The Nasdaq 100 Stock Index ($IUXX) (QQQ) is down -29% from its record-high close on November 19. 2021.  That is the third-longest stretch the index has remained below its record-high close. It took the index 3,925 trading days, more than 15 years to recover from the dot-com crash of 2000, and 416 trading days to recover from the stock market crash of 1987. 

Technology stocks have been hammered this year as the Fed aggressively raises interest rates to combat a 40-year inflation high.  That has prompted investors to flee the high-growth, high-valuation stocks that had prospered in the era of near-zero global interest rates.  As a result, Ameriprise Financial thinks it may be a while before the Nasdaq 100 recovers saying, “big tech still has secular growth drivers, but the growth will be lower, which means the companies will have valuations under the levels they had when times were good.”

In 1985, the Nasdaq 100 Stock Index was created by the National Association of Securities Dealers. Technology companies account for half of the index’s value.  Add in some companies that are classified in other sectors, such as Alphabet and Amazon.com, and the weighting climbs to 60%.  Currently, 11 stocks in the index are down -50% or more this year, compared to just two stocks in the same period last year.  This year’s slump has reduced the valuation of the Nasdaq 100 Stock Index to 21 times the projected earnings from 29 a year ago.

Investors are still fleeing stocks in the technology sector.  Bank of America’s latest survey shows that fund managers are the most underweight technology stocks since August 2006.  Traders are also betting against a rebound in the sector. According to Bloomberg data, ETF traders last Thursday pumped a record $658 million into the ProShares UltraPro Short QQQ fund (SQQQ).  The bearish bets boosted assets in SQQQ to about $3.6 billion, more than double the level at the start of 2022.

According to Federated Hermes, “things have gotten less bad, which is good, but that isn’t enough to give us confidence that tech valuations are at the bottom.”  Defiance ETFs predicts that stock portfolios in the coming years will be more diversified, saying, “a few years ago, it would have been fine to pick the FAANG stocks, set it and forget it.  That has changed.  The process now is more thoughtful.” 

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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes.