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The tech-heavy Nasdaq ETF has gained about 32% this year and 5% in the past three months (as of Sep 11, 2023) but the rally was concentrated. The 'Magnificent Seven' stocks — Apple (AAPL - Free Report) , Microsoft (MSFT - Free Report) , Nvidia (NVDA - Free Report) , Alphabet (GOOGL - Free Report) , GOOG), Amazon (AMZN - Free Report) , Meta Platforms (META - Free Report) and Tesla (TSLA - Free Report) — that have made up around 90% of gains on Wall Street's S&P 500 rally this year, sent Nasdaq northward too.
Tesla & Apple Among Most-Shorted Stocks
The winning run of Nasdaq may hit a bump ahead as Tesla (up 118% YTD) has been the most shorted stock in the past three consecutive months ending August. Hazeltree, which tracks 12,000 equities globally, said the second and third-most shorted stocks last month were Charter Communications and Apple (up 36% YTD), respectively, as quoted on Reuters. Apple takes about 11% of the Nasdaq-100 ETF Invesco QQQ (QQQ - Free Report) .
Hedge funds have been shorting U.S. stocks at a rapid pace in recent weeks, a Goldman Sachs note this week showed, and total short bets hit their highest value in six months. Hedge funds were net short consumer discretionary stocks, which would include Tesla, for the year ending Sep 8, according to the Goldman note, as quoted on Reuters.
Then there are rising rate worries. Thanks to the sticky inflation, interest rates are likely to be higher for longer. A jump in oil prices is likely to push up inflation in the medium term. This scenario and the resultant higher rates are not great for growth stocks like technology and some consumer discretionary companies.
Valuation: Currently 14% Discount to All-Time High
In terms of valuation, the Nasdaq Composite is not highly overvalued at present. In fact, the index is still 14% below its closing level in 2021. The index witnessed havoc loss in 2022 and thus is still not overvalued despite a 31.7% rally in 1H. The Nasdaq Composite reached its all-time high of 16,212.23 on Nov 22, 2021.
Can the Index Continue Its Run?
As of mid-2023, the NASDAQ has been trading at high valuation levels by historical standards. Nasdaq’s PE ratio as of Sep 11, 2023 is 23.04X. Historical evidence suggests that, despite seemingly high levels, there may still be room for growth. In 2010, Nasdaq’s P/E hit a low of 7.64X.
This raises questions about whether the current rally is sustainable. But then, the current P/E is not even near the historically high level. The past decade’s historical data reveal that the highest P/E was 49.57X in 2017.
Overall,we expect the Nasdaq to give a downbeat to moderate performance ahead with the help of Microsoft, Meta, NVIDIA, Amazon and Alphabet, if at all Apple and Tesla fail to assist the index. If you think the Nasdaq may slump ahead, we can short the index with below-mentioned ETFs.
Inverse Nasdaq ETFs in Focus
ProShares UltraPro Short QQQ (SQQQ) – Up 0.7% Past Week
ProShares UltraShort QQQ (QID - Free Report) ) – Up 0.6% Past Week
ProShares Short QQQ (PSQ - Free Report) ) – Up 0.3% Past Week
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Inverse ETFs to Play If Nasdaq Slumps Ahead
The tech-heavy Nasdaq ETF has gained about 32% this year and 5% in the past three months (as of Sep 11, 2023) but the rally was concentrated. The 'Magnificent Seven' stocks — Apple (AAPL - Free Report) , Microsoft (MSFT - Free Report) , Nvidia (NVDA - Free Report) , Alphabet (GOOGL - Free Report) , GOOG), Amazon (AMZN - Free Report) , Meta Platforms (META - Free Report) and Tesla (TSLA - Free Report) — that have made up around 90% of gains on Wall Street's S&P 500 rally this year, sent Nasdaq northward too.
Tesla & Apple Among Most-Shorted Stocks
The winning run of Nasdaq may hit a bump ahead as Tesla (up 118% YTD) has been the most shorted stock in the past three consecutive months ending August. Hazeltree, which tracks 12,000 equities globally, said the second and third-most shorted stocks last month were Charter Communications and Apple (up 36% YTD), respectively, as quoted on Reuters. Apple takes about 11% of the Nasdaq-100 ETF Invesco QQQ (QQQ - Free Report) .
Hedge funds have been shorting U.S. stocks at a rapid pace in recent weeks, a Goldman Sachs note this week showed, and total short bets hit their highest value in six months. Hedge funds were net short consumer discretionary stocks, which would include Tesla, for the year ending Sep 8, according to the Goldman note, as quoted on Reuters.
Then there are rising rate worries. Thanks to the sticky inflation, interest rates are likely to be higher for longer. A jump in oil prices is likely to push up inflation in the medium term. This scenario and the resultant higher rates are not great for growth stocks like technology and some consumer discretionary companies.
Valuation: Currently 14% Discount to All-Time High
In terms of valuation, the Nasdaq Composite is not highly overvalued at present. In fact, the index is still 14% below its closing level in 2021. The index witnessed havoc loss in 2022 and thus is still not overvalued despite a 31.7% rally in 1H. The Nasdaq Composite reached its all-time high of 16,212.23 on Nov 22, 2021.
Can the Index Continue Its Run?
As of mid-2023, the NASDAQ has been trading at high valuation levels by historical standards. Nasdaq’s PE ratio as of Sep 11, 2023 is 23.04X. Historical evidence suggests that, despite seemingly high levels, there may still be room for growth. In 2010, Nasdaq’s P/E hit a low of 7.64X.
This raises questions about whether the current rally is sustainable. But then, the current P/E is not even near the historically high level. The past decade’s historical data reveal that the highest P/E was 49.57X in 2017.
Overall,we expect the Nasdaq to give a downbeat to moderate performance ahead with the help of Microsoft, Meta, NVIDIA, Amazon and Alphabet, if at all Apple and Tesla fail to assist the index. If you think the Nasdaq may slump ahead, we can short the index with below-mentioned ETFs.
Inverse Nasdaq ETFs in Focus
ProShares UltraPro Short QQQ (SQQQ) – Up 0.7% Past Week
ProShares UltraShort QQQ (QID - Free Report) ) – Up 0.6% Past Week
ProShares Short QQQ (PSQ - Free Report) ) – Up 0.3% Past Week