A terrible December had people particularly looking toward technology stocks and the Nasdaq as indicating troubled times. We’ve now fully recaptured those losses.
Throughout the market recovery from a bad finish in 2018, seeing things dip by around 20% at its worst and then put in a move upward at Christmas time, we have been wondering whether this current move is a just a pause in a bigger downward move or will end up leading to an actual reversal of it.
With each move further up the ladder, a lineup of people would form to share with us the reasons why they thought that the run would soon be over and we would be once again heading for leaner times. Each time the market kept advancing anyway, suffering only minor stalls that never did speak of the kind of moves against us that we should really have to worry about.
It’s been seven full weeks now and the market recovery continues to march on, being further encouraged by the prospects of a U.S./China trade deal and being steadied by the Fed’s laying off increasing interest rates and putting on a patient face when it comes to when they may need to act to slow things down a bit.
We’re not really seeing the growth that would normally suggest that we need the brakes put on things to keep inflation reasonable, and when we see this along with a movement up in stock prices, this does bode well for the health of the markets. Markets that are more nervous and with people more eager to sell do not need very much to act on their concerns, and the slowdown that we’re seeing that is causing this restraint by the Federal Reserve does impact markets as well, and there is enough positive outlook to have us persevering in spite of this.
People have been particularly concerned about the technology sector lately, as their markets appear to be contracting and this is showing up in some of the earnings reports we’ve seen lately. Seeing the technology-rich Nasdaq Composite outpace the other major U.S. indexes, the Dow and the S&P 500, is particularly encouraging.
While the other two major indexes are approaching the level that they were at before the most recent pullback occurred, the Nasdaq has now made it all the way back, and is poised to venture further up.
Moves This Big Always Impress
The Nasdaq just passed the 20% gain mark, and that in itself is quite noteworthy as this is a move of some magnitude, whether or not it was just a recovery that just took us back to where we were just a few months ago. If a market can consistently gain that much at the best of times, pretty much in a straight up fashion, this always indicates a strong market, even if there are no issues weighing it down.
We’ve indeed had things try to weigh it down over this period, which makes the move even more impressive and even more meaningful as well.
It took less than a month to drive the Nasdaq down this 20%, and about twice as long to gain it back, but the slow and steady nature of this present move may add encouragement to the outlook.
The Nasdaq Composite, by nature of its component stocks overall, does tend to be the more volatile of the three stock indexes, and does tend to go down faster as well as up faster. The total hit from top to bottom for the Nasdaq has been quite a bit bigger, 30% as opposed to the 20% the other two major indexes experienced, and the downward trend with the Nasdaq was also longer in duration, 4 months instead of less than 3 with the others.
We are now two-thirds of the way back to the all-time high of the Nasdaq, and while we might want to say that getting all the way back to this point soon, given the current conditions, might be hoping for too much, if the trade situation gets pleasantly resolved soon, this could provide the extra push we need to get there or to at least get closer.
20% is the figure that people use to define bear markets, so the December fall of the Nasdaq is in itself big enough to qualify, and if we measure this from the actual top back in August, 30% certainly qualifies and then some.
A 20% Move Up is a Bull Reversal
If we apply the same reasoning and benchmarks to the bull side, we can see this as not only recovering from this latest bear move, but putting in an authentic bull move and being still in what we would still consider a longer bull trend.
We are also over the peak we put in on February 5, at a time when it looked to some at least that this party may be ending. We’ve put that little pullback behind us as well and are now within 700 points of the top of the mountain as we continue to ascend further up it.
This has been primarily driven by a rebound in the tech and internet sector, and we do have some major ones that have been outpacing the market over the last while. These are higher beta stocks as well, meaning that they move faster in both directions than the market does on average, and being loaded with a lot of high beta stocks is just want you want when things are climbing, because you will tend to climb at a faster rate.
This story is still unfolding of course, although the Nasdaq is still firmly moving in an upward direction, and there isn’t anything really at our feet right now, save for a further escalation of the current trade war, that stands in our way enough to want to say that we’re seeing any valid signs of this being over yet.