Trade QQQ? The Nasdaq Just Had its Worst Quarter in a Decade, by This Measure

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The Nasdaq-100 went from an amazing year in 2020 to its worst quarter in a decade, compared with the rest of the stock market.

The technology heavy index, home to trillion-dollar giants like Apple (AAPL) and Microsoft (MSFT), rose just 1.6 percent between the end of December and the end of March. In contrast the broader S&P 500 surged 5.8 percent. That difference of 4.2 percentage points was the Nasdaq’s worst underperformance since the last three months of 2011.

Biggest Gainers in the S&P 500 Last Quarter
L Brands (LB)+66%
Marathon Oil (MRO)+60%
Applied Materials (AMAT)+55%
Occidental Petroleum (OXY)+54%
Diamondback Energy (FANG)+52%

The reason was optimism about the economy reopening from coronavirus and a spike in interest rates. That new environment drew investors to less-glamorous sectors like energy and industrials that would benefit from quicker growth. The higher rates also weighed on high-multiple technology companies and fueled an historic shift toward value stocks.

L Brands (LB), the S&P 500’s fifth-biggest gainer last year, led the index in the first quarter of 2021. The parent of Bath & Body Works and surged on plans to spin off Victoria’s Secret and strong results.

Many of the index’s leaders in the quarter were energy drillers like Marathon Oil (MRO) and Occidental Petroleum (OXY). The only technology stock to make the top five (or even the top 25) was Applied Materials (AMAT), a maker of semiconductor equipment that’s benefited from the ongoing chip shortage.

Semiconductors Lead Tech

In fact, semiconductor names dominated the top performers in the Nasdaq-100. Aside from AMAT, companies like Intel (INTC), KLA (KLAC), NXP Semiconductors (NXPI), ASML (ASML) and Lam Research (LRCX) ripped more than 25 percent. Remember that chips are used in so many manufactured products — from autos to dishwashers. This makes them much more cyclical than other big tech firms like software makers. It could also lead investors to keep favoring them as the economy recovers.

Nasdaq-100, daily chart, with 50-day moving average. The histogram at the bottom shows 21-day relative strength vs. the S&P 500.

Other companies doing well in the first quarter included regional banks (+28%), steelmakers (+25%), homebuilders (+22%) and airlines (+20%).

The biggest decliners were mostly “growth” stocks that don’t offer investors exposure to a strong economy. Many of these performed well in 2020 when millions of Americans were out of work, but are now struggling. For example, the Nasdaq-100’s worst performer last quarter was Peloton (PTON). The stay-at-home stock went from a gain of almost 500 percent in 2020 to a 26 percent gain between January and March.

Biggest Decliners in the S&P 500 Last Quarter
Viatris (VTRS)-25%
Paycom Software (PAYC)-18%
Take-Two Interactive Software (TTWO)-15%
Verisk Analytics (VRSK)-15%
Copart (CPRT)-15%

Gold and silver miners had the biggest drops overall in the first quarter. They were squeezed by a strong dollar and higher interest rates. Investors generally avoid precious metals when sentiment is improving.

Solar energy was another big loser, dropping 11 percent as investors took profits following a 234 percent surge last year.

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