A recent Bloomberg article suggested that the Nasdaq has another 10% gain ahead. The rationale of the piece was based around the following three points:
- Firstly, yes the Nasdaq has gained 21%, but other assets have gained even more. Gold is up +30% on the year and iShares 20+ Treasury bond ETF are up +25%, so just because prices look stretched it doesn’t mean they can’t continue.
- Secondly, the Russell 2000 index is generally a good indicator of US economic health and that has fallen around 10% for the year. So,this shows us that some equity investors are cautious of chasing higher prices for higher prices sake. The technologically driven Nasdaq has exceed all time highs on on expectations of rising earnings. After all tech stocks are outperforming during the lockdown induced by COVID-19.
- Thirdly, the surge higher in ISM manufacturing data yesterday at 54.2 vs (53.6 expected) shows the US economy is on a recovery path. This is despite the rising COVID-19 cases. Further more US President Trump was quoted as saying there is ‘a big number coming out Friday on jobs’. So, there is optimism heading into this weekend. Finally, the expectations are that GDP will turn positive after the last quarter’s slump. According to Bloomberg’s market’s live blog analysts are expecting the NYSE FANG+ Index’s EPS to grow 45% in 3Q and 28% in 4Q. This is after a strong 78% jump in 2Q.
The double top in the NASDAQ failed to materialise and price has since broken the pattern. This would open up the way for more upside as the pattern fails and investors bank on rising earnings for tech stocks.