eToro’s weekly Nasdaq focus: Why big US tech stocks are the ‘new defensives’ in a crisis
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In this Stockhead series, Josh Gilbert – market analyst at global investment platform eToro – gives investors the scoop on all things Nasdaq related; the key market themes, along with popular investment trends based on eToro’s data and insights.
It was another rollercoaster week for the Nasdaq 100 with the index down initially as much as 1,000 points for the week, before posting two straight strong gains to finish just below 14,000.
Russia-Ukraine is a potential triple-hit to investors with its toxic combination of greater uncertainty, higher inflation, and therefore lower economic growth.
Investors will generally rotate out of perceived risky assets when uncertainty arises. That’s why we’ve seen assets such as Bitcoin and tech stocks come under pressure over the last week.
On the other hand, many safe-haven assets are doing exceptionally well, with gold and oil outperforming.
This adds to the existing difficult situation for consumers. It does not dramatically change it. What investors shouldn’t do in these situations is panic. Try to look past the short term volatility and remember your investing goals.
The more risk-averse should consider ‘dollar-cost average’ investing a fixed amount on a regular basis into the markets.
This helps to smooth high volatility and ensure they do not miss an eventual recovery.
The more risk-tolerant, which includes many younger investors with significant time to retirement, should remember the investment maxim to ‘be greedy when others are fearful’.
Nevertheless, there are plenty of opportunities arising amongst tech, with some household names trading well off their record highs.
History shows geopolitics does not have a lasting impact on global markets. We expect current uncertainty to ease gradually.
Fundamentals remain solid, with company profits rising, economies reopening, valuations cheaper, and markets now fully expecting central banks to significantly raise interest rates.
Yes, this is likely to have a short-term impact on markets, but we are still positive in the long term.
Company earnings are still delivering, despite high-cost pressures.
We believe profit margins will stay near-record levels, and drive further earnings growth. Returns will be lower in 2022 for equity markets, and with higher volatility, but we still foresee a positive 2022.
We’ve had a great Q4 earnings season so far, which has delivered 30% earnings growth, above analyst expectations.
Big Tech companies have also stood up as the new defensives in times of uncertainty. Companies like Apple, Alphabet, Microsoft and Amazon, have dominant market positions, strong growth, high margins, and fortress balance sheets.
They are all-weather equities that appear to be able to deal with uncertainty. In fact, these four names have outperformed the Nasdaq during this recent correction.
Events like this illustrate the importance of diversification and avoiding overexposure to a single asset class. When these tensions arise, some assets such as gold will weather the storm and often perform well, while other assets such as disruptive tech will respond with higher volatility.
This article was developed in collaboration with eToro, a Stockhead advertiser at the time of publishing.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.