Explained: NASDAQ 100 week-long slump highlights possible concerns

The NASDAQ 100 had one of its worst weeks in a long time. The index, made up of 101 equity securities issued by 100 of the largest non-financial companies listed on the NASDAQ, slipped by 6.14 percent since Tuesday, as Monday was a holiday. The index essentially slipped over 1 percent each trading day.

The last time the index saw such a continuous week of loss was in the aftermath of the internet bubble collapse. The NASDAQ had lost nearly 80 percent of its value between 2000 and 2002 as the bubble collapsed. Over $7 trillion in market value was destroyed as a result of the crash. 

“If you just look at those two prior instances, right after 9/11 was a brutal market, while the other was the first leg down in the collapse of the tech bubble. It’s certainly ominous, isn’t it?,” said George Pearkes, a strategist at Bespoke Investment Group to Bloomberg. 

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Stretched valuations, disappointing results from tech companies, a hawkish Fed stance, and macro-economic indicators have made investors jittery and most seem eager to exit riskier assets. Equities, bonds, housing, commodities, and new age assets like cryptocurrencies are all at the risk of collapsing warn experts. 

“This time last year it looked like we might have a standard bubble with resulting standard pain for the economy. But during the year, the bubble advanced to the category of super-bubble, one of only three in modern times in US equities, and the potential pain has increased accordingly,” Jeremy Grantham, co-founder of asset management firm GMO, and one of the most outspoken sceptics of the rally in global market, wrote in his note to clients.

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“We are in what I think of as the vampire phase of the bull market, where you throw everything you have at it: you stab it with Covid, you shoot it with the end of QE and the promise of higher rates, and you poison it with unexpected inflation–which has always killed P/E ratios before, but quite uniquely, not this time yet–and still the creature flies,” Grantham explained, comparing the current situation to the second half of 2007 when equities were still soaring despite the early signs of the 2008 collapse.

But just like 2008, every bubble must eventually burst if it grows too big. 

“The sooner the better for everyone,” states Grantham.