The air could slowly be exiting the big tech balloon after a strong 2023 that saw the Nasdaq rise over 40% thus far. As 2023 turns into 2024, however, both bulls and bears could benefit.
As mentioned, big tech has been leading 2023, as investors rallied around sector themes such as artificial intelligence and cloud computing. The recent rate pause also gave hope that the Fed will start to cut interest rates in the new year. That put retail traders on alert that big tech sellers could be looking to cash in on profits.
“After a stock rally this year that has nearly erased the decline in 2022, some small-time investors are taking profits and selling riskier investments, as they ponder whether or not the handful of technology companies that have propelled major indexes can continue to prop up markets,” reported Bloomberg.
Despite the prospect of a profit-taking bonanza, big tech (via the Nasdaq-100) is up 10% within the past month. This should give some bullish big tech investors a sign the rally could continue into the 2024.
“Our baseline forecast suggests that in 2024 the mega-cap tech stocks will continue to outperform the remainder of the S&P 500,” said David Kostin, chief U.S. equity strategist at Goldman Sachs. “Analyst estimates show the mega-cap tech companies growing sales at a CAGR of 11% through 2025 compared with just 3% for the rest of the S&P 500. The net margins of the Magnificent 7 are twice the margins of the rest of the index, and consensus expects this gap will persist through 2025.”
Rates Will Continue to Add Volatility in 2024
The general sentiment is that 2024 should bring rate cuts. But uncertainty as to what the Fed will do regarding monetary policy should inject a healthy dose of volatility traders can work with. An election year also adds another element of uncertainty. And that can help traders who play both the bullish and bearish sides.
“Wall Street is gearing up for rate cuts,” reported the Wall Street Journal. “Twenty months after the Federal Reserve began a historic campaign against inflation, investors now believe there is a much greater chance that the central bank will cut rates in just four months than raise them again in the foreseeable future.”
Whether there’s upside or downside, traders can use leveraged inverse ETFs to take advantage of market fluctuations. For bulls, there’s the Direxion Daily Technology Bull 3X ETF (TECL). This fund seeks daily investment results equal to 300% of the daily performance of the Technology Select Sector Index. For the bears, traders can use the Direxion Daily Technology Bear 3X ETF (TECS).
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