Breakout or Breakdown? Why the Nasdaq’s two-decade leadership cycle can withstand soaring rates
Jim Paulsen of the Leuthold Group has a message for investors: don’t give up on big tech.
According to the company’s chief investment strategist, the volatility of the Nasdaq, coupled with rising treasury bond yields, may not be enough to permanently affect its two-decade management cycle.
“It is quite a coincidence that the same high we had three weeks ago in both the Nasdaq and S&P 500 technology indexes … at the same level for the entire S&P a little over 20 years ago how the dotcom top was. “Paulsen told CNBC’s” Trading Nation “on Friday. “That relative high has been enforced since then.”
In a recent announcement to customers, Paulsen discussed whether growth games, which include Big Tech, are “peaking” or “breaking out”. He found support for both scenarios. However, Paulsen believes the group is more likely to endure higher rates.
“It may have less to do with income than just looking at a glass ceiling,” he added. “I am not entirely convinced that we are breaking down. We might just hit the ceiling, hop down for a minute, and maybe take them out here at some point in the future. “
Paulsen claims big tech and growth, which he classifies as “New Era” stocks, will remain attractive to investors.
“If it finally hits a new relative price high, could its lead persist and perhaps even strengthen? This is exactly what happened when the Nasdaq underperformed for several years for the past two years,” he wrote.
Despite his optimism, Paulsen admits that it is reasonable to expect a period of underperformance, consolidation, or even a temporary breakdown.
“It is important to know that we are only one year into this new economic expansion – likely both the expansion and the bull market will be a multi-year event in which technology will continue to play a fairly dominant role,” he said. “At times when cyclicality takes a hit and at certain timescales, I think technology will hold your portfolio.”
Paulsen, who has around $ 1 billion in assets under management, doesn’t rely on big tech.
“We’re underweight, but not by much,” said Paulsen, who is overweight areas such as small caps, value and international stocks. “There is likely to be an underperformance next year as the economy is really booming here, but I’m not entirely convinced that it will be.”
At Trading Nation last September, Paulsen, a longtime market bull, recommended taking advantage of Wall Street’s pessimism while you still can. Since then, the Nasdaq has risen 20% and it holds on to its excitement.
“It will still be the leader of the future,” said Paulsen.
The Nasdaq fell 0.6% to 13,319.87 on Friday as the 10-year benchmark treasury note yield hit 1.64%, its highest level in 13 months. The tech-heavy index, which is 6% below its all-time high, nonetheless ended the week more than 3%.
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