THE NASDAQ IS LIGHTING IT UP. HERE’S WHY
Weak dollar, big gains from Amazon, Facebook are key
Bored waiting for the Dow to break 20,000? Here’s something more exciting to watch: the tech-heavy Nasdaq.
The Nasdaq Composite, the index best known for its highprofit tech members like Microsoft (MSFT), Amazon (AMZN) and Facebook (FB), has been lighting it up this year and notched yet another all-time high of 5,574 on Friday. The Nasdaq, typically looked at being more speculative because of its reliance on tech and biotech, is up 3.5% this year. That almost makes the broad S&P 500 look like it’s sitting still with a 1.6% gain.
Tech stocks have some financial attributes that make them winners from expected changes this year. “Tech stocks don’t require a lot of capital investment,” says Michael Farr, CEO of money manager Farr, Miller & Washington. “They have good profit margins and will be among the immediate beneficiaries of the Trumponomic Brave New Capitalistic World.”
The Nasdaq’s awakening has been somewhat pronounced this year. Over the past 12 months, the Nasdaq had been performing just about in-line with the Dow Jones industrial average. The Nasdaq is up 23.2% the past 12 months, which is nose to nose with the Dow’s 23.1% increase during the same period.
The Nasdaq is luring attention from investors for a number of reasons, including: uA boost from a weakening U.S. dollar. The price of the U.S. dollar has weakened this year, sliding roughly 1% against the eu- ro and 2% vs. the yen, according to data from Oanda.
A weak dollar is a potential victory for technology companies since they get a higher percentage of their revenue from overseas than any of the 11 industry sectors, says Sam Stovall, Chief Investment Strategist at research firm CFRA.
When technology firms bring overseas profits back to the U.S., the foreign currency is worth more in U.S. dollars than it would have been last year. uStrong performance by key stocks. Amazon and Face- book, two of the most valuable stocks in the Nasdaq, are having a good year. Facebook shares are up 11.6% this year and nearly 35% over the past 12 months, which makes them the best-performing tech shares on the Nasdaq this year. Amazon shares are up 9% just this year and have risen 40% over the past 12 months.
Such big gains from these two stocks are important since they have the fourth- and fifth-largest weightings in the index. But the strength runs deeper still. All five of the most-valuable stocks in the Nasdaq, including Apple (AAPL), Alphabet (GOOGL) and Microsoft (MSFT), are all up this year and have gained an average of 2.8%. uBroadening outside of tech. The massive market values of the tech giants put them in control of the Nasdaq. But when stocks outside of tech also participate, they give extra power to the
“Tech stocks don’t require a lot of capital investment. (And) they have good profit margins.” Michael Farr, CEO, Farr, Miller & Washington
Nasdaq’s rally. That’s been the case this year; all five of the bestperforming stocks in the Nasdaq 100 are outside the technology sector.
Three of the best stocks are health care stocks, including genetic analyst Illumina (ILMN), cancer treatment developer Incyte (INCY) and biotech Vertex Pharmaceuticals (VRTX).
The other best Nasdaq stocks this year are consumer discretionary companies, cable operator Liberty Global (LBTYA) and online travel agent TripAdvisor (TRIP), which are up 14.4% and 14.1%, respectively.
But while some see excitement from big gains from the Nasdaq, others seen caution.
“I think it has run too far, too fast,” Stovall says. Expect some Nasdaq choppiness as investors endure political battles, Farr says. “There will likely be buying opportunities as political messiness churns through the sausage-making that is our legislative process.”