes today and tomorrow.

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JARED BLIKRE: Yes, in 2008, one of those infamous years. That was before-- well, that was right in the middle of the global financial crisis. Lehman would be nine months later. But let's take a look at the Nasdaq 100 here. When we talk about bull markets and what how they are defined as well as bear markets, there are different definitions. But what we're dealing with here is a 20% rise off of the most recent lows.

So you take this low that we had in December, and you go all the way up to this close here. And guess what? That is 20% finally. This one just missed it by a hair. How different is the market today than it was six weeks ago? Well, that's arguable. So 20% is a bit arbitrary.

Let me show you something else. This is a second bull market that the Nasdaq 100 has had. And the first one was a failure. Here is the late 2021. This was the all time peak in the Nasdaq 100, came down. This was a bear market. This was not a bull market. But when it came down here and rallied 20% off of these lows, that was a bull.

But guess what? It came back down, and it took out those lows. And it failed. So now we are in the second Nasdaq 100 bull market of this bear market that we've had in the S&P 500. If your head is spinning right now, guess what? It's the S&P 500, this guy right here that really matters and kind of sets the tone with respect to bulls and bears.

Nevertheless, this is going to generate some headlines today as it did yesterday after the close. Traders pay attention, the retail investors pay attention. So if the S&P 500 is able to get into bull market territory, and really I'm just looking at the 200 day moving average and the slope thereof as a better indicator, things are starting to point in the right direction here for the indices, guys.

BRAD SMITH: So thinking through, Jared, some of the biggest players that really tipped tech into the position that we've seen with the Nasdaq 100 now getting into a bull market and some of the biggest outsized moves to the upside within tech, I was looking at software particularly here. I was taking a look at names like CRM, Intuit, Service Now, even into Paycom and Workday. And many of them as you're taking a look over those moves over the past 13 days, not shabby at all.

JARED BLIKRE: Exactly. This is only the last 13 days. And here's where we get into something really interesting. You're noting the big moves in software, and in fact we're also seeing that in semi. But the big question is how can we explain the movements in tech?

Well, let me show you what I have here. This is a Nasdaq 100 versus the Nasdaq composite. Here's year to date. Nasdaq 100 up 17%, up 20% off the lows. We know that's the new bull. The Nasdaq composite which is much more broadly based than the 100 stocks that are in the Nasdaq, in fact it's about 3000, that is lagging. That's only up 14%. That is a big difference here.

And the reason that is happening is because of the influence of the mega-cap. So we have the contributions from software. We have it from the semiconductors. But it is these mega caps on the left-hand-side of the board in the Nasdaq 100 that have really been driving the gains.

Nvidia up 17 and a half percent. Meta, and this is only over the last 13 days, Meta 14%. Alphabet, 12. Microsoft almost 13. Apple, 8. So you put it all together. You don't have these big guys coming along. You really can't have a party. But when it's only the big guys, and it's only tech, that creates problems.

But let me show you what's happened over the last 13 days in sector action. Financials, we all know that story. They've taken a big hit. But everything that's outperformed the S&P 500, that's everything left of this symbol right here. XLK, that's tech. XLK communication services. XLY, that's consumer discretionary. Those are the mega-cap sectors. And those are what's outperforming.

JULIE HYMAN: Yeah. And a couple of additional points to make. I mean, part of the outperformance has also been the rotation out of the financials in some part and into tech which is kind of oddly seen as a haven right now, as interest rate expectations are coming down. That's also something that perhaps has helped technology.

But when you talk about the divergence, by the way, between the Nasdaq 100 and the composite, I just noticed another subgroup that is not done well this year. And that's biotech. I was looking at the XPI, which is the biotech ETF.

Now some of these are in the-- not necessarily in the Nasdaq, but a lot of them are. And if you look at the year to date performance, it has not been great. And so I wonder if that's something too that has been holding back the broader Nasdaq composite. It's interesting to not see that participation there.

JARED BLIKRE: That's right. Julie, when we think about the Nasdaq stocks, a lot of tech stocks, and also biotech stocks. And so here's our pharmaceuticals. Not all of these are biotech, as you said, Julie, not all of these listed on the Nasdaq. But you can see a lot of red here year to date.

This is health care. A lot of times it's considered a defensive sector. But that has to do with some of the larger names. When we talk about the smaller names, well they need a lot of capital to operate. What has happened to the cost of capital? It has gone up dramatically over the last year. A lot of smaller companies, and you'll see this in the performance of the Russell 2000, a lot of these smaller companies are struggling to refinance debt.

The longer this bear market-- well, not the Nasdaq 100. But the longer this stagnation goes on here, the greater that will increase. Now here's the 10 year T-note yield. I want to show you one more thing here. Here's the last-- here's a three month chart.

Here is the beginning of March. We saw the 10 year pop above 4% for the first time in a while. Then it came down and crashed below 3.4%. This was a huge move. And with this downdraft in yields, that's what facilitated the mega-cap trade. That's what facilitated the tech trade, because people are looking at those longer duration assets that require a lot of capital.

They're thinking, all right, the economy may be turning, the fed may be pivoting at some time in the future. And that is what is behind this huge move in this rotation that we've had into the Nasdaq stocks into tech stocks that we didn't have last year. So far this year, the first quarter is a flip of what we had last year. Nasdaq leading, Dow lagging, that was the opposite last year.

JULIE HYMAN: Yeah. And that's a great point about rates coming down at the same time because of what's been going on with the banks and their cost of capital potentially going higher. Does that mean that lower rates are a wash because banks are still going to be charging higher rates to retrieve some of that? We'll see what ends up happening. But that's something too that is, as you said, hurting the biotechs. Thanks, Jared. Really great look at what's been going on.