Special Report: 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.

The macro view

As markets head into the end of the year, inflation is on the radar.

More specifically, how policy makers will respond if CPI – growing at its fastest annual rate in 30 years – proves more stubborn than transitory.

If faster interest rate rises are on the cards, the investor reaction may show up first in the bond market.

Historically, the Nasdaq has demonstrated higher sensitivity to the prospect of higher bond yields.

Does that mean more volatility is in store? So far, US tech stocks have weathered the inflation storm fairly comfortably. And Gilbert “isn’t too concerned” about the outlook for the likes of Apple, Google, Meta, Amazon, Netflix and Tesla.

“While the valuations of those companies might be based on high earnings projections, they also have fortress balance sheets and high profitability,” he said.

“So from that point of view they’re going to continue to do well moving into next year, when it might feel like broader markets are a little more subdued.”

On that front, Gilbert isn’t expected to see a repeat of the outsized post-COVID gains of +20% annually for the Nasdaq.

“But we do still expect to see gains from US markets next year.” he said.

J-Pow – back in the chair

The other big macro event of the week was the reappointment of US Fed chair Jerome Powell to a second term.

While Powell’s chief competitor for the role – Lael Brainard – was viewed as slightly more dovish, Gilbert said the relative stability of Powell’s reappointment is a net positive for investors.

On Tuesday, some commentary from Powell rattled equity markets after he flagged the Fed may look at tapering its asset purchase program faster than expected.

“From a macro standpoint, Brainard’s appointment might have given tech/growth stocks a bit of a boost,” Gilbert said.

“But I think the other way to look at it is that in some ways Powell’s reappointment was actually a bit of a relief for investors.”

“Markets don’t necessarily want to see a change in leadership during a period when policy makers are trying to manage much higher inflation.”

“So I think if he wasn’t selected, there may have been a sugar hit but it could also have been accompanied by higher volatility. So in that sense I think markets are ultimately happy to see Powell back in the driver’s seat.”

Nasdaq sector to watch

In terms of investor interest on the eToro platform, Gilbert flagged US semiconductor stocks as a key sector to watch.

While the ASX is home to a cohort of semiconductor small caps looking to prove out their technology, the Nasdaq is home to global giants such as Nvidia, Qualcomm and Intel.

In that context, eToro’s Nasdaq-focused ‘Chip-Tech’ index has been a strong performer across the COVID-19 market cycle.

So far in 2021, the index is up by 41.62%, following gains of 62.14% and 69.02% in 2020 and 2019 respectively.

“Past performance isn’t indicative of future returns, but we’re seeing that (the Chip-Tech index) as a continued theme that investors are leaning towards,” Gilbert said.

In practice, the Chip-Tech index operates similarly to an ETF, except it’s a portfolio of semiconductor stocks constructed by the platform’s in-house investor network.

The largest holding in the index is US giant Nvidia (NSDQ:NVDA), which comprises 8.97% of the portfolio.

The ~$800bn market giant has more than doubled in value over the past year, as investors assess its place as a leading provider of graphics processing units and chip technology.

Increasingly, investors are assessing Nvidia’s market position in the looming battle between tech giants, after Meta (rebranded from Facebook) last month revealed plans to invest more than $US30bn next year to bolster its data centre and tech infrastructure networks.

“This tech shift still has a long way to play out – for example, the amount of people I’ve had asking me about the metaverse lately is through the roof,” Gilbert says.

“When we talk about chips, they’re in everything we use – from phones to cars, computers to crypto mining and new concepts like Web 3.0 and the metaverse.”

“We could see chip technology as the centrepiece for the next decade of global growth in line with these dominant trends – data analytics, cloud-based services, AI and machine learnings – chips power all of that,” he said.

“So obviously the post-COVID chip shortage has created near term headwinds, but it’s important not to lose sight of longer-term trends,” Gilbert said.

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.