The Nasdaq Composite, laden with technology stocks, is taking the biggest beating of the major market measures in the selloff Tuesday. In recent trading, it was down 80 points, or 3.2%, to 2418.47, putting it on pace for its biggest one-day point drop since January 2009--two months before the bull-market run began.
The Nasdaq's tumble coincides with a 23% jump in the CBOE Market Volatility Index.
The Nasdaq "is inherently more volatile, so as the VIX index picks up and the market is selling off, it's going to get more of its share of pain," said David Klaskin, chief investment officer at Oak Ridge Investments in Chicago.
Yet, keep in mind that the Nasdaq has also had one of the strongest rallies from the market's March 2009 lows. As of Monday's close, it was up 97% from the 6 1/2-year closing low reached on March 9, 2009, against a 70% gain in the Dow Jones Industrial Average and a 78% climb in the Standard & Poor's 500 over the same period. For the year to date, the Nasdaq was up 10% as of Monday's close, against a 6.9% increase in the Dow and a 7.8% rise in the S&P 500.
Klaskin noted the stocks that are down the least Tuesday largely fall into the value category, while a lot of Nasdaq's components are considered growth stocks and more risky because of the shorter product cycles common in the tech industry.
As a result, the Nasdaq often trades in line with small-cap stocks, which also tend to fall into the growth category and are considered more risky. The Russell 2000 index of small-capitalization stocks was recently down 3.1%, although its components are perhaps the least likely to see any impact from euro-zone debt problems as small-caps tend to have little international exposure.
The components of the Nasdaq are also unlikely to be affected much, if at all, by the sovereign-debt issues in the euro zone. But it is getting hit hard anyway because of the market's aversion to risk.
Klaskin isn't concerned for the long term, however.
"It's been a very strong area of the market, and the fundamentals are being trumped by the nature of the Nasdaq being inherently more volatile," he said. "I think in the next week or two weeks investors will rally to its defense."
Copyright 2009 Dow Jones Newswires
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