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Nasdaq Outperforms Dow Jones again on the Belief Fed will Continue its Easy Policy

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The SP500 and Nasdaq100 closed Tuesdays trading at record highs, creating a positive backdrop for Tuesday morning. Interestingly, the Dow Jones index increased its lag recently and has been methodically declining since the start of last week. The Nasdaq Index, rich with stocks of young and highgrowing companies, is gaining support amid falling longterm government bond yields. Investors are becoming more confident that the Feds signal will continue with its easy policy.

Thus, in the stock market, we see a speculative reversal of the trend at the beginning of the year, where we have seen a rotation in shares, causing the Dow Jones to rise to the detriment of the Nasdaq. If we are stepping back from specific indices, we see the current situation looks like the end of a rotation from growth to value stocks and a return to last years trend with the outperformance of younger and hightech companies.

The background to what is happening is a decline in longterm US bond yields, which have fallen from a peak of 1.76 for 10years to 1.44 earlier this month. Interestingly, earlier this year, growth stocks started shaking as soon as yields exceeded 1.20 in February.

The big question for investors is whether the observed rotation is evidence of a strengthening economy and a favourable outlook for young companies or temporary profittaking in dividend or matured companies near and of the second quarter?

In our view, the latest upswing in tech stocks is driven by speculative…

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