Nasdaq 100 Soars 40%: Can It Still Be Chased?

This year, technology stocks have shown a remarkable upward trend. Among them, the Nasdaq 100 Index has particularly stood out, having risen by 38% this year, marking the largest increase in the first half of the year for the Nasdaq 100 in nearly 40 years.

As an investor, I focus on two issues: first, why has the Nasdaq 100 risen? Second, is the Nasdaq 100 still worth following?

Firstly, the internal driving force behind the rise of the Nasdaq 100: the Federal Reserve's expectation of slower interest rate hikes, coupled with an economic "slow growth".

In July, the Federal Reserve released a significant economic survey report, which indicated that the overall economic outlook for the next few months will continue to maintain slow growth. Previously, the United States also released lower-than-expected June CPI data, leading the market to expect a decrease in the probability of the Federal Reserve raising interest rates, and the turning point of tightening policy is approaching.

Advertisement

From a macroeconomic perspective, the stock market is a barometer of the economy. The recovery of the US macroeconomy has strongly boosted the performance of the Nasdaq 100.

Data shows that retail sales in the United States in May increased by 1.6% year-on-year, exceeding analysts' expectations and showing potential consumer confidence. In addition, unemployment benefit claims have not shown the impact of large-scale layoffs, and the labor market remains tight. The report expects that the overall economic outlook for the United States in the next few months will continue to maintain slow growth.

From the perspective of the Federal Reserve's interest rate hike expectations, expectations continue to cool, which is beneficial to the Nasdaq 100.

Data shows that the CPI in the United States in June rose by 3% year-on-year, which was less than expected. This is good news for the Federal Reserve, which hopes to control inflation, and it is also good for the market. As inflation data falls to a new low and interest rate hike expectations cool, the three major US stock indexes closed higher together.

Secondly, looking to the future, the Nasdaq 100 still has strong growth potential.

The rise has a reason, and the excellent performance of the Nasdaq 100 this year can be traced. But as an investor, what I am more concerned about is whether this index can still be followed now?In my view, the answer is affirmative.

The NASDAQ-100 Index selects the top 100 non-financial service companies from the NASDAQ exchange's trading rankings as the index sample. The top ten components are Apple, followed by Microsoft, Google, Amazon, Nvidia, Tesla, and Meta, which are well-known and closely related to technology's popular large-cap stocks. Currently, these seven companies with the highest market value have accounted for 55% of the NASDAQ Index, more than half of the weight.

The NASDAQ-100 is a clear benchmark for the U.S. technology stocks, and looking at the present, the prospects for technology stocks are very broad.

We are currently at a turning point in the world's technological transformation. With the arrival of a new round of technological revolution represented by artificial intelligence, new energy, intelligent driving, cloud computing, 5G communication, and the Internet of Things, the world is ushering in a new round of technological cycles. Consumer electronics, automobiles, and communication terminals may face a new round of renewal cycles, and related industries may face a new round of transformation and opportunities.

Apple, Microsoft, Tesla, Google, Meta, Amazon, and Nvidia, which have led the NASDAQ's rise this year, are leading companies in their respective fields. It is also highly likely that future technological changes will not be able to bypass these companies. From this perspective, the NASDAQ-100 has a high probability of becoming an industry winner, which is the core reason and fundamental reason for our layout in the NASDAQ-100.

Thirdly, taking it slow and steady, investing in index funds is the best way to layout the NASDAQ-100.

I often say, don't put all your eggs in one basket. From an asset allocation perspective, we need to distribute our money across different risk assets according to our risk tolerance. The NASDAQ-100 is our tool for making a good global hedge allocation.

Of course, you can't eat hot tofu if you're in a hurry. When it comes to laying out the NASDAQ-100, you can't be in a rush.

In the context of the U.S. interest rate hike environment, U.S. technology stocks that have already risen sharply this year face short-term uncertainty. The sharp rise in technology leader stocks has also raised concerns about valuations. As investors, we need to be alert to the risk of buying at the peak.

The forward price-to-earnings ratio of the NASDAQ-100 Index is now close to 26 times, higher than the 10-year average. Although the valuations of Apple, Microsoft, and Nvidia are still below their peak during the pandemic, they are still significantly higher than the historical average.In the short term, it is not recommended for everyone to invest their entire portfolio in chasing high prices. Instead, one can use a fixed investment strategy, gradually entering the market.