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Nasdaq 100 Index and Safe-Haven During COVID-19 Pandemic


Posted: Monday, November 23rd, 2020

Estimated Reading Time: 2 minutes

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The Nasdaq 100 index outperformed during the COVID-19 pandemic so far. It fell less than other stock market indices during the March 2020 market rout, and it rose faster on the strong bounce that followed.

The explanation comes from the technology companies that make up the index. Because the pandemic triggered a shift in consumer behavior, the tech companies benefited the most. Shares of companies like Zoom, Amazon, Microsoft, and so on exploded higher.

Now that the world learns of potential COVID-19 vaccines, the Nasdaq 100 index is the first one to react. This time, negatively.

Many voices call for a rotation that started to take place in investors’ portfolios. The argument is that the Nasdaq 100 index acted as a safe haven during the pandemic. Just like gold did. However, the price of gold broke lower today, in a typical response to positive vaccine news. AstraZeneca, a British drugmaker, just announce its vaccine has an efficacy of 70% and is much cheaper than competitors’.

Will the tech sector index follow gold lower? Or will investors discount the news and sent the index higher, just how they did with the price of Tesla? If you want, the Tesla story for 2020 is the perfect illustration of what kept investors buying the Nasdaq index.

Nasdaq 100 Index

Nasdaq 100 Index Weakness Exposed

The positive vaccine news exposes the weakness in the Nasdaq 100 index. Most of the companies in the index trade at sky-high valuations; investors may choose to book some profits or rotate into other sectors that will benefit more from the economic recovery.

Take Tesla, for instance. During the pandemic, its market capitalization outpaced Hyundai, Mercedes, Porsche, BMW, Subaru, Nissan, Honda, Fiat Chrysler, GM, and Ford. Combined!

Its share price is up 485% in 2020. It defies gravity, despite being a company that only posted the fourth consecutive profitable quarter recently. Yet, it is one of the companies responsible for the rise in the Nasdaq 100 index, despite announcing a split a few months ago.

Tesla trades today at $520, a new high, and its market capitalization reached $500 billion. It trades at PE of 821 and forward PE at 223 – if such numbers are still sound enough to justify an investment, then the Nasdaq 100 index still has some room to advance.

In the meantime, the index posted a possible double top at 12,400. After the U.S. elections, it jumped with the overall market but failed to make a new all-time high like the Dow Jones, or the S&P500 did. The inability to break and hold above 12,400 puts pressure on the index. If the recent break lower in gold price continues, investors may decide to book some profits. On such a move, the Nasdaq 100 index is the first to react, the more the safe-haven status dissipates.

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