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1H 2023 Belongs to Nasdaq Composite: Will the Rally Continue?
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Wall Street rebounded in the first half of 2023 after a highly disappointing 2022. The rally was primarily led by growth stocks, especially, technology stocks. Consequently, the tech-heavy Nasdaq Composite Index took the lead role in enabling U.S. stock markets to restart their northbound journey.
In the first half of 2023, the blue-chip Dow and the broad-market Index S&P 500 advanced 3.8% and 15.9%, respectively. On the other hand, the tech-laden Nasdaq Composite jumped 31.7%, marking its best first-half performance since 1983.
Nasdaq’s rally was evenly spread across the first half. The index climbed 16.8% in the first quarter and 12.8% in the second quarter of 2023. Barring a marginal loss in February, the index closed on a positive note in the rest of the five months in first-half 2023.
Rally Likely to Persist
At this stage, the important question is will the momentum continue for Nasdaq Composite in second-half 2023? Nasdaq’s rally has fundamental and technical aspects.
Fundamentally, the index’s performance is primarily linked to the movement of interest rates. The performance of growth stocks like technology is inversely related to the interest rate trajectory. The Nasdaq Composite was the best performer in pandemic-ridden 2020 and 2021 as the Fed kept the benchmark interest rate to almost zero.
The opposite happened in 2022 as the central bank hiked the lending rate by a massive 4.5% to combat record-high inflation. The valuation of most of the technology behemoths plunged last year. The situation once again turned in favor of the Nasdaq Composite in 2023 on the expectation that the rate hike cycle is nearing its end.
Moreover, the tech rally in the first half was led by a massive thrust toward artificial intelligence (AI), especially generative AI. The rapid penetration of digital technologies and the Internet worldwide during the lockdown period, ushered in significant adoption of AI.
Some financial and technology experts opine that AI is much-hyped and may lead to a bubble. We believe the AI-space is yet to unfold in the United States and in international markets. Once that happens, it will generate huge business opportunities for technology companies producing high-end products.
Technically, at its current level of 13,787.92, the Nasdaq Composite is well above its 50-day and 200-day moving averages of 12,815.09 and 11,637.69, respectively. The 50-day moving average line is generally recognized as the short-term trendsetter in financial literature, while the 200-day moving average is considered a long-term trend setter.
Historically it has been noticed in the technical analysis space that whenever the 50-day moving average line surges ahead of the 200-day moving average line, a long-term uptrend for the index becomes a strong possibility.
Valuation-wise too, Nasdaq Composite is not overheated. The index is in fact 13.5% below its closing level of 2021. The current rally is looking so bright because of the low base of 2022. The tech-heavy index reached its all-time high of 16,212.23 on Nov 22, 2021. At present, the index needs to rise 17.6% more to reach that level.
Our Top Picks
We have narrowed our search to five Nasdaq-listed technology giants. These stocks have strong potential for the rest of 2023 and have seen positive earnings estimate revisions in the past 60 days. Each of our picks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The chart below shows the price performance of our five picks year to date.
Image Source: Zacks Investment Research
Meta Platforms Inc. (META - Free Report) is benefiting from steady user growth across all regions, particularly Asia Pacific. Increased engagement for its products like Instagram, WhatsApp, Messenger and Facebook has been a major growth driver. META is considered to have pioneered the concept of social networking.
Zacks Rank #2 Meta Platform has an expected revenue and earnings growth rate of 9% and 21.5%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 1.5% over the past 60 days.
NVIDIA Corp. (NVDA - Free Report) is gaining from the strong growth of artificial intelligence, high-performance computing and accelerated computing, which is boosting its Compute & Networking revenues. A surge in Hyperscale demand and a solid uptake of artificial intelligence-based smart cockpit infotainment solutions are acting as tailwinds for NVDA.
Zacks Rank #1 NVIDIA has an expected revenue and earnings growth rate of 58.1% and more than 100%, respectively, for the current year (ending January 2024). The Zacks Consensus Estimate for current-year earnings has improved 2.7% over the past 30 days.
Palo Alto Networks Inc. (PANW - Free Report) has been benefiting from continuous deal wins and the increasing adoption of PANW’s next-generation security platforms, attributable to the rise in the remote work environment and the need for stronger security.
Zacks Rank #1 Palo Alto Networks has an expected revenue and earnings growth rate of 21.3% and 16.9%, respectively, for the current year (ending July 2024). The Zacks Consensus Estimate for current-year earnings has improved 0.6% over the past seven days.
Cadence Design Systems Inc. (CDNS - Free Report) offers products and tools that help customers design electronic products. Through the System Design Enablement strategy, CDNS offers software, hardware, services and reusable IC design blocks to electronic systems and semiconductor customers.
Zacks Rank #2 Cadence Design Systems has an expected revenue and earnings growth rate of 13.5% and 17.1%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.1% over the past 60 days.
Synopsys Inc. (SNPS - Free Report) is benefiting from strong design wins owing to a robust product portfolio. Growth in the work-and-learn-from-home trend is driving demand for bandwidth. Moreover, strong traction for SNPS’ Fusion Compiler product boosted the top line.
Zacks Rank #2 Synopsys has an expected revenue and earnings growth rate of 14.3% and 21.6%, respectively, for the current year (ending October 2023). The Zacks Consensus Estimate for current-year earnings has improved 2.7% over the past 60 days.
