Almost half of Nasdaq Stocks Down 50%

Bloodbath for Tech Stocks

As of today’s close (-4.17%), the NASDAQ Composite is officially in a bear market. Since it’s November 15, 2021 peak the index is down just over 22%. In comparison, the S&P 500 is down almost 12% during the same period.

What this downdraft masks, however, is the sheer carnage happening beneath the surface:

  • Almost 50% of NASDAQ stocks are down 50%.
  • 20% are down 75%.
  • 5% are down a whopping 90%!

This has been disastrous for the long-only trees-grow-to-the-sky crowd. In contrast, those with some dry powder have the opportunity to start writing their wish lists, as many quality growth stocks now trade at interesting valuations. There are numerous household tech names valued at 15-20 times next 12mths earnings, with envious revenue growth rates.

Tech stocks are getting hammered because they are effectively high duration assets highly sensitive to quickly rising discount rates. Moreover, tech stocks were priced for perfection just a few months ago, so a slight change in breeze was enough to knock them off their perch.

The markets needed this. During the lock downs too many people were trading overvalued one-trick ponies with questionable business models. These people thought they were geniuses because they were making crazy money – now they are nowhere to be found. I’m sure many have experienced gut-wrenching margin calls and some have probably lost everything they earned. This same story repeats during every speculative mania.

Today, we’re approaching the point at which investors can pick up some solid cash-flow generating tech businesses at fair prices.

Of course, this doesn’t mean these companies won’t get even cheaper as sentiment continues to take a pounding. The S&P 500 today broke through the March low after failing to retrace it’s previous high. Lower-lows and lower-highs are not usually a good sign. I’d love to see some real capitulation before I feel good about putting $$ to work.

But there could come a point sometime soon where inflation starts to soften (as year-over-year comparables flatten out) and suddenly the Fed isn’t as hawkish as it is today. Also, the world could get a bullish surprise if Russia dials back aggression after its May 9th Victory Day celebrations, which it reportedly plans to use to celebrate the ‘win’ in Ukraine. This pivot point – if it occurs – could surprise many investors.

Of course, it goes without saying nothing is certain. The world is exiting a pandemic while entering what could be the start of WW3, both causing a multitude of humanitarian, economic and risk issues.

This is as unpredictable as it gets.

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