There is a Huge Divergence Between Tech & Everything Else
Thus far in July, the Nasdaq 100 Index ETF (QQQ) is down more than 4% while the S&P 500 Index ETF (SPY) is green. According to OddStats (@OddStats) this would be the third time ever since QQQ started trading in 1999 that this has happened. The other two times were:
· December 2000 (9 months into the crash)
· July 2006 (15 months before the next crash)
Although the sample size of this stat is far too small to make any assumptions, its rarity shows how extreme and divergent the current stock market conditions are.
Daily Volatility Reaches Extremes
The Nasdaq 100 has moved up 1% or down in 20 of the past 26 trading days. Similar volatility has only occurred during COVID, the 2022 bear market, the Global Financial Crisis, and the Dot Com Bubble.
Image Source: Bloomberg
Growth/Momentum Stocks Have Taken the Brunt of the Pain
The Goldman Sachs US High Beta Momentum Index is on pace for its biggest monthly drop since the financial crisis.
Leading AI stocks such as Micron (MU), Western Digital (WDC), SanDisk (SNDK), and Marvell (MRVL) are each down 24% or more over the past month.
Image Source: Zacks Investment Research
That said, time frame context adds a critical perspective in this scenario. For instance, MU, WDC, and SNDK are each up more than 500% over the past year.
Image Source: Zacks Investment Research
Gavin Baker: Can Lightning Strike Twice?
Gavin Baker is the founder, Managing Partner, and Chief Investment Officer of Atreides Management, a multi-billion-dollar crossover fund. Baker has been one of the best-performing money managers on Wall Street and was early on many of the AI stocks mentioned above. Thursday, Baker tweeted, “Risk/reward seems attractive again. Lots of cheap stocks with durable competitive advantages that are going to crush numbers for the next 6-12 quarters.”
Baker may be worth listening to. The last time he made a bold call like this, it was a day away from the Iran correction low.
Image Source: TradingView
Bottom Line
Tech and momentum stocks are seeing some of the highest volatility in decades. Seasoned fund manager Gavin Baker believes this sharp correction is setting up an attractive reward-to-risk zone.
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This article originally published on Zacks Investment Research (zacks.com).