This week’s big news was that the Nasdaq 100 Index—a basket of the 100 largest (mostly tech) stocks traded on the Nasdaq stock exchange—surged into a new bull market on Wednesday. Our featured chart above shows that the tech-heavy index has rallied more than 20% from its December 28th low—the technical definition of a bull market.
Technology stocks have outperformed this year because investors are betting that the Federal Reserve will stop raising rates and perhaps even start cutting them before the year ends. Just as growth and tech stocks suffered the most last year when the Fed was raising rates, they have benefited the most now that investors are starting to see the light at the end of the rate-hike tunnel.
This is likely a bullish signal for the overall stock market. A rally in big tech stocks indicates that investors are adopting a more “risk-on” attitude toward financial markets. More so, from a market capitalization standpoint, big tech holds such a large weighting in the overall market that strength in this area goes a long way toward keeping the major market indices afloat.
On the other hand, however, investors still need to be realistic about the possibility of more volatility in the near term. If the fall in interest rates that benefits many of the Nasdaq 100 stocks is happening because the bond market is pricing in an economic recession, that could ultimately be bad for stock prices. And historically, when just a few individual stocks are responsible for keeping the stock market afloat—what we call “bad breadth”—it tends to be a sign of a market vulnerable to volatility.
This is intended for informational purposes only and should not be used as the primary basis for an investment decision. Consult an advisor for your personal situation.
Indices mentioned are unmanaged, do not incur fees, and cannot be invested into directly.
Past performance does not guarantee future results.