(Oct 8): Dip buyers emerged after the recent selloff in some of the world’s largest technology companies, with the Nasdaq 100 extending its rally into a third day.
Buying from retail investors has averaged US$1.2 billion a day this week, according data from Vanda Research. Those purchases have exceeded the daily average for 2021 of US$1.05 billion. The largest tech firms and exchange-traded funds with big positions on the industry have accounted for much of the buying, analysts Ben Onatibia and Giacomo Pierantoni, wrote. For Garrett Melson, strategist at Natixis, tech companies remain attractive and are poised demonstrate their earnings power.
“People continue to underestimate just how strong their growth has been,” Melson said. “Tech is the secular growth engine for the market and that will continue to be the case over the long term.”
After Monday’s rout, the five largest U.S. tech companies had lost nearly US$900 billion in market value from the Nasdaq 100’s peak on Sept. 7 as higher Treasury yields put pressure on growth stocks. The gauge then rebounded, climbing almost 3% in three days. The NYSE FANG+ Index of giants such as Amazon.com Inc. and Apple Inc. surged as much as 2.8% on Thursday.
Some other analysts remain concerned that the market will remain less hospitable to the industry that has powered the surge in stocks from the depths of the pandemic. With the economic growth, many traders would tend to seek stocks that could benefit the most from a rebound in activity. Another factor is the outlook for higher interest rates as the Federal Reserve gets ready to wind down its stimulus measures.
“We’ve gone through an extended period of megacap outperformance, and I think that’s coming to an end,” said Ryan Jacob, manager of the Jacob Internet Fund. “One of the reasons they’ve done so well is because over the past 11 or 12 years we’ve had an environment where rates have generally fallen, but it looks like that environment is shifting.”
Jacob said he has been tilting his portfolio toward small and mid-cap shares, whose faster growth will be better able to compensate for higher rates.