Is the out of favour NASDAQ due a reprieve?

The first quarter has been notable for the “yield play” rotation out of high growth into cyclical stocks. In this article we review key reasons why the rotation may have gone far enough for now.

Tech (2)

As has been the way during the first quarter of 2021, the rotation out of high growth/tech-heavy indices into those with a higher percentage of cyclical stocks continued overnight as the Dow Jones index made fresh all-time highs, and the NASDAQ closed marginally lower.

Learn more about trading indices

A commendable performance in the face of headwinds that include;

  • The unwinding of the Archegos hedge fund book that resulted in a $20bn distressed stock selling spree after the hedge fund failed to meet margin calls.
  • Another ratchet higher in US yields, ahead of President Biden's announcement on Wednesday of a $4tn infrastructure plan.
  • Continued talk of large end-of-month/quarter selling of US equities to rebalance portfolios.


The NASDAQ’s ability to shrug off the move higher in yields offers a clue that after two months of underperformance the index may be due a reprieve. This may be a result of anticipated consolidation in the bond market after it received further dovish reassurance overnight from a Fed speaker.

In his first speech since joining the Board of Governors, Fed Governor Waller said that the Fed is “a long way from raising rates at this point” and went as far as to say that if the sell-off in the rates market becomes disorderly "we might have to step in just for financial stability reasons."

It may also be based on technical reasons. As can be viewed on the chart below after a -12% pullback from the mid-February 13900 high, the NASDAQ has reclaimed the neckline of the head and shoulders top, thereby negating it.

Furthermore, the NASDAQ last week held and bounced from the uptrend line drawn from the March 2020, 6628 low to the March 2021, 12207 low, keeping the uptrend intact.

Should the NASDAQ remain above the aforementioned trendline support on a closing basis and then break above the series of late February and March highs 13350/360 area, it would open the way for the NASDAQ to retest year to date highs at 13900.    


Source Tradingview. The figures stated areas of the 30th of March 2021. Past performance is not a reliable indicator of future performance.  This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation


More from Nasdaq

Disclaimer

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

GAIN Capital Singapore Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the GAIN Capital group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), GAIN Capital Singapore Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact GAIN Capital Singapore Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither GAIN Capital Singapore Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

GAIN Capital Singapore Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.