Just when the Nasdaq-100 coming out of bear market territory hinted it was safe to come back to the markets, volatility reared its head once again. That spells opportunity, however, for investors looking to buy the dip.
Right now, it appears that persistent inflation is headlining investors’ fears. In the meantime, fresh off instituting a rate increase of 25 basis points, the Fed is looking to offload assets it purchased, particularly during the pandemic, in order to reduce its balance sheet.
Furthermore, it plans to do so at a more rapid pace than the markets anticipated.
“It’s tough to swallow,” said Robert Pavlik, senior portfolio manager at Dakota Wealth Management, regarding the balance sheet reduction plan.
“Right now it seems like a bit of a knee-jerk reaction,” Pavlik told MarketWatch. “But I think it highlights the fact that investors are worried about inflation and higher interest rates, and the impact it’s going to have on an economy that’s not growing as fast as it was a year ago.”
At the top of the list is Treasuries and mortgage-backed securities (MBS), according to the Fed’s minutes from its March meeting.
“No decision regarding the Committee’s plan to reduce the Federal Reserve’s balance sheet was made at this meeting, but participants agreed they had made substantial progress on the plan and that the Committee was well placed to begin the process of reducing the size of the balance sheet as early as after the conclusion of its upcoming meeting in May,” the minutes say.
Buying the Dips
In the meantime, while the markets are faltering, it could be an opportune time to purchase the dips during sell-offs. Investors can look to exchange traded funds (ETFs) like the Invesco NASDAQ 100 ETF (QQQM) to get exposure to big tech’s heaviest hitters.
QQQM is based on the NASDAQ-100 Index. The index includes securities of 100 of the largest domestic and international non-financial companies listed on Nasdaq.
At a 0.15% expense ratio, the fund can also be used as a trader’s tool like its bigger brother, the Invesco QQQ Trust (QQQ). In QQQM, investors will see familiar names like Apple, Google, Facebook, Amazon, and Microsoft.
For more news, information, and strategy, visit the Nasdaq Investment Intelligence Channel.