S&P 500 to Outperform Nasdaq for First Time in Five Years

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by Ibukun Ogundare · 3 min read
S&P 500 to Outperform Nasdaq for First Time in Five Years
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Nasdaq’s major challenge in 2021 was the decline across companies that picked up huge market value in 2020.

For the first time in five years, the S&P 500 is topping the tech-heavy Nasdaq Composite as the year folds up. It really is an unusual case as tech investors are usually the life of the Wall Street Party. As of market close on the 28th of December, S&P 500 has gained 28.42% over the year while the Nasdaq Composite has grown 22.81%. The S&P 500 is down 0.10% at press time, while the Nasdaq has plunged 0.56%.

Usually, Nasdaq is always performing strong year-over-year with heavy investments from tech investors. Before now, the other two times that the S&P 500 outperformed the tech-heavy index were in 2011 and 2016. With less than 72 hours left in 2021, it does not seem like tech stocks have enough time to catch up for the year.

S&P 500 Tops Nasdaq as Tech Stocks Decline

Meanwhile, the Nasdaq started on a high pitch when the year began in January. Picking up from its strong performance recorded in 2020, the index early went 2X the S&P gains in mid-February. However, the arrival of the first COVID-19 vaccines caused a plunge as US investors began to hope for the end of the pandemic. With the arrival of the vaccines, investors imagined that the pandemic was coming to an end, and there would be a reduced demand for technology which a lot of people opted for during the global lockdown. Inflation, which jumped 4% in April before topping 6.8% in November, also added to the Nasdaq’s unimpressive performance.

Initially, the Federal Reserve believed that the increasing prices would be transitory. However, they persisted, which has made the central bank predict rate hikes in 2022. Hence, investors are exploring the sectors of the market that may be beneficial to them during a rising rate.

The CEO of Longbow Asset Management in Tusla, Okla, Jake Dollarhide, commented:

“All the stay-at-home, play-at-home, work-from-home stocks were DOA in 2021, like the pandemic didn’t exist anymore. The last five years, every time it looked like there would be a rotation out of tech, everybody bought the dip – 2021 will go down as the year that investors did not buy the dip in tech.”

Tech Stocks on the Low

Nasdaq’s major challenge in 2021 was the decline across companies that picked up huge market value in 2020. Unfortunately, investors turned their backs against most of the companies this year. Software company Zoom (NASDAQ: ZM), which saw a 326% surge in revenue, has lost 35% in 2021. In addition, exercise equipment company Peloton (NASDAQ: PTON), which recorded a peak in its revenue growth in mid-2020, has also shed over 75% this year.

Energy, which reflects the increasing gas prices, is the top-performing subgroup of the year within the S&P 500. The next subgroup is real estate, delivering high dividends, and it also gained from the spike in demand for warehouses space and residential properties.

Business News, Indices, Market News, News, Stocks
Ibukun Ogundare

Ibukun is a crypto/finance writer interested in passing relevant information, using non-complex words to reach all kinds of audience. Apart from writing, she likes to see movies, cook, and explore restaurants in the city of Lagos, where she resides.

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