The Nasdaq Composite Index staged a stunning comeback, recouping all losses incurred early last month when the index had slipped into a correction territory. In fact, it hit a record high for the second consecutive session and has been outperforming major indices, which are yet to fully recover from February’s selloff, by a wide margin from a year-to-date look.
The strength in the technology sector, which accounts for nearly half of the index, helped Nasdaq surge on a gain of 8.3% this year compared with gains of 1.4% for the Dow Jones and 3.2% for the S&P 500.
What’s Driving Tech?
The sharp gains came from the astounding surge in FAANG stocks and other high-performance technology names. The emergence of cutting-edge technology such as big data, Internet of Things, autonomous cars, gaming, wearables, VR headsets, drones, virtual reality devices, artificial intelligence, cryptocurrencies, and other advanced information technologies as well as strong corporate earnings are acting as key catalysts.
The twin tailwinds of Trump’s tax reform plan and a rising interest rate scenario are also pushing stocks higher. This is because tech titans hoard huge cash overseas and are poised to benefit the most from the reduced tax rates. Additionally, most of the tech companies are sitting on a huge cash pile and are in a position to increase payouts to shareholders. The cash reserves will ensure that these companies do not face any financial trouble in a rising interest rate environment.
Adding to the strength is a pickup in the economy and better job prospects that are boosting economically-sensitive growth sectors like technology, which perform typically well in a maturing economic cycle. With the global economy gathering momentum, technology companies are likely to outperform and are less susceptible to interest rates or deregulation.
If these weren’t enough, waves of consolidation among semiconductor manufacturers are driving tech stocks to new highs.