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1H 2023 Belongs to Nasdaq Composite: Will the Rally Continue?
Wall Street rebounded in the first half of 2023 after a highly disappointing 2022. The rally was primarily led by growth stocks, especially, technology stocks. Consequently, the tech-heavy Nasdaq Composite Index took the lead role in enabling U.S. stock markets to restart their northbound journey.
In the first half of 2023, the blue-chip Dow and the broad-market Index S&P 500 advanced 3.8% and 15.9%, respectively. On the other hand, the tech-laden Nasdaq Composite jumped 31.7%, marking its best first-half performance since 1983.
Nasdaq’s rally was evenly spread across the first half. The index climbed 16.8% in the first quarter and 12.8% in the second quarter of 2023. Barring a marginal loss in February, the index closed on a positive note in the rest of the five months in first-half 2023.
Rally Likely to Persist
At this stage, the important question is will the momentum continue for Nasdaq Composite in second-half 2023? Nasdaq’s rally has fundamental and technical aspects.
Fundamentally, the index’s performance is primarily linked to the movement of interest rates. The performance of growth stocks like technology is inversely related to the interest rate trajectory. The Nasdaq Composite was the best performer in pandemic-ridden 2020 and 2021 as the Fed kept the benchmark interest rate to almost zero.
The opposite happened in 2022 as the central bank hiked the lending rate by a massive 4.5% to combat record-high inflation. The valuation of most of the technology behemoths plunged last year. The situation once again turned in favor of the Nasdaq Composite in 2023 on the expectation that the rate hike cycle is nearing its end.
Moreover, the tech rally in the first half was led by a massive thrust toward artificial intelligence (AI), especially generative AI. The rapid penetration of digital technologies and the Internet worldwide during the lockdown period, ushered in significant adoption of AI.
Some financial and technology experts opine that AI is much-hyped and may lead to a bubble. We believe the AI-space is yet to unfold in the United States and in international markets. Once that happens, it will generate huge business opportunities for technology companies producing high-end products.
Technically, at its current level of 13,787.92, the Nasdaq Composite is well above its 50-day and 200-day moving averages of 12,815.09 and 11,637.69, respectively. The 50-day moving average line is generally recognized as the short-term trendsetter in financial literature, while the 200-day moving average is considered a long-term trend setter.
Historically it has been noticed in the technical analysis space that whenever the 50-day moving average line surges ahead of the 200-day moving average line, a long-term uptrend for the index becomes a strong possibility.
Valuation-wise too, Nasdaq Composite is not overheated. The index is in fact 13.5% below its closing level of 2021. The current rally is looking so bright because of the low base of 2022. The tech-heavy index reached its all-time high of 16,212.23 on Nov 22, 2021. At present, the index needs to rise 17.6% more to reach that level.
Our Top Picks
We have narrowed our search to five Nasdaq-listed technology giants. These stocks have strong potential for the rest of 2023 and have seen positive earnings estimate revisions in the past 60 days. Each of our picks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The chart below shows the price performance of our five picks year to date.
Image Source: Zacks Investment Research
Meta Platforms Inc. (META - Free Report) is benefiting from steady user growth across all regions, particularly Asia Pacific. Increased engagement for its products like Instagram, WhatsApp, Messenger and Facebook has been a major growth driver. META is considered to have pioneered the concept of social networking.
Zacks Rank #2 Meta Platform has an expected revenue and earnings growth rate of 9% and 21.5%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 1.5% over the past 60 days.
NVIDIA Corp. (NVDA - Free Report) is gaining from the strong growth of artificial intelligence, high-performance computing and accelerated computing, which is boosting its Compute & Networking revenues. A surge in Hyperscale demand and a solid uptake of artificial intelligence-based smart cockpit infotainment solutions are acting as tailwinds for NVDA.
Zacks Rank #1 NVIDIA has an expected revenue and earnings growth rate of 58.1% and more than 100%, respectively, for the current year (ending January 2024). The Zacks Consensus Estimate for current-year earnings has improved 2.7% over the past 30 days.
Palo Alto Networks Inc. (PANW - Free Report) has been benefiting from continuous deal wins and the increasing adoption of PANW’s next-generation security platforms, attributable to the rise in the remote work environment and the need for stronger security.
Zacks Rank #1 Palo Alto Networks has an expected revenue and earnings growth rate of 21.3% and 16.9%, respectively, for the current year (ending July 2024). The Zacks Consensus Estimate for current-year earnings has improved 0.6% over the past seven days.
Cadence Design Systems Inc. (CDNS - Free Report) offers products and tools that help customers design electronic products. Through the System Design Enablement strategy, CDNS offers software, hardware, services and reusable IC design blocks to electronic systems and semiconductor customers.
Zacks Rank #2 Cadence Design Systems has an expected revenue and earnings growth rate of 13.5% and 17.1%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.1% over the past 60 days.
Synopsys Inc. (SNPS - Free Report) is benefiting from strong design wins owing to a robust product portfolio. Growth in the work-and-learn-from-home trend is driving demand for bandwidth. Moreover, strong traction for SNPS’ Fusion Compiler product boosted the top line.
Zacks Rank #2 Synopsys has an expected revenue and earnings growth rate of 14.3% and 21.6%, respectively, for the current year (ending October 2023). The Zacks Consensus Estimate for current-year earnings has improved 2.7% over the past 60 days.