A New Bull Market In Tech?

Bull and bear market terminology is funny. As we’ve discussed, using a 20% rally or decline as your rule of thumb is not all that helpful.

But…since the tech-heavy Nasdaq 100 is 20% off its June lows, we might as well take a look and see what’s changed.

Here’s a chart of the Nasdaq 100 ETF $QQQ over the last nine months. 👇

The data labels show that the roughly 34% decline from December to June lasted 142 trading days from peak to trough. Since the June low, the index has risen about 20% in 32 trading days, catching many traders and investors off guard.

Now, the question on everyone’s mind is whether this is another bear market rally or if this is the start of a new bull market. Of course, that answer will only be available in hindsight (as it always is), but there’s an interesting point to be made about the current environment. 🤔

From a sentiment and positioning perspective, things have definitely stretched to the downside. Each new piece of bad news would lower high-growth technology stocks for months. Whether it was economy and interest rate-related or something about the company itself, the market was punishing growth stocks without discretion. 📉

Over the last month or two, that’s changed.

Let’s take an example like Shopify, which has fallen roughly 83% from peak to trough since December. It made a low in early May and has been trading around the same levels since, despite missing badly on earnings, cutting more than 10% of its workforce, and its peer group announcing bad news on the daily.

The point is, that there’s been minimal improvement in earnings or economic news during this period, yet the stock stopped going down and is now hitting 3-month highs.

And it’s not the only one. Stocks like Coinbase, PayPal, Robinhood, SoFi, and even the ARK ETF hit new recovery highs during today’s rally despite mixed earnings/news.

Bulls point to this behavior as a sign of a potential long-term bottom. They say these stocks have gone down enough to price in all the bad news the market could throw at them. Additionally, a weakening economy will cause the Fed to be more accommodative sooner than expected, and lower interest rates are good for Tech stocks. 🐂

Meanwhile, bears say this is a classic bear market rally. Most of these stocks are still growing at much lower rates, have overly bloated cost structures, and are not positioned well for a recession or future rate hikes. 🐻

We’ll have to wait and see who ends up being right, but regardless, this environment has a different feel than the one we’ve been writing about in the first half of the year. 🤷‍♂️

In the meantime, we’d love to hear from you. Hop on the streams and let us know your view! 💭

Admittedly it feels strange to jump from a story about a new bull market to a potential recession indicator, but as history has shown us, the stock market is not the economy (and vice versa).

Anyway, today we heard earnings from the Danish shipping giant Maersk, giving us a read on the global economy. 🚢

The company reported better than expected revenue and earnings, driven by record-high shipping rates. It also raised its operating profit expectations for the year to a record $31 billion, up significantly from its earlier estimate of $24 billion. 📈

So, what’s the problem if this shipping giant is reporting record profits?

Investors are focused on the fact that the number of containers it loaded onto ships declined 7.4% YoY, prompting the company to adjust its expected demand growth toward the lower end of its -1% to 1% estimated range. In addition, the company noted that macroeconomic uncertainty and higher inflation continue to weigh on consumer and business sentiment. 🔻

The real message here is that the slowdown in the company’s shipping activity confirms what we’re seeing and hearing from many other companies and economic data points. 🐌

Global growth is slowing. Everyone pretty much agrees on that. The critical question for investors remains how bad will it get, and how long will it last?

Until that answer becomes clearer, expect market participants to analyze every major earnings report and economic data point closely. 🔎