With the Nasdaq 100 Stock Index ($IUXX) (QQQ) trading just below last month’s 1-1/2 year high, more insiders at technology companies are unloading shares. The insider selling could indicate that executives see further gains as limited and that the market is near a top. The number of executives and other insiders of tech companies selling stock in their companies rose to 441 in June, according to data from Washington Service, the highest since December 2021, the month after the Nasdaq peaked.
The Nasdaq 100 is up +38% so far this year, and the prices of tech stocks relative to projected profits are well above levels before the Covid-19 pandemic. Bloomberg Intelligence said, “With valuations so high, it’s a decent time to take some chips off the table.” This year’s rally in technology stocks has occurred amid optimism about the tech sector’s resiliency in the face of higher interest rates and economic uncertainty and the ability of the biggest companies to capitalize on the demand for products enhanced by artificial intelligence features.
As technology stocks continue to climb, valuations have become stretched and are a concern for some investors. According to Bloomberg data, the Nasdaq 100 Stock Index is priced at about 26 times the profits projected over the next 12 months, compared with a ten-year average of 21 times. U.S. technology stocks also look expensive relative to their European peers. The S&P 500 Information Technology Index trades at a 20% premium to a similar gauge in the Stoxx Europe 600 Index based on estimated earnings, the widest margin since Bloomberg records began in 2006.
According to Bloomberg Intelligence, revenue for the technology sector is expected to lag behind the S&P 500 this year, growing faster in 2024 and 2025. However, the strength in the Nasdaq 100 in the first half of this year bodes well for the rest of 2023. Years that start with rallies in the index of at least 10% average returns of about 14% over the year's second half, though that shrinks to 8.3% when the first-half gain is above 20%. Despite posting its best first half year on record, the Nasdaq 100 remains about 9% below its 2021 all-time high.
Even with stretched valuations and economic uncertainty, some analysts believe the Nasdaq 100 can move even higher for the remainder of the year. There is optimism that AI represents a massive new market that can keep growth rates elevated for years. GraniteShares believes that while a correction in the Nasdaq 100 is possible in the near term, the AI narrative is one that people want to be a part of and says, ” All roads lead back to growth, and that makes us bullish for the second half” of the year.
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
