Macro: Sandcastle economics
Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.
Access both platforms from your single Saxo account.
Nasdaq 100 surpasses 10,000 for the first time
Peter Garnry
Chief Investment Strategist
Summary: Sentiment remains very strong in US equities evidenced by yesterday's performance with US technology stocks erasing early losses to a strong ending to regular hours of trading and then hitting 10,000 in extended trading. We argue that the market could easily continue higher as long as the V-shape narrative gets stronger. But we highlight the thin liquidity in markets as a key risk for traders so tight risk management principles should be applied.
Sentiment remains strong despite yesterday’s declines in equities and investors quickly shrugged the weakness off catapulting the Nasdaq 100 Index above 10,000 after regular trading hours. This morning with equities higher and Nasdaq 100 at 10,000 it worth reflecting on the current situation and where we could go from here.
Valuation on the Nasdaq 100 has reached 18x on EV/EBITDA which is now the highest level since February 2004 and much higher than the global equity market. But is it necessarily a problem? Investors that bought Nasdaq 100 in February 2004 at these high valuations would have got 10.4% annualized return in the subsequent 10 years despite the valuation multiple declining as EBITDA rose 14.5% annualized during this period. If the Fed introduces yield-curve control this year (read our analysis from yesterday on what it means for equities) our best guess is that it will cause a valuation multiple expansion for growth stocks which includes Nasdaq 100. This means that even with a lower EBITDA growth rate over the coming years the Nasdaq 100 could sustain its trend.
In short-term we recommend investors to use technical indicators to decide whether to stay in technology or not. Our view is that there are still so many unknowns related to the economy from the COVID-19 outbreak that investors should still stay cautious as things can change on a dime. Our preferred indicator since the rebound in March has been the 15-day moving average. As long as Nasdaq 100 is above sentiment warrants a positive view on US technology stocks.
One of things we have mentioned before and which has only gotten worse is the available liquidity in financial markets. The meltdown in the US Treasury market was a big eye-opening event for market participants and especially the Fed. But we observe the same thin liquidity in S&P 500 E-mini futures with market makers scared of committing a lot of capital to make market at least relative to the past. This means we have a market structure that provides a great setup for large declines in a short period of time. This is probably the biggest risk to Nasdaq 100 and S&P 500 traders as a big shift in sentiment can come with wild declines. This is why we cannot emphasis enough for traders to run exposures with tight risk management principles.
Latest Market Insights
Quarterly Outlook 2024 Q3
Sandcastle economics
-
-
Bonds: What to do until inflation stabilises
Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.
-
Equities: Are we blowing bubbles again
Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.
-
FX: Risk-on currencies to surge against havens
Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.
-
Commodities: Energy and grains in focus as metals pause
Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.
Disclaimer
The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.
Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)