It has been a month since the Nasdaq 100 hit its July 10 high, and in that time it’s down 10.5%. The index of the 100 largest non-financial companies in the Nasdaq Composite remains in correction territory, but it’s well off last Monday’s intraday low of -16%.
The S&P 500, on the other hand, has held up much better – currently down 5.7% from its all-time high. Similar to the Nasdaq 100, it’s also off its lows of last week.
Last week was wild – we saw some of the best and worst days of the year. Now, investors are scratching their hands about what to do next.
Is this a great buying opportunity for the technology stocks that are now in a bear market? Or should we become more defensive and look for sectors that held up well since the July 10 Nasdaq top?
The chart below shows the performance of select sector exchange-traded funds (ETFs) since July 10. As you can see, there is a wide difference in performance over such a short period of time.
Leading the way are the homebuilders, real estate investment trusts (REITS), and utilities.
Interest rates were falling as stocks were. And when rates decline, it’s historically a positive for sectors that are considered income plays. Both REITs and utilities are known for their above-average dividend payouts, which explains why they did so well over the last month.
The housing stocks – the strongest performing sector – are also boosted by lower interest rates because they equate to lower mortgage rates. That makes homes more affordable.
I can make a case that housing stocks should continue to do well over the long term based on the fact that interest rates are likely to keep coming down in the years ahead. Plus, there will be more demand for U.S., homes, and supply won’t be able to keep up. As more homes are built, companies ranging from homebuilders to building material suppliers should be well positioned.
Meanwhile, REITs and utilities will likely underperform if money starts flowing back into innovation and artificial intelligence (AI) related sectors. While they’re a nice hedge and increase diversification in your portfolio, they aren’t areas I would be aggressively buying at this time.
So, is now a buying opportunity?
The answer is both yes and no…
I realize I’m hedging myself. But the truth is that some stocks look very attractive today while others still have more downside. You can bet I’m on the lookout for the right opportunities, and my subscribers will be the first to hear about them.
Here’s to the future,
Matt McCallEditor, Market Insights
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