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.

In the last two weeks, we’ve witnessed the global equities relief rally, with the Nasdaq now down only 9 per cent YTD and halving its 20 per cent decline to start the year.

Moreover, despite weakness to end the week, the Nasdaq finished in positive territory for March, up 4.2 per cent.

The recent rally comes after a difficult start to the year for tech in general.

The prospect of higher interest rates hurt the present value of future profits and slammed growth stocks’ lofty valuations.

Despite recent strength in markets, there is still a lot of uncertainty. For example, the US 10-year bond yield, which helps price everything from mortgage rates to company bond issues, has soared to 2.5%, given the more hawkish Fed rhetoric.

This bond tantrum is tightening financial conditions and boosting perceived recession risks.

Separating the wheat from the chaff

That’s a critical point for investors, but we think the risks are overdone.

Nasdaq 100 volumes have stayed high in spite of the sell-off in 2022.

Beneath the top-line volatility, the data shows that capital continues to flow into markets.

Viewed in that context, many investors saw the Nasdaq fall into a bear market this year as a buying opportunity.

However, as financial conditions tighten those capital flows have shifted into the leading Nasdaq tech companies with established business models.

Conversely, the ‘disruptive’ tech stocks proxied by the ARK Innovation ETF (ARKK) have done even worse, with many of them halving since their 2021 highs.

With recent weakness, we continue to see opportunities amongst big tech.

Those stocks are now cheaper, with less competition and new avenues for growth.

Investors have previously overlooked but are now paying attention to their combination of growth, cash generation and fortress balance sheets.

In addition, the bleaker market outlook deprives big-tech competitors of some of their oxygen and creates more options to make acquisitions to boost expansion.

This year, we have already started to see the power of big tech fortress balance sheets, with Microsoft’s USD$69 billion acquisition of gaming giant Activision Blizzard, the biggest US tech deal ever.

Stock splits

In more recent news, stock splits are the talk of the market in 2022, with Tesla looking to split its shares once again.

The company last split its stock back in August 2020, and since that 5-1 stock split occurred, shares have more than doubled up by over 150%.

This also follows on from Alphabet and Amazon also announcing splits this year.

Historically, stock splits have been bullish for companies.

For example, data shows that S&P 500 companies that announced stock splits since 1980 have returned an average of 25.4 per cent over the following 12 months, compared with the S&P500’s average return of 9.1 per cent over the same period.