The Nasdaq 100 index has crashed into a correction as concerns about Donald Trump’s reciprocal tariffs and the artificial intelligence (AI) industries remain. It closed at $19,580 on Wednesday and then plunged by over 600 points in the futures market. This article explains why this crash could be a golden opportunity to buy these stocks.
2 reasons why the Nasdaq 100 index has crashed
There are two main reasons why the Nasdaq 100 index has crashed this year. First, there are serious concerns about the artificial intelligence (AI) industry, which is showing signs of slowing down. This explains why most AI stocks like NVIDIA, AMD, Intel, BigBear, C3.ai, and SoundHound have plummeted this year.
These fears have been compounded by the ongoing trade war, which escalated on Wednesday when Trump unveiled his Liberation Day tariffs on all US imports. The US will impose 10% to 35% tariffs on all imported goods.
Trump aims to use these tariffs to increase the government’s revenue and reduce the deficit, a move that will be difficult to achieve. Analysts believe that these tariffs will lead to weak consumption in the US and even sink the US into a recession this year.
Indeed, flash data by the Atlanta Fed show that the US economy likely contracted in the first quarter, ending a long period of growth. PIMCO, Citi, and Goldman Sachs have boosted their recession odds lately.
Nasdaq 100 index chart | Source: TradingView
Is the ongoing Nasdaq index crash a good buying opportunity
The financial market is often driven by fear and greed. Indeed, the CNN Money fear and greed index has now crashed to the extreme fear zone of 15. This decline will likely continue as the markets continue sinking.
There is a likelihood that the Nasdaq 100 index will continue crashing in the coming weeks as investors digest these risks.
However, some analysts believe that the ongoing plunge is a golden opportunity to buy the dip in tech stocks for a few reasons.
First, while a recession is highly feared, evidence shows that it is usually the best time to buy the dip in many quality stocks that become bargains. Three good examples of this are the dot com bubble, the Global Financial Crisis, and the Covid-19 pandemic. Investors who bought during those dips did better than those who bought at the top.
For example, the Nasdaq 100 index crashed from $9,715 in late February 2020 to $6,765 in early March as the COVID-19 pandemic started. Investors who sold in panic and sold during the crash, missed an opportunity that pushed the index to over $22,000 this year.
Now is the time to remember that more wealth is created during recessions than any other time.
Few understand this, and even fewer act on it.
Federal Reserve interventions
The other reason why this may be a golden opportunity to invest in the Nasdaq 100 index is that the Fed will always intervene when things are not going on well.
In this case, the bank may decide to cut interest rates and even relaunch its quantitative easing policies. It will do that to flood the market with liquidity and grow the economy.
The Nasdaq 100 index often does well when the Fed is intervening. This happened in all the last recessions.
US government stimulus
There are rising odds that the US government will also intervene if there is a crisis, a move that will support stocks. Reports are that the Trump administration is considering raising money for the agricultural sector that tariffs will decimate. These funds could be in the billions of dollars.
The administration may also decide to bail out many small companies that will be forced to close shop because of these tariffs. US stocks tend to do well when the government is printing money and offering it to businesses and individuals.
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