Back on June 16th, things were looking pretty grim for the Nasdaq-100. The tech-heavy index slipped to its lowest level of the year. Amid the mounting recession and geopolitical worries, 34% was slashed from the benchmark’s record peak.
Fast forward just two months and things look quite different. The Nasdaq has surged more than 20% from its bottom, ushering in one of the most unlikely bull markets in recent history. Despite higher food, housing, and electricity prices, investors are feeling optimistic that inflation peaked earlier this summer.
Yet with many economists expecting the Fed’s rate hike battle against inflation to last a while, U.S. equities could find it difficult to build off their current momentum. The most bearish of prognosticators say the market will eventually test its previous lows.
Whether the current Nasdaq bull amounts to a temporary ride or an extended stampede remains to be seen. Regardless of its staying power, here are the three stocks set to lead the charge.
What is the Nasdaq’s Most Important Stock?
Apple Inc. (NASDAQ: AAPL) is the Nasdaq-100’s biggest driving force. The company’s $2.7 trillion market cap makes it responsible for around 13% of the benchmark’s daily movement. So while many Nasdaq-100 names have significantly lagged during the recovery, a 27% advance from a heavy weight like Apple has helped mightily.
The headline may read “Nasdaq enters bull market territory,” but not all members have come along from the ride. In fact, only 28 individual stocks have achieved bull market status since the Nasdaq-100 bottom. Eight stocks, including Match Group, Zoom, and multiple China ADRs, have actually regressed to new lows since the mid-June rally began. This is the other side of the story we don’t often hear with cap-weighted indices. It highlights the influence that names like Apple have on overall performance.
Fresh off another consensus-topping quarter, Apple looks poised to finish the year strong. It just completed a seasonally slow period and has next month’s iPhone 13 release and the all-important holiday shopping season to look forward to. Where the Nasdaq goes from here will largely depend on consumers’ interest in the newest smartphone—and gift-giving budgets.
Is Wall Street Bullish on Amazon.com Stock?
Amazon.com, Inc. (NASDAQ: AMZN) is another mega-cap powerhouse that has a big say in Nasdaq-100 performance. The e-commerce giant’s 32% rally off the benchmark low has been a major factor in the recovery. Yes, there are companies that have performed better, but the sheer size of Amazon has made its contribution count more.
Interestingly, the Nasdaq’s best performer during the current bull run is Mercadolibre, the so-called “Amazon of Latin America.” The former $2,000 stock has soared more than 60% since touching $600 in June. Mercadolibre remains one of the most favored consumer discretionary names on the Street with a half dozen analysts reiterating their bullish sentiment this month.
Speaking of favorites, few stocks are adored as much as Amazon. Since the market bottom, 38 analysts have refreshed their opinion. All but one have called it a ‘buy’ and several see the recently split stock heading to $200.
It’s easy to see why the Street is so overwhelmingly bullish. Amazon is building off its dominant position in online shopping and its AWS cloud business continues to be a pillar of strength. Last month it wrapped up a two-day Prime Day event that was touted to be the company’s best ever (and has yet to be captured in quarterly results). Look for Amazon and its more affordable share price to attract attention from investors heading into Black Friday deals.
Will Tesla Be a Nasdaq Leader?
Although Tesla, Inc. (NASDAQ: TSLA) is only the fifth largest holding in the Nasdaq-100, it is one of the most volatile names in the index. With a price volatility that’s roughly twice that of Apple, Microsoft, and Alphabet, the electric vehicle maker is often the biggest driver of where the Nasdaq goes on a day to day basis.
We’ve seen some big price swings from Tesla en route to its 32% two-month advance. It is a top-10 Nasdaq performer during the bull run and, as the only auto manufacturer in the index, the bellwether for all things EV.
Lately, the news has been very positive in the EV space with a historic climate change bill that just made its way through Congress. If approved, it would bring hundreds of billions of dollars to clean energy initiatives to reduce the American economy’s reliance on fossil fuels. It would also provide additional fuel to an EV leader that is already full speed ahead.
Tesla’s production and delivery numbers moved sharply higher in Q2 which, along with rising selling prices, had earnings do the same. As Elon Musk and the company continue to find ways to be more efficient and drive down costs, profits will only get bigger. The Street is now projecting 36% EPS growth in 2023 which would be an impressive feat coming off of this year’s turbocharged base.
In the near-term, the Twitter fiasco may be a distraction for Tesla. But ultimately, the cars will keep rolling off the assembly line and the profits will keep piling onto the income statement. A return to the $1,000 level seems inevitable and from there, Tesla should continue to drive the Nasdaq higher.
Before you consider Apple, you'll want to hear this.
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