Nasdaq Index Slumps 5% as Tech Sell-off Intensifies
The tech-heavy Nasdaq Composite
index fell by 5% yesterday which erased a rally from the previous
session in a reversal that stunned investors in what was one of the
worst trading sessions since the onset of COVID-19.
The Dow Jones Industrial Average
lost over 1,000 points or 3.1% while the S&P 500 index fell
3.56% as well. The Nasdaq Composite index is now trading at
12,317.69 which is its lowest level since November 2020.
In an interview with CNBC, Randy
Frederick, the managing director of trading and derivatives at the
Schwab Center for Financial Research explained, “If you go up 3%
and then you give up half a percent the next day, that’s pretty
normal stuff. ... But having the kind of day we had yesterday and
then seeing it 100% reversed within half a day is just truly
Several tech stocks saw a massive
decline in share prices as Meta Platforms
AMZN) fell 6.8% and 7.6%
such as Etsy
(NASDAQ: ETSY), eBay (NASDAQ: EBAY), and Shopify (NASDAQ:
slumped by 16.8%, 11.7%, and 15% respectively on May 5.
Interest rates continue to weigh heavily on the
The 10-year Treasury yield moved
over 3% which was the highest level in four years. An uptick in
interest rates has acted as a key catalyst for the sell-off in
growth stocks as it increases the cost of debt which negatively
impacts profit margins over time. Further, higher interest rates
also make lower-risk assets such as bonds more attractive resulting
in an accelerated shift of capital.
Earlier this week, the Federal
Reserve increased benchmark interest rates by 50 basis points,
which was the largest hike since 2000. The central bank also
emphasized it will begin reducing its balance sheet in
Its quite evident that the Fed
will continue to raise benchmark rates to offset higher inflation
rates and rising commodity prices, which means investors should
brace for volatility in the next few months. So, where should
investors park their funds right now?
Buy inflation-proof stocks such as Lowe’s
In a sluggish macro-environment,
it makes sense to bet on companies with diversified businesses or
with enough pricing power. One such company is retail giant
LOW) which is involved in the home improvement
vertical. Shares of Lowe’s have returned over 130% to investors
while currently offering a forward yield of 1.6%.
Home improvement spending in the
U.S. has surged from $358 billion in 2016 to $538 billion in 2021
and might touch $621 billion by 2025, providing the company with
enough room to improve its top line.
In 2021, Lowe’s reported revenue
of $96.25 billion and adjusted earnings of $12.04 per share.
Despite its market-beating gains, the stock is valued at 1.3 times
forward sales and a price to earnings multiple of 14.5x.
Comparatively, its earnings are forecast to rise
at an annual rate of 14.5% in the
next five years.
Another stock that should be part
of your watchlist is Brookfield
BIP) which offers investors a tasty yield of 3.6%.
Brookfield Infrastructure has over $74 billion in assets and is
involved in businesses such as midstream, transport, and
The company has already
identified $900 million in investment opportunities in the
utilities segment which should allow it to grow EBITDA by 9%
annually through 2026. Its capital expenditures of $950 million in
the transport business should expand EBITDA between 12% and 15%
annually in this period.
Brookfield Infrastructure stock
has returned 18% in dividend-adjusted returns to investors on an
annual basis since 2008, easily outpacing the broader markets. It
remains a top pick right now for those looking to derive outsized
gains in 2022 and beyond.
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