Nasdaq 100 Slides Into First Bear Market Since 2020

(Bloomberg) — The Nasdaq 100 Index fell into a bear market for the first time since the pandemic as investors exit risk assets following Russia’s invasion of Ukraine.

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The technology-heavy index shed as much as 3.3% by 9:31 a.m. in New York, pushing it into bear-market territory, which is measured as a decline of 20% or more for a stock index from a recent high. Russian forces attacked targets across Ukraine after President Vladimir Putin ordered an operation to demilitarize the country, prompting a threat of further “severe sanctions” on Moscow and sending markets tumbling around the world. The S&P 500 index dropped 2.4%, pushing the benchmark index deeper into a correction.

Among the Nasdaq 100’s most notable movers, Apple Inc. fell 4.6%, Microsoft Corp. dropped 2.9%, Amazon.com Inc. shed 3.2%, and Google Parent Alphabet dropped 2.6%. Meta Platforms Inc. sank 2.3%; the Facebook parent has underperformed for months, and the day’s slide will bring it around a 50% drawdown from a September peak.

The invasion is the latest risk to hit markets, following growing expectations for a rise in interest rates and persistent inflation, factors that have largely hit high-growth names.

“We’re not at a point where you can just jump in because everything is so cheap; it is extremely hard to call a bottom, and the geopolitical risk makes it even harder,” said Ivana Delevska, chief investment officer of SPEAR Invest.

The Nasdaq 100 has dropped 21% since notching its Nov. 19 closing record amid skyrocketing inflation, disappointing earnings and the prospect of conflict. Companies on the index have lost about $3.1 trillion in market capitalization so far this year as investors grapple with a double whammy for the sector in rising interest rates, which chip away at the value of future earnings, and slowing growth.

Yields have soared on the prospect that the Federal Reserve will start withdrawing the massive monetary stimulus that has supported the U.S. financial system since the pandemic hit. Policymakers are fighting the largest consumer price spikes in a generation, but investors are dumping tech and growth stocks, whose valuations ballooned during the pandemic, as borrowing costs rise.

“Growth stocks had gotten incredibly loved and overvalued,” Eric Diton, president and managing director of The Wealth Alliance, said. “There was a feeling of intense speculation like with the tech bubble.”

Read more: Speculative Stocks Lead Drop as Investors Flee Profitless Tech

Problems have been brewing since the start of the year with more than a third of the stocks in the Nasdaq 100, which represents the exchange’s largest non-financial companies, down at least 50% from their 52-week highs by just the second week of January. Meanwhile, the percentage of stocks on the Nasdaq Composite that set new 52-week highs stood at just 1% on Wednesday.

The broader Nasdaq Composite Index also fell into bear territory, but some strategists said the selloff could have gone too far.

“The weakness in U.S. markets seems the most overdone with this move being sentiment- rather than economically-driven,” said Altaf Kassam, EMEA head of investment strategy and research at State Street Global Advisors. “The moves are inspiring us to add a little risk in a measured way. However, we are tempering this addition to risk with some tail risk hedges, notably in long duration U.S. Treasuries and VIX futures.”

Wild Swings

Big Tech has experienced the wildest volatility swings in recent weeks since the pandemic shuttered the U.S. economy in 2020. At one point this month, Facebook parent Meta Platforms posted the worst one-day drop in market value in stock-market history while Amazon.com posted the biggest single-day gain in market capitalization in U.S. history.

Shares of smaller, fast-growing tech companies have been especially hurt by concerns that they would be more vulnerable to tighter monetary policy since they are more reliant on capital markets for financing rather than incredible riches that have helped some founders skyrocket to the moon.

U.S. tech companies may face further pain as investors swap growth stocks for energy, financials and other cyclical shares that historically have benefited from improving economic growth and higher rates. The shifts likely represent a rebalancing away from the atypical conditions that have persisted for more than a decade and helped create a cadre of trillion-dollar companies dominating stock indexes.

(Corrects spelling of investment officer name in fifth paragraph. Story originally ran on Feb. 24)