Nasdaq erases losses for 2020 as mega-cap tech rallies offset coronavirus drag

• The Nasdaq composite turned positive for the year-to-date on Thursday as major tech names fuel a rapid recovery.
• The index sat nearly 24% lower at its trough, but a combination of investor risk-taking and strong tech earnings fueled strong gains through April.
• Facebook, Apple, Amazon, Microsoft, and Alphabet make up 38% of the Nasdaq composite, and big tech's appeal through the coronavirus shutdown has led the index to best its peers.
• Watch the Nasdaq composite update live here.

The Nasdaq composite wiped out its year-to-date losses on Thursday, riding on the coattails of last week's strong tech earnings and a broad market stabilization.

The index this year sat down nearly 24% by March 23 when coronavirus-fueled selling hit its peak, and has since climbed as investors bet on tech giants to ride out the economic downturn. The Nasdaq composite outperformed the S&P 500 and Dow Jones Industrial Average through April's market rally and extended its lead as earnings season began.

Much of the index's gains are tied to the Big Five tech stocks — Alphabet, Facebook, Microsoft, Amazon, and Apple — and their outperformance through the pandemic-induced downturn. The first three companies all beat expectations for first-quarter results on April 29 and soared on fresh investor optimism. The gains pushed the Nasdaq composite to a 3.6% single-day gain.

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Quarterly reports from Amazon and Apple the following day soured the run-up. Amazon shocked investors by announcing all of its next-quarter profit would be used for coronavirus aid. Apple beat expectations, but its withholding of fiscal third-quarter guidance saw its shares trade lower on Friday and drag the Nasdaq into a session loss.

The index erased its Friday losses through the first week of May, slowly ticking higher as investors cheered an oil market recovery and gradual reopenings throughout the US.

Even as economic data releases and industry surveys project a deep recession, tech names "have been viewed as relative safety blankets in this scary Category 5 storm," Wedbush analyst Dan Ives said in a note. The firms' exposure to cloud themes is key, he added, as widespread quarantine and work-from-home orders have seen online activity surge.

Whereas the tech-heavy index has recovered from its virus trough, its peers remain well below their December 31 closing levels. The S&P 500 sits 12% lower year-to-date, while the 30-stock Dow is down 17% for the same period.

The former index holds all five tech giants, but they comprise 20% of its weighting. The same five companies make up 38% of the Nasdaq composite's holdings.

While the outsized weighting of major tech names fueled the Nasdaq's bounce-back, some analysts fear such concentration can drive steep declines. Goldman Sachs warned of such crowding on May 1, harking back to the tech crash of the early 2000s as a sign of what could come should the Big Five disappoint.

"Often, narrow rallies lead to large drawdowns as the handful of market leaders ultimately fail to generate enough fundamental earnings strength to justify elevated valuations and investor crowding," strategist David Kostin wrote in a note.

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