A -2.5% Nasdaq day might be coming soon, analysts warn

© Reuters.

Following a weak Q3, which saw the S&P 500 fall 3% amid heightened risks that the Fed may keep rates higher for longer, the index’s total year-to-date rate return sits at 13%, a retracement from the 17% return in 1H.

Among the S&P 500 sectors, Communication Services showed the strongest performance, with a +40% return, while Utilities had the poorest performance with a -14% return. Mutual funds have underperformed, with only 22% of large-cap funds beating their benchmark this year.

This underperformance is attributed to underweights in mega-cap technology stocks, which have weighed on fund performance.

Cyclicals outperformed Defensives by 1 percentage point in the third quarter, driven by resilient growth in the economy. Long-duration equities lagged short-duration equities by 3 percentage points due to the impact of rising interest rates.

The S&P 500 YTD outperformance has mostly been fueled by the surge in tech stocks. NASDAQ Composite is up over 27% YTD.

According to BTIG analysts, these remarkable YTD gains seen in tech-heavy Nasdaq may continue to decrease.

“The NDX has gone 198 trading days without a -2.5% or worse daily decline. The worst day this year was -2.41% in February. It is extremely rare to get through a calendar year without a -2.5% NDX day (last seen '13),” analysts wrote in a report sent to clients before the Tuesday open.

“We think this streak is likely in jeopardy over the coming days/weeks given persistently weak breadth in the face of screaming yields and USD,” the analysts warned.