Stock Selloff Looks Even Worse Under Market's Surface

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The technology-heavy Nasdaq Composite has fallen 21% this year, closing Thursday at its lowest level since November 2020. Under the surface, things look even worse.

Nearly half of the Nasdaq’s constituents are trading more than 50% below their 52-week highs, and more than three-quarters of companies in the index are in a bear market, Bank of America Global Research strategists led by Michael Hartnett said in a Friday note. A bear market is defined as a drop of 20% or more from a recent high.

Among the Nasdaq components that are down more than 50% from their 52-week highs: Netflix Inc., GoodRx Holdings Inc. and Novavax Inc.

Mr. Hartnett and his team expect the selloff to continue. “Base case remains equity lows, yield highs yet to be reached,” the team wrote in the research note. They added that yields and volatility will rise until the Federal Reserve and central banks become ahead of the curve.

In the meantime, the new secular winners, the team said, are cash, volatility, commodities, and small-cap and value stocks.