Nasdaq Composite Index Slides in Late April…..

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It comes as no surprise to analysts, investors and traders alike that the Nasdaq composite index would take a beating in April 2016. The index has a 52-week low of 4,209.76 and a 52-week high of 5,231.94, and while the index is nowhere near its 1-year low, the declines are sharp enough for investors to take notice. For the year to date, the Nasdaq composite index is down 2.88%, after opening 2016 at 5,007.41. However, the technology sector slump was not enough to derail Wall Street on Wednesday, 27 April. This was largely due to the sentiment at the Federal Reserve Bank which resulted in no changes being made to the federal funds rate at 0.50%. That the key interest rate was left unchanged was good news for equities across the board, and this helped to reverse the sharp losses on Tuesday, 26 April when Apple Inc. announced shocking quarterly returns. The good news on Wall Street was bolstered by a rise in energy prices, as crude oil (WTI crude oil and Brent crude oil) rallied towards a 6-month high. However, the prospects for the technology sector were less exciting. Alphabet Inc., Twitter and Apple all disappointed, and that typically does not bode well for the markets.

As was expected on the day, equities began trading with week volume and plenty of anxiety ahead of the Fed announcement. Once the Fed had made its decision, equities markets rallied. The reason why equities react positively to no change in interest rates is clear: interest rates add an extra burden to the profitability of companies listed on the stock markets in the form of higher interest repayments, lower dividends and payouts, and declining profitability. With no change to the status quo, investors breathed a collective sigh of relief. The focus on the day shifted to utility companies and phone companies, while technology stocks completed their fifth successive day of declines.

The Nasdaq composite index is comprised of thousands of companies, but very few of them hold a significant weighting in the index. In terms of the Nasdaq 100 index, the top companies include 21st Century Fox, Activision Blizzard, Adobe Systems Inc., Akamai Technologies, Alexion Pharmaceutical, Alphabet, Amazon, American Airlines, Amgen, Analog Devices CMN and Apple Inc. In terms of sectors, basic materials comprise 0.49%, consumer goods comprise 5.72%, consumer services 20.77%, financials at 7.93%, healthcare at 14.45%, industrials at 6.51%, oil and gas at 0.67%, technology at 42.22%, telecommunications at 1.13% and utilities at 0.11%.

That’s precisely why the performance of technology stocks has had such a detrimental effect on the Nasdaq in 2016. Consider that 42.22% of the Nasdaq composite index is powered by the technology sector, and it is clear why we are seeing the figures that we are seeing in the form of anemic growth for the year to date. The performance of technology stocks took a beating after Twitter Inc. fell 16.3% or $2.89 to $14.86 per share and Apple (the world’s most valuable public company) posted its worst performance in over a decade. This was driven by poor iPhone sales and weaker than expected EPS forecast. The price of Apple stock plunged to $97.82 per share, down 6.3% or $6.53. For now though, the focus is on the Fed and that’s good news for the Nasdaq.