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Indicators do not reflect the actual market conditions

According to Refinitiv, as of Feb. 21, 67.3% of the Nasdaq stock index fell 20% or more from a 52-week high. (Photo: Getty Images)

GUEST BLOG. At the time of writing, when the markets closed on February 22, the US markets were “correcting”. The definition of correction is a decrease of 10% from the current high; A 20% drop from the recent high is what is called a bear market. This technical term makes it easier for journalists to report on market declines.

As of February 22, the Nasdaq index, which is mainly composed of technology companies, has fallen by 17.5% since its peak reached on November 22, 2021. Since the beginning of 2022, the index has lost 14.5%. In this case, we are safely in the repair phase.

As for the S&P 500 index, it has fallen by 10.7% since its peak on January 4. The 1% drop in the index on February 22 therefore puts it in the “correction” category. Since the start of 2022, the S&P 500 has lost 9.7%.

However, I have a clear understanding that a large number of stores that are listed on the market show a much higher decline than the above.

In fact, this seems to be confirmed by several figures I have seen in the last few days, especially in the case of the Nasdaq index.

According to Refinitiv, as of Feb. 21, 67.3% of the Nasdaq stock index fell 20% or more from a 52-week high. Most impressive in my opinion, 50.0% of the stocks in the index fell by 30% or more. The following graph is easy to understand:

In my opinion, these statistics show two phenomena.

On the one hand, at the end of last December, securities ofapple (11.37%), Microsoft (9.85%), Amazon (6.60%) and Letters (whose two shares have a combined weight of 6.99%), i.e., four securities among about 3,300 of the Nasdaq index, including a weight that represents 34.8% of the index. However, these four positions show an average decline of “only” 15.7% from the recent peak. This means that most of the securities listed on the Nasdaq had a decline that was greater than that of these four securities.

On the other hand, in my opinion, there has been a lot of thinking in 2021 around the protection of technology companies or those whose activities are concentrated in “modern” sectors. IPOs (initial public offerings), SPACs (Special Purpose Acquisition Corporations), property “the same oneetc. it’s all parts of the market that, in my opinion, have been overthinking. Overall, these market segments have been very difficult in recent months.

In short, while the major US stocks have fallen sharply in recent months, most North American stocks have fallen more than the indexes. Although the media talks about “correction”, the reality that most investors are experiencing is a true bear market (bear market).

Philippe LeBlanc, CFA, MBA

Chief Investment Officer at COTE 100


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