Nasdaq a buy on the dips?

The Nasdaq is approaching a very strong time of the year. Over the last 35 years, the Nasdaq has risen 26 times between April 14 and June 05. The largest gain was in 2003 with a +18.85% return. The biggest loss was -13.12% in 2010. One major factor to consider is that the Nasdaq is largely driven by tech stocks. Apple, Microsoft, Amazon, Tesla, and Facebook are the 5 largest members of the index.

You can see that the index is heavily concentrated with technology companies but also includes companies from other sectors. It is often used as a barometer of the health of the technology sector. Over the COVID-19 induced lockdowns the NASDAQ has seen very strong gains as the so-called ‘stay at home’ stocks saw investor demand. As the world went digital the Nasdaq has gained.

Trade Risks:

  • There is a growing risk that investors consider equity markets overbought and that could see a correction. It is hard to know when that correction will come, but investors need to be aware of the potential risk.
  • There is an upside risk that another break out of COVID-19 could speed up further growth from tech stocks.
  • Any delay in the US stimulus packages could result in general weakness in the US stock market. The Nasdaq would also suffer sharp losses in such an event.