The Nasdaq 100 Index and its associated ETFs, like QQQ and JEPQ plunged final week as considerations about know-how valuations and the continued authorities shutdown continues. It plunged to $25,000 from the year-to-date excessive of $26,143.
Equally, the Invesco QQQ Belief (QQQ) plunged to $610 from the all-time excessive of $636, whereas the JPMorgan NASDAQ Fairness Premium Earnings ETF (JEPQ) plunged to $57 from the all-time excessive of $59.5. So, why did these belongings plunge?
Nasdaq 100 Index plunged after Palantir and AMD earnings
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One predominant cause why the Nasdaq 100 and its ETFs like JEPQ and QQQ plunged is that common firms within the AI trade like Palantir and AMD printed robust outcomes, however issued steering that didn’t please buyers.
Palantir, a high participant within the AI trade, mentioned that its income rose by 63% within the final quarter to $1.18 billion, led by its US business income, which surged by 121% to $397 million. The corporate expects that its fourth-quarter income shall be between $1.32 billion and $1.331 billion, respectively.
AMD, one of many largest firms within the semiconductor trade, additionally printed robust outcomes, with its income rising to $9.2 billion and its internet revenue coming in at $1.2 billion.
Whereas these outcomes had been usually good, buyers didn’t just like the steering, pushing them to plunge by double digits through the week.
The 2 shares dropped as a result of they’d jumped sharply earlier than their earnings launch final week. As such, their shares dropped as buyers offered the information.
Worry of the AI bubble
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Consistent with this, the Nasdaq 100 Index and its ETFs dropped amid the continued concern that the unreal intelligence bubble is bursting.
These considerations have remained previously few months as extra firms proceed to spend money on the trade. In an announcement final week, Meta Platforms dedicated to speculate about $600 billion within the sector within the subsequent few years.
Different high firms like Microsoft and OpenAI have continued to spend billions of {dollars} within the trade, resulting in stretched valuations amongst high firms within the trade, like Palantir and Nvidia.
Due to this fact, some buyers imagine that the AI bubble might be beginning to burst as firms within the trade haven’t demonstrated their AI income development in spite of everything these investments.
Consistent with this, the Nasdaq 100 Index dropped amid heightened valuation dangers, with its price-to-earnings a number of being above 35, a lot increased than the S&P 500 Index’s 22. As such, the decline was as a part of the valuation reset.
Federal Reserve and the federal government shutdown
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The Nasdaq 100 Index and its ETFs, like QQQ and the JEPQ fund additionally dropped as considerations in regards to the authorities shutdown proceed.
The shutdown has now gone on for over a month and isn’t displaying any indicators of ending as Democrats and Republicans have maintained their laborious positions.
This shutdown has led to the dearth of macroeconomic information in the US because the Bureau of Labor Statistics and different federal businesses have been closed.
As such, there are fears that the Federal Reserve is flying blind when delivering its rate of interest resolution.
Nonetheless, on the constructive aspect, historical past reveals that the Nasdaq 100 Index plunges are usually good entry positions for buyers because it at all times rebounds.
Due to this fact, there’s a probability that it’s going to rebound within the coming weeks as these fears fade. As such, this rebound will probably push the index to leap to a file excessive within the coming weeks.
