- Investors shouldn't buy the dip in disruptive innovation stocks, according to DataTrek Research.
- The steep decline in speculative tech names is akin to the meltdown after the dot-com bubble in the 2000s.
- "We don't think we are in a market that is ready to cycle back into speculative tech," DataTrek said.
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The steep decline in speculative stocks championed by Ark Invest's Cathie Wood doesn't yet represent an opportunity for investors to buy the dip, according to a Friday note from DataTrek Research.
Ark Invest's flagship fund has fallen 50% from its record high, with some of its top holdings like Teladoc and Zoom Video down 74% and 64%, respectively. The decline has led to Ark's fund losing $14 billion in assets under management, while the Short ARK ETF has seen a surge in both performance and assets.
The carnage in disruptive innovation, clean energy, and Chinese tech stocks might remind some investors of the unwind of the 2000 dot-com bubble, in which the Nasdaq ultimately plummeted 80% from its record, the note said. But despite the destruction in smaller tech names, the broader Nasdaq 100 index is still down less than 10% from its recent high.
"Regardless of how rough markets get in 2022, we do not expect the NASDAQ to melt down the way it did in 2000 to 2002. The companies in the index are an order of magnitude better than what we had on offer in the 1990s," DataTrek Research co-founder Nicholas Colas explained.
Still, that doesn't mean investors should rush to buy the new lows made in beaten-down tech stocks. He listed two big reasons:
"First, we never recommend [buying] 52-week lows. Better to wait for prices to stabilize," Colas said. The iShares Clean Energy ETF and ARK's Disruptive Innovation ETF both traded to new 52-week lows on Friday.
"Second, we don't think we are in a market that is ready to cycle back into speculative tech names. The narrative has changed to old-school cyclicals," he added.
That shift has occurred thanks to a more hawkish Fed that is keen on raising interest rates and reducing its balance sheet to tame inflation. Such a monetary recipe hasn't historically been rewarding for barely profitable speculative growth companies.
"Bottom line: while we love disruptive innovation, we also believe in respecting price action. And, at the moment, respect trumps love by a wide margin," Colas concluded.