- The Nasdaq Composite just posted its best quarter since 2020.
- The tech-heavy index jumped 17% as investors started to position for the Federal Reserve potentially pausing its interest-rate increases.
The Nasdaq Composite just wrapped up its best quarter almost three years, powered higher by outsized gains from some of the best-known US tech stocks.
The index rallied 17% over the three months ended March 31 for its best returns since the second quarter of 2020, when tech shares rebounded sharply after crashing in the early days of the pandemic.
The rally in tech stocks has been fueled mainly by growing expectations that the Federal Reserve is close to ending its interest-rate increases, as it looks to protect financial stability amid banking-sector jitters triggered by the sudden collapse of SVB.
Just under 50% of traders now expect the Fed to pause its tightening campaign at its next meeting in May, according to CME Group's Fedwatch tool – and techs tend to rally when interest rates stop rising because they can borrow at a flat rate, boosting the future cash flows that make up a core part of their valuations.
Nasdaq-listed stocks have also surged thanks to the rise in popularity of ChatGPT, which has encouraged investors to pile into AI-related shares and exchange-traded funds.
"March brought on a banking crisis and tighter credit conditions which will be felt in the months to come, but these events also triggered lower bond yields and a market pricing the Fed to cut the policy rate," Saxo Bank's head strategist Peter Garnry said in a research note Friday.
"These moves in bonds coupled with excitement over GPT 4 have ignited a speculative fever and buy-the-dip dynamics across technology stocks pushing the overall equity market into gains for the months," he added.
Nvidia and Meta Platforms were the Nasdaq's two best-performing stocks in the first quarter of 2023.
Chipmaker Nvidia's shares rallied 90% to March 31, seizing what its CEO Jensen Huang has called "the iPhone moment of AI" to add just under $330 billion to its market capitalization in the first quarter.
Meanwhile, Meta rebounded from a nightmarish 2022 to jump 76% over the same period, with investors buoyed by CEO Mark Zuckerberg's efforts to cut costs by laying off thousands of workers.
EV maker Tesla, media conglomerate Warner Bros Discovery, and orthodontics devices manufacturer Align Technology were the Nasdaq's next three best-performing stocks over the quarter.