Nasdaq continues upwards tilt after breaking 10,000-point barrier

Index continued to gain on Wednesday, trading 0.5% higher

(FILES) In this file photo a Wall Street sign near the New York Stock Exchange (NYSE) is seen on May 8, 2020 in New York City. US stocks continued last week's rally as trading opened June 8, 2020, buoyed by ebbing civil unrest and state measures to reopen their economies following the coronavirus shutdowns.Shortly after the opening bell, the Dow Jones Industrial Average was up 0.5 percent to 27,257.08.The tech-rich Nasdaq advanced 0.1 to 9,822.85, while the broad-based S&P 500 gained 0.2 percent to 3,201.61.
 / AFP / Johannes EISELE
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The Nasdaq index of technology stocks in the US opened higher again on Wednesday after climbing above 10,000 points in Tuesday’s session when Apple, Amazon and Facebook shares all made gains.

Investors continued to pour money into technology companies even as appetites began to wane for other shares ahead of a Federal Reserve interest rate decision due on Wednesday.

The Nasdaq Composite traded up 0.5 per cent at 10,003.28 at 6.38pm UAE time on Wednesday, while the Dow Jones index dropped 0.78 per cent and the S&P500 index traded 0.64 per cent lower.

“Valuation on the Nasdaq 100 has reached 18x on EV/EBITDA [a multiple of companies’ enterprise value over their earnings] which is now the highest level since February 2004 and much higher than the global equity market,” said Peter Garnry, head of equity strategy at Saxo Bank. “But is it necessarily a problem?”

Investors who bought the Nasdaq 100 index at this previous peak would have earned an annualised return of 10.4 per cent over the next 10 years as the earnings of the technology companies that make up the index grew by 14.5 per cent a year, Mr Garnry said.

However, he added that investors should remain cautious, as “there are still so many unknowns related to the economy from the Covid-19 outbreak” and things could change quickly.

Apple’s shares rose on Tuesday after the company announced that it would look to develop its own processors to use in its computers, as opposed to buying them in from third parties, which Naeem Aslam, chief markets analyst at brokerage Avatrade, said was “a game-changing event in terms of Apple’s margin”.

He warned, though, that data from the Commodity Futures Trading Commission highlighted that the ratio of equity futures traders shorting the market to those holding long positions were “at their biggest level since 2015”.

“Traders take these short bets when they believe that the market is overvalued and it is likely to fall. However, if they are proven wrong, capitulation also takes place and this usually led to a mammoth rally in the stock market,” he said.

Traders are also waiting on a decision from the US Federal Reserve on interest rates on Wednesday evening. Market-watchers expect the Fed to maintain its current interest rate of 0.25 per cent and its asset purchase programme.

Anything seen as more supportive in terms of monetary easing “could give a renewed boost to a mostly self-nurturing equity rally and send the US dollar to weaker levels”, said Ipek Ozkardeskaya, a senior analyst at Swissquote Bank.

“If, however the Fed shifts to a more orthodox tone, which we doubt, the equity rally would be dented.”