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Here’s what’s really bothering me about the Nasdaq boom
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The Nasdaq Composite surpassed the 17,000 mark for the first time earlier this week.
I’m not exactly the type to get excited about record highs on major stock exchanges or in certain stocks, but I thought this “milestone” was really cool.
When I started my career In the summer of 2004, the Nasdaq Composite was at about 1,800 and not far from the bust dot com. That’s a more than ninefold increase in 20 years – at the same time, my hairline has DECREASED by ninefold!
Today, we’re witnessing another technology boom, with the daily advancement of generative AI fueling the rise of companies like Nvidia (NVDA), Anthropic and OpenAI. While some of this technology is scary as hell, there’s no denying the impact it’s having on the perception of value in the markets.
And throughout the week, I received the latest dose of insights into how the spread of AI is boosting financial statements and outlooks.
(HPQ)CEO Enrique Lores told me (video above) One factor in the company’s above-consensus EPS guidance for Q2 is the launch of higher-priced AI PCs in mid-June. This will be HP’s first crop of AI PCs with beefier processors to support multiple AI-related tasks.
Rubber (CHWY) CEO Sumit Singh did not explicitly mention AI in our chat, but you can see how this is starting to generate better sales and margins. From what I understand, the company is able to react more quickly to consumer needs due to its investments in automated technology.
A similar vibration was felt when I talked to Abercrombie & Fitch (ANF) CEO Fran Horowitz, who is using new technology to keep inventory low, then “chases” the demand signals he is receiving in real time. The end result: impressive margin expansion.
Exciting stuff!
And it all helps to understand the excitement surrounding many large-cap technology stocks.
But there were those rough Salesforce (CRM) numbers and guidelines.
Wow.
I wrote about them in dawn on our live markets blogas I couldn’t get over how disappointing the quarter was – it really came out of left field given the company’s new suite of AI offerings.
However, guidance was weak and Salesforce could be left out of the hot AI trade until the macroeconomic outlook improves.
But Salesforce’s shocking quarter led me to investigate the tech-heavy Nasdaq, specifically the Nasdaq 100 — the 100 largest non-financial companies traded on the Nasdaq — to see if there are warning signs emerging in the landscape.
The story continues
In short, I don’t like what I’ve found, for those of you who believe that stock prices are the truth – or a predictor of future fundamentals.
As the Nasdaq 100 hovers around new highs amid strength in names like Nvidia and Apple (AAPL), drastically fewer stocks are above their 50-day moving averages, according to new research from Sundial Capital Research. Last week, less than 60% of Nasdaq 100 stocks held above their 50-day moving averages. That’s not great.
Fewer and fewer stocks are also above the 200-day moving average, Sundial notes.
“It looks ominous on a chart, but historically, most of the weakness in future returns has been confined to the next 1-3 months,” said the Sundial research team.
Some of the laggards on the Nasdaq 100 include consumer names Dollar Tree (DLTR) and Lululemon (LULU). But AI plays in Workday (TUESDAY) and Autodesk (ADSK) also performed relatively poorly.
“It’s a have-haves and have-nots market for technology stocks. Investors want to bet on the pure AI revolution, with Big Tech dominating and leaving other tech stocks abandoned in the dust,” Wedbush’s ubiquitous technology analyst Dan Ives told me. .
Truist Co-Chief Investment Officer Keith Lerner told me that weakness in non-tech names could continue amid a convergence of factors.
“What appears to be hurting the other sectors outside of technology is the rebound in the 10-year Treasury yield; after hitting support just above 4.3%, it is now back above 4.6% as the market has been reducing the number of Fed rates And as we move into June, the election will become more visible . This will likely add to some of the recent selling pressure,” says Lerner.
I’m not here saying that the Nasdaq is headed for a summer bear market. What I’m saying is that not everything is as healthy in technology as it seems, and there could be a pullback in the sector’s top stocks this summer as investors reassess valuations on the beach.
Are there values among Nasdaq stocks that are not participating in the current rally? Before you look for them, hear how famous value investor Jonathan Boyar approaches his process in the latest Yahoo Finance”Opening bid“podcast. Listen below.
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Brian Sozzi is the executive editor of Yahoo Finance. He is also the host of “Opening bid“podcast. Follow Sozzi on Twitter/X @BrianSozzi and so on LinkedIn. Tips on business, mergers, activist situations or anything else? Email brian.sozzi@yahoofinance.com. Are you a CEO and want to participate in Yahoo Finance Live? Email Brian Sozzi.
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