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Morning Notes — NDX Explained

NDX Explained

April 4, 2022

The NASDAQ 100 (NDX) is up +1.70% this morning, outperforming the S&P 500 (SPX) by ~120bps based on: 1) recession concerns following Friday’s relatively soft ISM report and increased expectations for a 50bps rate hike in May; 2) pain trade generated by the recent value rally extends to momentum stocks on hopes the style catches up with the broader market; 3) lower Q1 earnings bar for Tech following poor performance during CQ4 earnings season (FB, PYPL etc) and; 4) improved sentiment after Elon Musk’s 13G revealed a 9.2% TWTR stake.  

Caveat emptor: We’ve been consistent in our expectation for the S&P 500 Value Index (SVX) to outperform the S&P 500 (SPX) and the NDX.  The NDX should notably underperform when nominal yields and real yields inevitably converge.  Tech has a high negative correlation to real yields, which have been artificially suppressed by surging TIPS demand following the invasion.  TIPS are popular inflation hedge with individual investors, but the TIPS market is thin.    

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