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NAS100: Will the record highs ever end?

Sean MacLean
Research Strategist
7 Jul 2020
It’s record high to record high. The NAS100, also known as the US Tech 100 index, is an absolute equity juggernaut.

Low rates are pushing investors into aggressive growth stocks like the tech giants. Here’s why the NAS100 is a bond-proxy like gold, and how the US Treasury market can help you take a position on the seemingly unstoppable index.

NAS100 - the growth index

The NAS100 is a tech-led index containing the 100 largest and most-traded stocks listed on the Nasdaq. The index is dominated by the tech giants Facebook (FB.O), Amazon (AMZN.O), Apple (AAPL.O), Netflix (NFLX.O), and Alphabet (GOOGL.O). These stocks have performed exceptionally well during global lockdowns and continue to receive love.

Tech stocks comprise roughly half the index, and consumer services (that includes Amazon) making up about a quarter. Healthcare, telecommunications, and industrials fill the rest.

Amazon stock (AMZN.O) has soared since it suffered a brief sell-off in March. It’s helped drive the NAS100 to record highs. Chart source data: Metaquotes MT5.

But let’s put the obvious tech status aside and strip it down to something more important: growth.

The bond proxy

Right now, investors want growth. Global interest rates are at all-time lows, and investors are piling cash into growth stocks. In the US, nominal treasury yields are low across the curve, with a near-zero 0.13% at the shortest end and 1.43 at the long end (as at July 2nd). If you adjust for inflation expectations, real yields below zero and going deeper negative. The further negative real yields go (red line - 5-year real yields), the higher the NAS100 (white) seems to go.

NAS100 (white) and US Treasury 5-year real yields (red) from September 2018 to July 2020. As real yields fall, investors put more cash into growth stocks and the NAS100 rises. Source: Bloomberg

So the NAS100 is a bond proxy, almost behaving like gold, performing better as real yields go lower.

So when does the NAS100 roll over?

As a bond proxy, this NAS100 growth rally will end when Treasury yields start moving higher at a faster rate than inflation expectations. But to get there, markets need a lot more certainty and a better outlook than present.

The outlook on the pandemic remains murky, with record new daily numbers in the USA and globally. Meanwhile in economics that were thought to have defeated the virus, localised lockdowns have been reinstated to manage second wave breakouts, including Beijing and Melbourne. A vaccine ready for mass-production would probably be the confidence boost markets need.

When a sense of certainty returns to markets, yields will rise and at the same time, I’d expect investors to begin rotating from growth stocks to value stocks.

Banks have been doing particularly poorly in this low-rate environment. As value stocks, you can track the S&P financials sector with Pepperstone’s Financial ETF (XLF.N).


It’s anyone’s guess how far this equity juggernaut will go, but there are a couple of key levels for any pullbacks, which would signify a buying opportunity unless of course real yields are significantly turning.

For smaller pull-backs, the 20-day EMA (blue line) has been supporting this market since early May. In June, price briefly opened below the level on a couple of occasions but charged higher each time. Price hasn’t closed below the 20-EMA since early April.

For larger pull-backs, price seems ready to defend the 9730 handle, which were also the highs before the market panic in February.

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