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Nasdaq 100 Is On Free Fall- An Investment Opportunity

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Nasdaq 100
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After closing the year 2021 on a high, the global equity market fell flat in 2022. The Indian stock market initially floundered but has shown resilience in severe global headwinds. However, its international counterparts fared poorly. The tech-heavy Nasdaq 100 index, which includes some of the world’s leading tech companies, is on a free fall.

Nasdaq 100 is already down ~60% since January 2022, and in October 2022, it fell below the psychologically important 200 weekly moving average. So, what does it mean for investors looking to invest in US tech stocks like Tesla, Meta, and Amazon? Should they opt for index funds?

First, let’s understand the significance of the 200-day moving average.

Importance of 200-Day Moving Average

The chatter in the market gets louder whenever a stock or an index gets closer to the 200-day moving average or 200 DMA. It’s a psychologically important support level; if an index falls below the level, the trend will likely turn more bearish. The 200 DMA line is formed by adding the closing price of the stock or index over the last 200 days and dividing the total by 200.

However, whenever the stock or an index comes closer to the 200 DMA slope, the chances of a bounce-back increase. However, reaching the 200 DMA slope is rare as the market has been continuously bearish over the past 200 days, and it happens whenever there is a crisis-like situation.

If you check the weekly price graph of Nifty50 and BSE Sensex over the last 10 and 20 years, both indices bounced back sharply when they fell below the 200 DMA. Only during two instances, the 2008 global financial crisis, and the pandemic, did the index fall deeper. Nasdaq 100 shows a similar trend and fell below the 200 weekly moving average only twice- during the dot-com bubble in 2000 and the 2008 global financial crisis.

NDX 2022
Nasdaq 100 weekly price chart

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Is it the Right Time to Invest in US Stocks?

If you consider the historical price data, it is the right time to invest in the NASDAQ listed stocks. But, you should be cautious about your next investment step if you consider investing directly in Apple, Alphabet, Tesla, Meta, Amazon, or Twitter.

Not all the companies above are performing well and have posted disappointing Q3 2022 earnings. For instance, the social media major Meta (formerly Facebook) beat expectations in Q3 revenue but has missed on EPS and has offered weak Q4 revenue guidance.

In the last two quarters, the company has been missing analysts’ expectations on EPS, resulting in the stock price dropping. Meta has shed over 75% of its market cap since the stock peaked in September 2021. With weak revenue guidance, cost increase, and considerable losses in Meta’s Web3 project, analysts believe the EPS will be under pressure in the coming quarters.

Similarly, Alphabet (parent company of Google) has posted weak Q3 2022 earnings, missing the analysts’ expectations, with year-on-year revenue growth coming at a mere 6% due to a cutback in advertising budgets and high traffic acquisition costs. Moreover, the revenue growth is the slowest since 2013, other than one recorded during the pandemic. As a result, Alphabet’s stock has been down by over 28% over the past year.

Amazon’s stock also plummeted by over 13% after the company missed Q3 earning estimates and provided weak guidance for the coming quarter. Unlike in the previous bull run, FAANG (Facebook, Amazon, Alphabet, Netflix, Google) stocks were selling like hotcakes; the craze is missing this time.

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Invest through Index Funds

Investing is not an easy game, and when investing directly in the US equities, it’s a different ball game entirely. The recent interest Fed rate hikes, global inflationary conditions, supply-chain disruptions, and worsening geopolitics are taking a heavy toll on businesses’ earning potential, making the stock market more volatile.

Therefore, the best way to invest in US tech stock is through Nasdaq index funds or ETFs. Rather than investing in just a few stocks, index funds will help you take advantage of capital creation from all companies included in Nasdaq 100 in the long term.

Nasdaq consists of the largest non-financial companies listed on the index, and technology companies have over 55% weightage. For example, a look at the Nasdaq 100 companies list reveals that the top 5 companies (Apple, Microsoft, Amazon, Tesla, Alphabet) have a weightage of 36% in the index.

The index has generated an absolute return of over 700% in the last 10 years. And only two times in the previous 10 years has Nasdaq given negative annual returns.

NASDAQ 100 Returns

YearReturn
2022-32.23
202126.63
202047.58
201937.96
2018-1.04
201731.52
20165.89
20158.43
201417.94
201334.99
201216.82
Source: www.slickcharts.com/nasdaq100/returns

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Investing in Nasdaq through Index Funds

If you want to invest in high-growth tech stocks, you should know Moore’s Law. It states that roughly every two years, the number of transistors in dense integrated circuits doubles and has an economic, technological, and societal impact.

The tech stock that makes sense today can become a laggard in the next few years due to a lack of innovation, and as an investor, it is tough to pick the trend at the right time. For instance, it’s difficult to say whether or not Meta stock can go near its all-time high level anytime soon.

It is where index funds come to the rescue as it periodically reviews their stock weightage and portfolio according to the businesses’ emerging trends and financial performance. Nasdaq’s free fall is an opportunity to create wealth over the next decade, and selecting the right investment tool can make the journey more accessible and rewarding.

What is Nasdaq 100?

Nasdaq 100 is a US stock index comprising the largest non-financial companies on the Nasdaq stock exchange. It is often referred to as a tech-heavy index, as tech stocks have almost 55% weightage.

What are the top constituents of the Nasdaq 100 index?

The top 5 constituents of the Nasdaq 100 include Apple, Microsoft, Amazon, Tesla, and
Alphabet. They have a total weightage of 36% in the index.

Are there any Nasdaq 100 index funds in India?

Yes, there are many index funds and ETFs with Nasdaq 100 as a tracking index offered by
Indian mutual fund companies.


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