The Nasdaq has been soaring lately as the coronavirus pandemic boosted tech companies, but the rally won’t last.
After crashing 30% from its February peak, the Nasdaq bottomed out on March 23 and has soared more than 30% since. The index just turned positive for 2020. In comparison, the Dow is down about 15% year-to-date.
The Nasdaq has outperformed the Dow because the tech sector has done better than any sector so far this year.
Microsoft (NASDAQ:MSFT), Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), Facebook (NASDAQ:FB), Alphabet (NASDAQ:GOOGL), Netflix (NASDAQ:NFLX), and Paypal (NASDAQ:PYPL) are among the largest components of the Nasdaq. Those stocks have soared lately, especially Amazon, Netflix, and PayPal.
For many companies, the past two months have been the worst of times, as social distancing and forced closures halted their activities.
But the coronavirus pandemic hasn’t hurt tech companies as much as other businesses. In fact, COVID-19 has boosted the prospects of many tech companies.
In late March, as the coronavirus was spreading fast in the United States, PRESIDENT Trump told people to stay at home and ordered the shutdown of many businesses.
Americans turned to online shopping to buy groceries and other essential items. Amazon saw such a high surge in demand that it had to stop accepting new grocery customers at some point.
Netflix saw a record number of new subscriptions as people lost their job and looked to have some fun at home.
PayPal has benefited from the shift to digital payments. April 2020 was a record month for the company in terms of registration and usage.
Smaller tech companies also saw their shares soar during the pandemic. Zoom (NASDAQ:ZM) more than doubled in value year-to-date, as more people are working remotely and need to use video conferencing to communicate with coworkers.
Will the tech rally last? Probably not. This rally isn’t based on fundamentals and business conditions. It’s pure speculation.
As the United States is easing lockdowns, Americans will start going back to work and will return to stores and restaurants. That means tech companies that benefited from the pandemic will probably see their revenue and earnings fall.
Many tech stocks look too expensive. A high P/E ratio is justified when companies grow fast. But tech stock earnings aren’t likely to grow in the coming months.
In recent earnings announcements, Apple and Netflix management told analysts they couldn’t provide guidance for the next quarter.
Facebook, Amazon, and Alphabet have warned of lower-than-expected earnings due to higher-than-expected costs.
Like tech stocks valuations, uncertainty is high. This doesn’t look like a solid foundation for a sustained market rally.
Many strategists have warned that a big market crash is coming. The Nasdaq will likely not be spared. The bubble is about to pop. May looks like a good time to sell and go away this year.
Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com. The writer owns shares of Microsoft (MSFT).