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Half of Nasdaq in Trouble

Half of Nasdaq in TroubleHalf of Nasdaq in Trouble

The major US markets like the S&P 500 are sitting just below all-time highs. But a glance under the hood reveals that over half -- 52% to be precise --of the 2,433 stocks listed on the Nasdaq are actually stuck in a bear market. A bear market is a technical term for a 20% decline from a previous 52-week high, CNN reported.

While some of these Nasdaq-listed stocks are major household names like Amazon, Wendy’s and Whole Foods, the vast majority are riskier small-cap stocks such as Travelzoo and Del Frisco’s.

These smaller and more speculative stocks are subject to increased volatility because of their size and weaker fundamentals. That can spell trouble during times of stress such as the recent jitters over the Federal Reserve’s interest rate policies.

“As we get further out into the economic cycle, you start to leave some stocks behind,” said Scott Wren, senior equity strategist at Wells Fargo Advisors.

Sizing up risk: Larger, less risky stocks are performing far better. While more than half of the Nasdaq is in bear-market territory, less than 6% of the larger and more prestigious S&P 500 fit that classification. These bear market S&P 500 stocks include Best Buy, GameStop and Coach.

None of the 30 members of the even more exclusive Dow are in a bear market. Just one stock United Technologies-- is currently trading 10% below its 52-week highs.

“It shows that stocks that are riskier are getting hurt as the market is trading sideways. That’s not good, but it’s not automatically something that is bad,” said Dan Greenhaus, chief global strategist at BTIG.

Still, it’s important to remember that the Nasdaq is up almost 9% for the year despite the fact that half its members are in a bear market. That’s thanks to strong performances from more reliable tech stocks like Intel, Micron Technology and Microsoft.

“The big-cap names in the Nasdaq that have good balance sheets and are making money are doing fine. These smaller names that are much more speculative are lagging or falling off,” said Wren.

Meanwhile, US stocks rallied, with the Dow closing just short of a record, as investors weighed the likelihood that the Federal Reserve will continue to emphasize low interest rates coming out of its policy-setting meeting Wednesday.

In recent days, some stock traders had turned wary and investors had pared bullish bets thinking there was a possibility that the Fed would signal a greater determination to raise interest rates by removing long-standing language that it would keep rates low for a “considerable time.”

 

Financialtribune.com