(Bloomberg) — The Nasdaq 100 Index fell into a bear market and then erased all of its losses on Thursday, in a volatile session that saw traders swing between fears on the long term impact of Russia’s invasion to Ukraine and hopes the Federal Reserve may be less aggressive in tightening policy amid heightened geopolitical risk.
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The technology-heavy index is up 0.7% as of 1:42 p.m. in New York, after falling as much as 3.3% following the opening bell. Those initial losses had pushed it into bear-market territory, which is measured as a decline of 20% or more for a stock index from a recent high. The index now sits 18% away from its Nov. 19 record.
Markets tumbled around the world as Russian forces attacked targets across Ukraine after President Vladimir Putin ordered an operation to demilitarize the country, prompting a threat of further “severe sanctions” on Moscow. The invasion is the latest risk to hit markets, following growing expectations for a rise in rates and persistent inflation, factors that have largely hit high-growth names.
But the odds that the Fed will lift borrowing costs by 50 basis point in March retreated Thursday, according to Bloomberg data, which may ease the strain on tech and growth stocks, whose elevated valuations become targets as borrowing costs rise. The central bank typically moves rates in increments of 25 basis points.
“This is a Rubik’s Cube backdrop for investors to figure out in tech because clearly a 50 basis points rate hike is off the table now from the Fed with the Russia-Ukraine situation, which is a positive for the 10-year yield and ultimately tech stocks,” Dan Ives, analyst at Wedbush securities, said in a phone interview. “However, the biggest conflict in Europe since World War II isn’t bullish for any stocks, let alone tech names.”
Trading was volatile in major technology and internet stocks, though some pared their early slumps, with Microsoft Corp. erasing its initial decline to rise 2.3%. Amazon.com Inc. and Google parent Alphabet rose at least 1.9% apiece. Apple Inc., however, remained in negative territory, down 0.8%, while Meta Platforms Inc. pared losses and rose 1.3% after the Facebook parent neared a 50% drawdown from a peak hit in September.
Chipmakers were notably weak, with the Philadelphia Stock Exchange Semiconductor Index off 0.2%. Bloomberg Intelligence singled out the industry as one that could be vulnerable, writing that “key supplies in the semiconductor-manufacturing process could be hampered, exacerbating chip shortages and compressing margins.” Software names were among the day’s gainers, with cybersecurity stocks especially positive.
“This is a battle between the bulls that view tech as oversold and are pricing in so much bad news,” Ives added. “Some are trying to find a few diamonds in the rough and safety plays, but the ultimate market rotation continues to push a risk-off mode, which is why we’re going to see a wild roller-coaster ride as this situation plays out.”
Read more: Speculative Stocks Lead Drop as Investors Flee Profitless Tech
Problems have been brewing since the start of the year amid skyrocketing inflation, disappointing earnings and the prospect of conflict. Companies on the index have lost about $3.1 trillion in market capitalization so far this year as investors grapple with a double whammy for the sector in rising interest rates, which chip away at the value of future earnings, and slowing growth.
Yields have soared on the prospect that the Fed will start withdrawing the massive monetary stimulus that has supported the U.S. financial system since the pandemic hit. Policymakers are fighting the largest consumer price spikes in a generation, but investors are dumping tech and growth stocks, whose valuations soared during the pandemic, as borrowing costs rise.
Still, some strategists said the selloff could have gone too far.
“The weakness in U.S. markets seems the most overdone with this move being sentiment- rather than economically-driven,” said Altaf Kassam, EMEA head of investment strategy and research at State Street Global Advisors.
About one in 10 companies in the Nasdaq 100 are now more than 50% off their 52-week highs through Wednesday’s close, according to data compiled by Bloomberg. Heading into the trading session, almost half of the companies in the broader Nasdaq Composite, which also briefly fell into a bear market Thursday, were at least 50% cheaper than their highest price in the last year.
“We have bought this morning’s dip in the Nasdaq futures, taking the opportunity to reduce our underweight position in U.S. growth stocks,” Paul O’Connor, head of multi-asset at Janus Henderson Investors, said by email. “In the days ahead, attention will pivot towards the search for market mis-pricings, resulting from today’s panic-selling and evaluating the second-round effects of the invasion. The focus will turn to the financial consequences of sanctions, the economic impact of the commodity squeeze and the potential response of the major central banks.”
(Updates trading, adds additional commentary.)
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