Bets for More Dovish Fed Fuel Daily Reversals in Nasdaq

(Bloomberg) -- Technology stocks have led the advance in U.S. stocks since Russia's invasion of Ukraine began, with early declines turning to gains each day.

The turnarounds reflect a shift in sentiment: While the war may curb growth globally, the conflict also has prompted investors to pare back their expectations for how quickly the Federal Reserve will raise interest rates.

That means a more favorable environment for high-growth stocks such as Palo Alto Networks Inc. and Crowdstrike Holdings Inc. that are valued on future earnings. After the tech-heavy Nasdaq 100 Index's worst two-month stretch since the pandemic's onset, investors are stepping in to buy now that valuations have come a down a bit.

“There's been real relief on the rate front,” said Leo Grohowski, chief investment officer at BNY Mellon Wealth Management. “We were already seeing a buy-the-dip mentality from weak sentiment in an oversold market, but the idea of a less-aggressive Fed is a main reason for the turnarounds in the Nasdaq.”

On Monday, the Nasdaq 100 fell as much as 1.3% before closing with a gain of 0.3%. More dramatically, Thursday's session began with a drop of 3.2% that ended with a 3.4% gain, the biggest intraday swing since March 2020.

According to BofA Global Research, “buying of this dip by retail was more aggressive than during other 10% pullbacks post-crisis,” which the firm suggest could be due to a fear of missing out “on what has generally been a continually successful strategy post-crisis.”

The Nasdaq 100 fell 0.2% on Tuesday. Among the biggest components, Apple Inc. rose 0.3% and Alphabet Inc. advanced 0.4%, while Microsoft Corp. slipped 0.1%, Amazon.com Inc. dropped 0.3%, and Meta Platforms Inc. fell 0.6%.

High inflation, supply-chain issues, and slower growth have pulled stocks down from their record levels of recent months, souring investor sentiment so much that any would-be big sellers of tech stocks have already lightened up. The weakness also has brought tech valuations back near their long-term averages.

“This doesn't mean that tech will start working right away, but at this point it's hard to see who is still waiting to sell,” said Sameer Samana, senior global market strategist at Wells Fargo Investment Institute. “We're back in the ballpark for valuations being reasonable and some names are getting pretty compelling.”

Tech Chart of the Day

Cathie Wood's ARK Innovation ETF has bounced off lows as rate hike bets have cooled. The poster child for hyper-growth stocks had fallen about 60% from its peak as some of its holdings suffered from the end of the pandemic boom, while others were hurt by concern over higher interest rates.

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