Tech stock collapse warning! Wall Street bigwig warns: If this isn't a bubble, then what is?

The seasoned financial tycoon Ned Davis, who boasts fifty years of Wall Street experience, believes that the abnormally rapid rise and significantly increased trading volume of the technology-heavy Nasdaq 100 index signal a warning of a potential tech stock bubble, with the highly correlated Bitcoin also facing imminent turmoil.

Wall Street Veteran Warns

According to a report by Bloomberg, the Nasdaq 100 index fell by 2.8% on Thursday due to its abnormally rapid rise and significantly increased trading volume. Ned Davis, a senior finance veteran with fifty years of Wall Street experience, expressed concerns about the future.

Davis plotted a comparison chart of the Nasdaq 100 index relative to the S&P 500 index and found that the price ratio between the two has exceeded the peak of the 2000 internet bubble era. On the other hand, trading volumes for all Nasdaq-listed stocks have soared to record levels, and the Nasdaq 100 index has surged by over 50% since its low point in March, reaching the highest level in 20 years. These signs indicate that the index, similar to the internet bubble in 2000, is on the verge of collapse. In a report to clients of market research firm Ned Davis Research, Ned Davis wrote:

"The Nasdaq 100 index seems like a bubble to me. I don't know how else to describe it other than climbing up the diving board for speculation."

Digital Gold at Risk

Since March 2020, the correlation between Bitcoin and the financial markets has been the highest in over a decade. On July 9, the correlation between Bitcoin and the S&P 500 index reached a historical high of 0.38. If the tech-heavy Nasdaq 100 index begins to decline, it could trigger a larger financial downturn, and Bitcoin is likely not immune to this disaster.

Key Differences from the 2000 Bubble

Despite the seemingly bleak situation, market observers like Tony Dwyer, a strategist at financial services firm Canaccord Genuity LLC, have pointed out some key differences compared to the 2000 dot-com bubble. In 2000, the Federal Reserve was tightening monetary policy, raising the benchmark interest rate to 6.5%, whereas now the Fed has lowered rates to near 0%. While tech giants dominate most of the market's equity gains, other companies have not been entirely excluded. In contrast, in the two years leading up to the 2000 dot-com bubble, market breadth had already weakened. Tony Dwyer stated:

"While many are concerned that the current environment resembles the 2000 dot-com bubble period, the macro backdrop suggests otherwise. The macro backdrop is significantly different from 1999, indicating that any pullback in stocks is only temporary."