Tech stocks rally back from the brink as investors buy the dip

It was yet another reminder to never count out dip buyers in the stock market.
Image: Bloomberg

Investors sent tech stocks on a wild ride Monday with anxiety running rampant in markets, yields climbing and traders awaiting the Federal Reserve’s rates decision later this week.

It was yet another reminder to never count out dip buyers in the stock market. The Nasdaq 100 Index erased a plunge of as much as 5% with a furious rally in the last 75 minutes of trading to close in the green for the first time in five days. The dramatic reversal came after equity valuations plunged to where they were in the early days of the pandemic, the index touched its most oversold level since 2018 and a technical measure of buying strength versus selling strength known as the Bloomberg Fear and Greed indicator slumped to the lowest in nearly two years.

Investors have grown increasingly cautious about growth stocks in recent days as they brace for the Fed to reiterate its hawkish policy tilt this week. Rising interest rates are expected to pinch the tech sector’s soaring valuations.

“I’m hoping the Fed will calm markets at its meeting, because the selling has been so massive,” Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder, which has about $8 billion in assets, said in an interview. “There’s been a lot of panic selling, aggressive selling, though I think that when it does reverse, it could reverse very quickly.”

This year’s tech rout has sent the stock valuations tumbling to their lowest level since the early months of the pandemic, and comes right as the heart of earnings season for the group gets underway.

To be sure, even with the recent selloff, the Nasdaq 100’s forward price-to-earnings ratio is still 29% higher than its average over the past decade. With tech giants including Apple Inc., Microsoft Corp. and Tesla all set to report results this week, investors will be closely watching for signs that earnings growth has started to level off.

It’s been a rapid decline for the Nasdaq 100, which has gone from a record high to near correction territory in just two months — and in the process shed $2.5 trillion in value. The losses have been widespread, with all but 20 of the index’s 101 members seeing their market capitalisations decline during that stretch. Among the biggest losers are some of the world’s largest companies, including Microsoft, Alphabet and Tesla. Amazon.com Inc. has taken the biggest hit, losing $408 billion in market value, which is more than about 98% of companies in the S&P 500 are worth.

The tech selloff to start the year has been unrelenting outside of a few short-lived rallies. The steady drip has pushed the Nasdaq 100’s 14-day relative strength index below the 30-point threshold for two straight days, and briefly triggered its most oversold reading since October 2018. While technical traders often consider that a signal that a selloff is ending, it’s no sure thing. Back in 2018, the index reached a similar level and dropped another 15% before finally bottoming.

“I think that when the market wakes up to how these growth names continue to grow, that will bring in buyers,” Ghriskey said. “But I do think the Fed should do what it can to calm markets.”

© 2022 Bloomberg

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