Down 30%, is it safe to invest in the Nasdaq right now?

As 2021's tech highfliers finally feel the force of gravity, dip buyers don't have to let transitory issues dissuade them.

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This article was originally published on All figures quoted in US dollars unless otherwise stated.

From not-so-transitory inflation to geopolitical strife and supply chain disruptions, anxious investors have had plenty of excuses to push the Nasdaq Composite (NASDAQINDEX: ^IXIC) lower in 2022. Indeed, as the tech-heavy index sags 30% year to date, financial traders may wonder whether this, too, shall pass.

While it's never 100% safe to invest in anything, true contrarians should view the current tech wreck as a prime buying opportunity. A post-Thanksgiving attitude of gratitude, fortified with an understanding of what's rattling the markets in the first place, could provide the emotional wherewithal to stock up when stocks are down.

COVID-19 concerns return

When Chinese President Xi Jinping secured an unprecedented third term, the Nasdaq buckled as traders collectively winced at the thought of restrictive policies that would linger longer. Those fears may have been vindicated recently as Beijing enacted a fresh wave of lockdowns amid reports of new COVID-19 cases.

This isn't the place to debate whether Xi's latest restrictions are justified, as China faces nearly 40,000 new cases in a single day. What's known for certain, though, is that the populace is getting restless, with protests erupting in Beijing and surrounding cities.

There's already been collateral damage in the form of disruptions at the production facility at Apple components supplier Foxconn in the Chinese city of Zhengzhou. The upshot is a potential current-quarter iPhone production shortfall of 5% to 10%. This development prompted a single-day sell-off in Apple stock, which led the Nasdaq lower. Yet, panic need not be your knee-jerk reaction as this certainly hasn't been China's first coronavirus lockdown and it won't be the last -- and every restriction in the past has been lifted sooner or later, leading to a relief rally in well-known technology names.

Bullard's bully pulpit

The only thing that may be as reliable as China's on-again, off-again zero-COVID policy is the hawkish stance of Federal Reserve Bank of St. Louis President James Bullard. He's among the most vocal proponents of aggressive interest rate hikes, and he's never loath to put a damper on dovish market sentiment with a handful of choice words.

That's the power of a high central-bank position -- yet, you as an investor have the power to choose your response. As you may recall, Bullard sent shock waves though the financial markets with the pronouncement that the Fed may need to hike its benchmark interest rate all the way up to 7% to keep inflation under control.

Now, Bullard's turning up the heat again with statements like, "We've got a ways to go to get restrictive." Before you pull out your "Don't fight the Fed" banner, however, bear in mind that one hawk doesn't represent the central bank as a whole.

The most recently released meeting notes from the Fed's Federal Open Market Committee did, in fact, indicate that Fed officials collectively expect smaller interest rate increases to "soon be appropriate." Moreover, while the Federal Reserve "is clearly not finished yet," a 50-basis-point rate hike in December "sounds very reasonable" in the committee's estimation.

Safety in numbers

Besides, if China's zero-COVID policy and Bullard's statements contributed to more reasonable valuations for Nasdaq components, contrarians should celebrate, not hesitate. Ask yourself: Could I have imagined in mid-2021 that tech-sector highfliers such as these would in 2022 gift me with price-to-earnings ratios at their current levels?

  • Alphabet: 19.1
  • Meta Platforms: 10.46
  • Intel: 8.88
  • Netflix: 25.26
  • Cisco Systems: 17.36
  • Micron Technology: 7.19
  • Qualcomm: 10.48

If you're obsessed with income as much as value, feel free to investigate Intel and Qualcomm for their generous dividend yields. While you're doing your due diligence, remember that these relatively low tech-market valuations are brought to you courtesy of scary headlines and extrinsic shocks. Without them, after all, there can be no "buy low" piece of the "buy low, sell high" puzzle. 

This article was originally published on All figures quoted in US dollars unless otherwise stated.

David Moadel has positions in Intel. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet, Cisco Systems, Intel, Meta Platforms, Netflix, and Qualcomm. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended the following options: long January 2023 $57.50 calls on Intel, long January 2025 $45 calls on Intel, and short January 2025 $45 puts on Intel. The Motley Fool Australia has recommended Alphabet, Meta Platforms, and Netflix. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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