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Bearish Underbelly of Tech Stocks Reveals Increasing Market Vulnerability

While the market looks good on the surface, nearly half of Nasdaq Composite stocks are down 20% from a year ago, meaning they are all deeply mired in a bear market. The Nasdaq is made up largely of high-tech stocks, which is where market vulnerability showed up in the last crash of a speculative stock market.

Bloomberg reports:

 

The appetite for risk is narrowing as the Federal Reserve reins in economic stimulus after a five-year rally that added almost $16 trillion to equity values.

 

Since the Federal Reserve announced a little over a year ago that it will begin reigning in its quantitative easing program, signs of market vulnerability have risen. The number of high-tech stocks that are in their own bear market has gone up from 30% of the Nasdaq to 47%.

Bloomberg quotes one investment advisor as saying,

 

Most people see the record highs on the S&P 500 and that makes them feel like, “Oh, the market is doing just fine,” without recognizing that most stocks really are not participating to that degree.

 

Says another advisor, regarding market vulnerablity,

 

There is a sense of “Well, we’ve had a lot of liquidity, we’ve had low rates,” and “once the punch bowl is taken away, the market is going to fall.” 

 

On the surface, the Nasdaq appears to be doing great because of robust companies like Microsoft and Apple doing well at the top, but it has an increasingly fat, soft and exposed underbelly, which is now dragging the ground. Just before the stock market last tumbled, the market showed the same gut-level vulnerability with forty-five percent of high-tech stocks and IPOs in a bear market.

 

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