NASDAQ's Performance During Monetary Tightening

The market nowadays is witnessing an era of doubt towards technological firms; they are garnering the lion's share of the news with NASDAQ leading the selloff. The sell-off was driven by the disruption in the supply chain and the Fed's decision to increase interest rates to combat the highest inflation figures in years of annual inflation rate in the US  of 8.5% in March of 2022, the highest since December 1981 from 7.9% in February. Although the Fed's lower spending, lower trade, and supply chain disruptions contribute to a contraction of 1.4% in the US's GDP, it's noteworthy to mention that the consumer spending increased by 2.7% compared to the previous quarter, and business investment increased by 9.2%. The market is still figuring out whether the Fed will be having a soft-landing entailing reining in inflation without falling into a recession trap, or hard-landing by aggressive rate hikes triggering a recession, or will it lead the economy to stagflation which is persistently high inflation accompanied with slow economic growth, and high unemployment rates. With April's inflation rate figure decreasing to reach 8.3% compared to the previous month, the market sell-off might slow down. The market consensus is 8.1%. Analysts are expecting further declines and major economies around the world possibly heading toward a recession. Andrew Bailey, the governor of the Bank of England, for instance, warned that the GDP growth will slow down and inflation in the UK is hitting the economy, and there's nothing to do about the high energy prices and supply chain disruptions but to increase interest rates to avoid further calamities.  

Focusing on Tech stocks, Zoom Video Communication has lost 45% of its value since the beginning of 2022, along with a total of other 166 Technological and media stocks; such as Shopify losing 70%, Netflix 69%, Spotify 55%, DoorDash 55 %, and Google 20% of their value, while only a total of 25 stocks have increased in value. Looking at the indices, as shown below, we can see a decline in Nasdaq by 25.2%, the biggest decline since the start of the pandemic when it dropped by 28% in a month, IGV index , which is composed of North American equities in the software industry and selective North American equities from interactive home entertainment and interactive media and services industries, declined by 32.9%  and finally FAANG,  an index of highly traded growth stocks and technologically enabled companies (APL, NFLX, FB, GOOG, AMZN)) declined by 25.55%.

Source: Trading View (May, 2022)

Global equities suffered a bearish market of one-day losses since June 2020 on Monday. NASDAQ lost a total of USD 1 trillion during the past 3 trading sessions. More than 5% of its stock fell by 90%, more than 22% of the stocks were down by  50%, and more than 45% were down by 90%, as seen below.

Source: Portfolio123

Furtherly, the graph below shows the market value lost since May 4, 2022. However, NASDAQ Analysts speculate potential gains of 200% or more over the next year.

Source: Bloomberg (May, 2022)


The bearish market could be an opportunity to seize; however, investors should be careful at times of global uncertainty. Investors should follow closely the earnings season and the forecasts for the next quarter's earnings along with the technical analysis of the chosen stocks. Also, history could be a good guide to speculate the future performance.



The content published above has been prepared by CFI for informational purposes only and should not be considered as investment advice.  Any view expressed does not constitute a personal recommendation or solicitation to buy or sell.  The information provided does not have regard to the specific investment objectives, financial situation, and needs of any specific person who may receive it, and is not held out as independent investment research and may have been acted upon by persons connected with CFI.  Market data is derived from independent sources believed to be reliable, however, CFI makes no guarantee of its accuracy or completeness, and accepts no responsibility for any consequence of its use by recipients.