Following another hot US inflation print, it was a tough day for big tech, with the Nasdaq seeing its worst trading day since March 2020.
Yesterday’s inflation report served as a reminder that complacency is the devil. The telltale indicators that investors expected a lesser CPI figure was rising stocks and a declining dollar; the sudden change in attitude was a humility lesson, especially in IT stocks.
Since the start of the Nasdaq boom, the market has not had such a drawn-out period.
Since it’s common for stock prices to drop 20–30 per cent before turning back toward their longer-term bull trend, I’ve recently read a lot of commentary suggesting that possibly “the low” has been reached for the year. A cursory glance at the Nasdaq’s “drawdown from record highs” chart suggests otherwise. The Nasdaq dropped more than 30 per cent from its record high, a figure not seen since the early 2000s when the Nasdaq bubble first burst.
Before the recent decline of -32 per cent, we have observed significant drawdowns of about -17 per cent, -20 per cent, and -27 per cent since 2016. Even if the fall ends up being half as much as the Nasdaq bubble’s -80 per cent decline, the index may be moving below 10,000.
I’m not trying to be dramatic; I’m just looking at the evidence and considering my options. Markets are still obviously sensitive to inflation data, so any inflationary “inputs” that rekindle the belief that inflation has peaked could benefit stocks. But if the low hasn’t yet been reached, several large tech stocks appeal to bears. Just two are shown here.