Underneath the surface, the tech stock heavy Nasdaq Composite is being shredded as traders fret about higher interest rates from the Federal Reserve this year.
Nearly 40% of the stocks on the exchange have been cut in half, according to new research from Sundial Capital Research’s Jason Goepfert. The research firm notes this kind of trading action on the Nasdaq (^IXIC) hasn’t been seen since at least 1999.
“Bulls will suggest that most of the damage has been done, and the indexes should be able to soar from here. Bears will say this is just like the internet bubble, and the index is about to “catch down” to the average stock,” says Goepfert.
Some of the largest tech sell-offs have been seen in momentum favorites among traders. Streaming media player Roku has seen its stock crash 40% in the past three months, according to Yahoo Finance Plus data. Biotech Moderna is down about 30% during that same stretch.
The trading action doesn’t bode well for the Nasdaq this year, Goepfert’s research shows. When at least 35% of stocks are down by half on the Nasdaq, the index has been down by an average of 47%.
Top investing minds suggest the sell-off in buzzy tech names shouldn’t be a surprise given the changing dynamics of Fed policy and elevated valuations.
“That’s what investors should worry about is the valuation of stocks is also worrisome. In the United States, if you look at the CAPE ratio that is very elevated nearly around 35 times or so. If you look at the rest of the world, it’s half of that. So the U.S. has been very, very strong. And we’re at the point of kind of extremes where the valuation has been before, but it usually hasn’t ended real well. And with the Fed in the reverse gear that they’ve been in for nearly two years now, that’s going to cause headwinds for investors,” bond king Jeffrey Gundlach told Yahoo Finance Live in an exclusive interview.