Bear Market Escape of Nasdaq-100 Not a Buy Signal

There has been no doubt by the end of the first quarter that the Nasdaq-100 has awoken from its long bear market hibernation.

‍

In the Nasdaq Composite Index, which is composed of the 100 largest shares in the technology-oriented Nasdaq Composite, the market has gained 20% since its trough at the end of December, indicating that a bullish market is in place, technically.

‍

Big gains in the index are usually a sign that the market is becoming more risk-averse and looking for companies with high growth potential. It is important to emphasize, however, that investors should not mistake hitting such a landmark as a sign to buy.

‍

Firstly, we can tell you that the major tech stocks have all performed well over the past year–Apple, Microsoft, Meta Platforms, Amazon, and Alphabet. In order to get investors on board, all of them promised to be prepared for a slowdown and to cut jobs as a result.

‍

Compared to the Dow Jones Industrial Average, other stock indices haven't fared as well. A good example of this is that the Dow Jones Industrial Average still has a negative year-over-year return.

‍

A spike in interest rates in 2022, when stocks were hit by a stake through the heart, hasn’t ended yet, but there may be a pause in interest rate increases if the Federal Reserve decides to decide to pause after another quarter-point hike. We will be able to get a clearer picture of the economic outlook with Friday's inflation data.

‍

Additionally, the indictment of former President Donald Trump at the end of last year may have also contributed to a risk-off sentiment at the end of the second quarter, in addition to higher interest rates. While the markets seemed to shrug off the news at first, that might just change with a single moment's notice.

‍

A number of other assets that are considered to be risk-friendly are not doing well. During the first half of this year, oil prices have fallen by around 7%. It has been reported that Gold, often regarded as a safe haven investment, has risen by 9% in 2023.

‍

So it is hard to conclude based on the Nasdaq-100's advance that the improvement indicates a clear change in sentiment in the market. As a matter of fact, it is likely that the index in 2022 will continue to rise, recovering from the worst performance since 2008. However, it may not be the case. Despite the recent bull market run, it's far too early to determine that a bull market is a good reason to attempt to get back into the market.