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Nasdaq in Correction: One Solid Reason to Buy the Dip in ETFs

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The rout in technology shares that started on Sep 3 worsened to start this week’s trading as investors continued dumping this winning segment of the coronavirus crisis. The tech-heavy Nasdaq Composite underperformed once again compared with its other key U.S. peers after suffering its worst week since March. Along with big tech names, chip stocks were crushed too as tensions between the United States and China flared up.

SPDR S&P 500 ETF Trust (SPY) lost 2.7%, SPDR Dow Jones Industrial Average ETF Trust (DIA) retreated 2.3%, small-cap iShares Russell 2000 ETF (IWM) lost about 1.9% while the Nasdaq-100 fund Invesco QQQ Trust (QQQ - Free Report) was off about 4.8% on Sep 8. Nasdaq is 10.03% below its closing record of 12,056.44 from Sep 2. The Nasdaq has now entered into the correction territory (see all technology ETFs here).

Apart from the overvaluation concerns, reports that U.S. sanctions could spread to businesses like Semiconductor Manufacturing International Corp., China’s largest chip fabricator, hurt the semis space on Sep 8. Over the weekend, talks were doing rounds that SMIC could join the U.S. “entity list” like telecom equipment maker Huawei back in May.

Stock-wise, Tesla lost 21.1% on Sep 8, in a sign to record its worst-day ever. The sharp crash came on the heels of the electric car maker’s failure to make it to the S&P Dow Jones Indices. Shares of Apple recorded its worst three-day stretch since October 2008, according to Bespoke Investment Group, as quoted on CNBC.

Is This a Chance to Dip the Toe in Tech Stocks?

While President Donald Trump and some others see a vaccine as early as this year, nine biopharma CEOs are seeking a joint safety and efficacy pledge. On Sep 8, the CEOs of AstraZeneca, BioNTech, GlaxoSmithKline, Johnson & Johnson, Merck, Moderna, Novavax, Pfizer and Sanofi pledged to not seek approvals or emergency use authorizations for their vaccine candidates without conclusive positive data, per a source.

The drugmakers will "only submit for approval or emergency use authorization after demonstrating safety and efficacy through a phase 3 clinical study that is designed and conducted to meet requirements of expert regulatory authorities such as FDA," they said, per the abovesaid source. AstraZeneca plc said it has stopped a late-stage trial of one of the leading COVID-19 vaccine candidates after an unexplained illness in a volunteer.

This means further uncertainty in the health emergency and the related economic recovery. This also ensures a prolonged period of social distancing norms and continued surge of digitization. No doubt, the Nasdaq had been a high-flying index this year, but the latest correction will help investors to dip their toe in the index and its tech components.

Against this backdrop, below we highlight a few ETFs that could be bought right now.

Nasdaq & Tech ETFs

Nasdaq ETFs like Invesco QQQ (QQQ - Free Report) , First Trust NASDAQ-100 Equal Weighted Index Fund (QQEW - Free Report) and Fidelity Nasdaq Composite Index Tracking Stock (ONEQ - Free Report) can be bought on the correction.

As long as tech ETFs are concerned, investors can buy low P/E or undervalued tech ETFs like Invesco S&P 500 Equal Weight Technology ETF (RYT - Free Report) (P/E 19.92X),iShares Cybersecurity and Tech ETF (IHAK - Free Report) (P/E 20.19X), First Trust NASDAQ Technology Dividend Index Fund (TDIV - Free Report) (P/E 20.56X) and First Trust ISE Cloud Computing Index Fund (SKYY - Free Report) (P/E 21.98X). These funds have the lowest P/Es in the tech space.

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