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Tech Stocks “Crashing” — Time to “Panic”

Tech Stocks “Crashing” — Time to “Panic”
June 16
12:12 2017

Analysts are panicking!

Financial television show hosts are panicking!

Investors are panicking!

This is it… It must be the end. The Nasdaq has suffered its worst two-day losing streak since September. The number of stocks on the Nasdaq hitting 52-week highs prior to the pullback was the most since the beginning of the dot-com bubble.

Pack it up… go to cash… turn out the lights… everybody head home.

Technology stocks have led this long-lived bull market, even though almost every analyst on the planet said the election of Trump would be the death of the sector.

Sure, investors can get complacent. But at the same time, the media blows a lot of stuff out of proportion.

So maybe take all the hysteria with a grain of salt.

Not Much of a Record

First, let me attack the claim “the worst two-day loss in nine months.”

From the close on September 7 to the close on September 9, the Nasdaq lost 2.99%.

But then on September 10, the Nasdaq rose 2.23%. (Everyone forgets to mention that for some reason.)

That two-day slide was just slightly worse than the two-day slide from November 30 to December 1, when the Nasdaq tumbled 2.4%…

And what about the eight consecutive days of losses the Nasdaq suffered from October 25 to November 4? That time, the index shed 4.73%.

Technically, yes, the losses the Nasdaq suffered on Friday and Monday were the worst two back-to-back days since September 2016. But that’s true only if you’re looking at a very small data set and completely ignoring a lot of other information.

With these points in mind, the Nasdaq has actually been quite resilient.

Since July 2016, the Nasdaq has gained more than 1% in a month eight times. Six of those months saw gains of at least 2%, and half of those saw gains of more than 3%.

During that stretch, there was only one loss… October 2016.

Yes, the Nasdaq was down at the close of Monday for the month of June.

But the month isn’t over, just like it wasn’t in May or in March (which I’ll get to in a moment).

Seasonal Sell-Offs

Let’s talk about the Nasdaq’s performance in June…

Since 2004, the Nasdaq has gained in the month of June only four times. That’s a 30.8% chance of success (without including this year). The last time the Nasdaq ended the month of June higher than where it began was 2014.

For comparison, the Nasdaq has ended the month of May with a loss only four times since 2004. The last time tech stocks fell in May was 2012. And the average gain of the Nasdaq in May the last five years is 2.9%. It’s been the best month of the year for tech stocks in recent years… and it’s usually followed by their worst month.

So let’s take a moment and think back to May. And while we’re doing that, let’s look at this chart…

On May 16, the Nasdaq set a new all-time high.

On May 17, the index fell 1.59%.

If we go back a couple months earlier, the Nasdaq set a new all-time high on March 20.

Then it ended the 21st down 2.19%.

Despite the pundits insisting that it’s the end of days, neither last Friday nor last Monday were even the worst single-day losses of the year for the Nasdaq. And as you can see, these losses follow a decades-old pattern.

P/E Panic

Finally, let’s address the idea of overvaluation.

In the 1980s, the Nasdaq’s price-to-earnings (P/E) ranged between 20 and 25. In the 1990s, as tech stocks surged, so did the index’s P/E.

At the end of 1999, the value of the 4,800 companies on the Nasdaq was $5.2 trillion. Yahoo (Nasdaq: YHOO) was trading at $433 per share! By March 2000, the Nasdaq 100’s P/E ratio peaked at 134.7.

Today, the Nasdaq 100’s P/E is 26.75.

The recent pullback wasn’t caused by fundamentals. There were no warning signs.

But let’s again put it into perspective…

From the end of December to March 20, the Nasdaq gained 9.63%.

Then we had a quick, sharp pullback.

From March 21 to May 17 – despite the struggles throughout April – the Nasdaq moved 3.75% higher.

Then we had another quick pullback, though not as severe as in March.

And from May 17 to June 8, the Nasdaq surged 5.16%.

We just had the expected pullback, slightly larger than the one in March.

Is there a correction on the horizon? Without a doubt.

Will the market eventually crash? It sure will.

Is this the moment when the canary in the coal mine goes belly up?

No, I don’t think so. It feels like a shakeout – like we’ve seen twice so far. It’s a chance for new growth.

So before you start heading for the exit, just take all of this into consideration. We’ve had an excellent run year to date – and an even better run since the U.S. presidential election last November. There will be moments when the market must catch its breath – especially in the best-performing sector of 2017.

We can already see the Nasdaq rebounding from the dips on Friday and Monday – just like we saw in May and March and even those “disastrous” two days in September.

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