Is it safe to buy big tech companies amid a 41% decline from the top?
2022 has not been kind to tech investors. The leading tech index, Nasdaq 100, dropped by -31.15% YTD, with the big tech market cap shrinking by $4.63 trillion or some 41% from its peak.
Here, we talk about companies like Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), Alphabet (NASDAQ:GOOG), Microsoft (NASDAQ:MSFT), Meta (NASDAQ:META), and Tesla (NASDAQ:TSLA). Some of them dropped much more than Nasdaq 100 did. For example, Tesla is down -65.6% YTD, a stunning decline of a stock once expected to reach the stars.
When investors leave the stock market to park their cash into the safety of bonds and inflation remains well above the Fed’s target, is it safe to start building a portfolio of tech stocks?
NASDAQ 100 entered bear market territory after a double top pattern
The top for the tech sector happened in the last months of 2021. Straight into the last trading days, the index pushed for new highs but failed for the second time at the 16,500 area.
What followed was a steep decline with some bear market rallies. But the overall tone was bearish, and the selling pressure was maintained all year long.
Investors blamed it on the rising interest rates and the Fed’s monetary policy. However, a fairer explanation would be that the previous rally during the COVID-19 pandemic was not sustainable in the long run.
In the second part of this year, much of the market’s attention was on a possible pivot from the Fed. It was the pivot that caused the bottom in October.
Nevertheless, even though stocks bounced and the Fed did pivot, in the sense that it slowed down the pace of interest rates, the tech sector is back-testing the lows.
From a technical perspective, while below 13,750 points, the bear market continues. Also, the round 10,000 level looks like a big level for both bulls and bears. In between, look for the market to move without a specific direction.
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