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Will Nasdaq Composite Maintain Its Momentum in Q4 2023?
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Wall Street rebounded in 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 resume their northward journey.
However, the market has faced hurdles in the past two and a half months. Market participants are worried as the Fed warned of one more rate hike of 25 basis points by the end of this year and pursued a higher interest rate regime for a longer period. The first rate cut is not expected before September 2024 and the inflation rate is unlikely to decline to the central bank’s target rate of 2% before 2026.
Recent Concerns
A higher market interest rate is detrimental to high-growth sectors like technology and consumer discretionary. Investment in growth stocks creates wealth over a long period of time. A higher market interest rate will increase the discount rate, which in turn will reduce the net present value of investment. Moreover, many of these companies depend on the chip source of credit for the business to grow.
As a result, the Nasdaq Composite suffered the most in the past two and a half months as it mostly comprises of growth sectors, especially technology. Despite the index’s recent bloodbath, several silver lines are there for this index to regain momentum.
Near-Term Positives
The tech rally in the first half of 2023 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.
Moreover, the robust fundamentals of the U.S. economy reduce concerns of a near-term recession. Additionally, the blockbuster earnings results of the last reported quarter of NVIDIA — the largest global manufacturer of generative AI chipsets — raised expectations of investors that the market for AI will show strong growth in the coming decade.
Technology Sector has Vast Potential
The recent meltdown of the technology sector is a temporary phenomenon. The fundamentals of this sector are rock solid. We must not forget that the growing demand for hi-tech superior products has acted as a catalyst for the sector in an otherwise tough environment. At present, this sector is highly lucrative as a long list of tech behemoths are available at attractive valuations.
A series of breakthroughs in 5G wireless network, cloud computing, predictive analysis, AI, self-driving vehicles, digital personal assistants and IoT, has given a boost to the overall space. Consequently, the technology sector has vast potential.
How to Invest
At this stage, several Nasdaq Composite-listed stocks are available that looks attractive for future growth. However, picking them on the following criteria will make the task easy. First, select large-cap (market cap > $50 billion) stocks as these companies have a well-established business model, glob ally acclaimed brand value and a strong financial position.
Second, these stocks witnessed solid earnings estimate revisions for 2024 within the last 60 days.
Image: Bigstock
Will Nasdaq Composite Maintain Its Momentum in Q4 2023?
Wall Street rebounded in 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 resume their northward journey.
However, the market has faced hurdles in the past two and a half months. Market participants are worried as the Fed warned of one more rate hike of 25 basis points by the end of this year and pursued a higher interest rate regime for a longer period. The first rate cut is not expected before September 2024 and the inflation rate is unlikely to decline to the central bank’s target rate of 2% before 2026.
Recent Concerns
A higher market interest rate is detrimental to high-growth sectors like technology and consumer discretionary. Investment in growth stocks creates wealth over a long period of time. A higher market interest rate will increase the discount rate, which in turn will reduce the net present value of investment. Moreover, many of these companies depend on the chip source of credit for the business to grow.
As a result, the Nasdaq Composite suffered the most in the past two and a half months as it mostly comprises of growth sectors, especially technology. Despite the index’s recent bloodbath, several silver lines are there for this index to regain momentum.
Near-Term Positives
The tech rally in the first half of 2023 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.
Moreover, the robust fundamentals of the U.S. economy reduce concerns of a near-term recession. Additionally, the blockbuster earnings results of the last reported quarter of NVIDIA — the largest global manufacturer of generative AI chipsets — raised expectations of investors that the market for AI will show strong growth in the coming decade.
Technology Sector has Vast Potential
The recent meltdown of the technology sector is a temporary phenomenon. The fundamentals of this sector are rock solid. We must not forget that the growing demand for hi-tech superior products has acted as a catalyst for the sector in an otherwise tough environment. At present, this sector is highly lucrative as a long list of tech behemoths are available at attractive valuations.
A series of breakthroughs in 5G wireless network, cloud computing, predictive analysis, AI, self-driving vehicles, digital personal assistants and IoT, has given a boost to the overall space. Consequently, the technology sector has vast potential.
How to Invest
At this stage, several Nasdaq Composite-listed stocks are available that looks attractive for future growth. However, picking them on the following criteria will make the task easy. First, select large-cap (market cap > $50 billion) stocks as these companies have a well-established business model, glob ally acclaimed brand value and a strong financial position.
Second, these stocks witnessed solid earnings estimate revisions for 2024 within the last 60 days.
Five such stocks are - NVIDIA Corp. (NVDA - Free Report) , Palo Alto Networks Inc. (PANW - Free Report) , Adobe Inc. (ADBE - Free Report) , Synopsys Inc. (SNPS - Free Report) and Cadence Design Systems Inc. (CDNS - Free Report) .