Nasdaq’s bear market has taken hold, these investors say

(Bloomberg) — This year’s dismal performance for global tech stocks may be far from over.

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That’s the message from many strategists and fund managers, who expect this year’s losses to deepen in the near term as the Federal Reserve aggressively tightens monetary policy to fight inflation, stoking recession fears.

Even with a potential economic contraction looming, analysts still predict earnings growth for tech companies to accelerate through the end of this year and into 2023. Investors are adding to the sector in their portfolios and expect to profit by buying when prices fall, according to Bank of America Corp.’s quantitative strategists. The company said tech stocks won’t bottom until that optimism fades.

The swift rebound last week did not convince skeptics. The Nasdaq 100 rose 7.2%, snapping a seven-week losing streak. Still, the tech-heavy benchmark is on track for a close this month.

“While a rally feels good, it’s not uncommon to have a bear market rally,” said Peter Garnli, head of equity strategy at Saxo Bank. “Investors should not forget that underlying commodity and supply chain dynamics will continue to support inflation and interest rate pressures. “

Bubbly tech stocks led a global sell-off amid concerns that rising interest rates would dampen earnings growth. The tech-heavy Nasdaq 100 fell $4.3 trillion from its November peak, entering a bear market. Alphabet Inc., Microsoft Corp. and Inc. have fallen 20% or more since record time.

“People used to buy the dip, but this weakness has come to a point where people wonder if tech should be avoided entirely,” said Robert Stimpson, co-chief investment officer at Oak Associates, which manages about $2 billion. level.”

Read more: Goldman Sachs says hedge funds rush to sell growth not fast enough

Lower valuations are encouraging some bargain hunters. The Nasdaq 100 trades at 21 times expected profits over the next 12 months, down about a third from its 2020 peak and below its five-year average of 23. Shares of Alphabet, at 17, are down 40% from their highs.

Katie Koch, chief investment officer for open market equities at Goldman Sachs Asset Management, said in an interview on Bloomberg TV last week that there is an “extraordinary” long-term opportunity for tech stocks given the decline in multiples over the past six months.

Still, the average return potential for Nasdaq 100 stocks has fallen to 28% from more than 40% earlier this month, a sign of sentiment happening as analysts cut 12-month price targets for individual companies change.

Technical Bottom Signals Yet to Scream ‘Buy Now’ After Crash

To assess the current environment, Garnry suggests analyzing the 1970s crash and dotcom bubble.

“These pullbacks have been through multiple rallies, remission periods, and then lower again, so investors today have to be very careful not to be fooled by short-term rallies,” he said.

Today’s technical chart

Chip stocks just had a stellar performance. The Philadelphia Stock Exchange Semiconductor Index rose 8.1% last week, snapping a two-week losing streak and posting its biggest gain in more than two months. The rebound was driven by a rally in the broader market and strong results from some companies such as Marvell Technology Inc.

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