NASDAQ 100: Index Trouble Spells Investor Opportunities
The Nasdaq 100 index has been experiencing major turbulence and a general downward trend in recent weeks, setting 2023 up to be a potentially historic year for the key measure of economic health in the tech sector. The weakness of the index and the technology stocks, in general, has caused investors to take notice. Earning a profit as a speculator means making accurate predictions about a given asset class or individual stock, commodity, or currency.
Investors who prefer to trade indices know how important it is to get a feel for the general direction of a sector before putting their money on the line. But what happens when the outlook is grim, as it is for the Nasdaq 100 right now? New and experienced traders and investors can take advantage of CFDs (contracts for difference), which allow holders to take a position on either side of a price move. But what should people learn about the technology sector before getting into market action? Consider the following points about recent events that have impacted the health of the Nasdaq 100 index.
- Even though the benchmark tech index outperformed most other sector-specific indices in the immediate period after the COVID pandemic hit, the past few months have been unkind to the much-followed metric. Flexibility is the main reason traders prefer to use instruments like CFDs to speculate on the Nasdaq 100. When account holders on top platforms like AvaTrade see trouble ahead for an index that's on their radar, they can make a play on either side of the move.
- Recently, this principle has become more important for individual trading enthusiasts as the tech sector has continued to fall through the first quarter of 2023. Compounding the problem for the tech centered measurement is that yield rates on short-term bonds have been posting solid increases. Note that the technology stocks as a group have declined in price by about 7% since mid-February. In that short time span, the 10-year government bond rate has reached recent highs, hitting the 4% mark in March.
- Even 2-year bonds have done well because of a string of economic reports from the US government. Will the Fed continue to raise interest rates? It appears likely to happen based on Chairman Powell's latest statements, bond performance, and a host of other factors. That's generally very good news for consumers, investors, traders, and others. What does it mean for technology-based stocks and assets?
- There's a general principle in economics that stocks suffer when people can get solid returns on their money in the bond markets. That's what appears to be happening now, but the fallout is hitting the Nasdaq index more than any other. Recent political and legal problems for the leading corporations in the field have not helped the tech corporations. As bond yields continue to improve, it's likely that all the equity sectors to experience weakness, potentially throughout the entire year.
- Poor earnings in the sector have dealt an additional blow to the N-100 index. For the first time in many months, growth was negative, this time to the tune of at least 3% for most of the leading corporations. In some cases, negative earnings are not dire warnings of upcoming trouble. But in the current environment of high inflation, there's a chance that those recent earnings numbers could get much worse as the year progresses.
- Political problems in the industry also play a significant role in short-term and long-term value estimates. Several government agencies are already investigating some of tech's top corporations for potentially illegal activity regarding account suspensions, customer surveillance, and collusion with government operatives for personal and political reasons. In 2022, there were several shakeups among upper management in some of the leading companies, causing unpredictable earnings, see-saw stock prices, and other negative effects.
- Investing enthusiasts can position themselves for profits in several ways. One is to use instruments like CFDs to predict either an upward or downward price move in each asset. The other is to speculate on specific corporate shares based on knowledge about earnings. However, for that strategy to work, the individual will need to short the stock if the expectation is for a price drop.
- Perhaps the simplest way to play the market in the current situation is to trade an index. There are various sector, whole market, and niche indices available for those who prefer to avoid purchasing or shorting individual stocks. Considering recent developments, the N-100 could prove to be one of the best ways to get into market action in 2023. The index's performance through mid-year will be informative for industry watchers and investors.