The Nasdaq 100 dropped 2.2% on Wednesday after gaining 5.3% during the winning streak.
Ina Fassbender/AFP via Getty ImagesTech stocks got crushed Wednesday, ending a 10-day winning streak for the Nasdaq 100. The mere fact that it had such a long streak of gains, however, could indicate a rebound is on its way.
The Nasdaq 100—the 100 largest components of the tech-heavy Nasdaq Composite —went on a 10-day winning streak between Nov. 24 and Dec. 8. Most of the index’s components are large-cap tech stocks, which are typically classified as growth stocks—that is, they have drivers of high revenue growth that aren’t fully correlated to macro economic conditions.
The index’s top 10 holdings include Apple (AAPL), Amazon.com (AMZN), Facebook (FB), PayPal Holdings (PYPL), and Nvidia (NVDA). The Nasdaq 100 dropped 2.2% on Wednesday after gaining 5.3% during the winning streak, bucking a recent trend of value stocks leading the market.
The Vanguard S&P 500 Value exchange-traded fund (VOOV) rose just 3.2% in the 10-day period, a snapback from a broader move into value stocks beginning in September. Investors tend to buy value stocks when the economic outlook brightens.
This bodes well for tech stocks in 2021, even if value stocks run hot at the same time.
There have been just 15 instances in the history of the Nasdaq 100 when the index experienced a 10-day winning streak, going back to 1985. The longest was 13 days in 1992. The average gain for the next year after these streaks, on average, has been 19%, according to research from Bespoke Investment Group.
That’s a strong gain—the long-term average for annual gains in the S&P 500 is about 8%, dating back to 1957. And it isn’t as if those average gains for the Nasdaq 100 are weighted toward just a few explosive years; the index has seen gains over about 85% of all one-year periods after such a winning streak. There have been seven times when the one-year gain was above 20%.
Twice after such a streak, the Nasdaq 100 entered a correction—a downdraft of 10% of more. Those corrections were in 2010, during the “May flash crash” and in 2014 during the Ebola scare, according to data from Instinet.
On a fundamental basis, many on Wall Street still like Big Tech. Earnings for the FAAMG group—Facebook, Apple, Amazon, Microsoft (MSFT), and Google parent Alphabet (GOOGL)—are projected to grow in the midteens in percentage terms to 30% in 2021, and valuations have started to come back down to earth. Apple and Amazon are still 9% and 12% below their all-time highs, respectively, hit in early September.
Write to Jacob Sonenshine at jacob.sonenshine@barrons.com
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December 10, 2020 at 07:30PM
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Big Tech Stocks Just Had a Big Winning Streak. That Usually Means They’re a Buy. - Barron's
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