If you're looking at the stock market on Monday, you might be confused by what you see. Many of the most popular benchmarks are up sharply for the day, buoyed by hope for economic stimulus measures that could help more people recover from the financial impact of the pandemic. Yet the Nasdaq Composite (^IXIC 0.00%) continued to give up ground, falling more than half a percent as of 1 p.m. EST.
It's never fun to see the broader market soar while your stocks get left behind. But as investors in high-growth stocks know all too well, sometimes some of the most powerful companies in the world have to go through market corrections, and that appears to be what's happening here.
The baby and the bathwater
If you look at the top eight stocks in the Nasdaq on Monday, you'll see nothing but a sea of red. That's the case even though many of those businesses deal with very different parts of the economy:
- At the top, consumer-tech giant Apple (AAPL 2.32%) dropped more than 3% to fall before the $2 trillion mark in market capitalization.
- Declines for Microsoft (MSFT 1.29%) and Amazon (AMZN 4.03%) were more modest, reflecting ongoing interest in their high-demand areas of cloud computing and e-commerce.
- Tesla (TSLA 7.43%) dropped another 2%, adding to losses that have lopped about 35% off its stock price from all-time highs just weeks ago.
- NVIDIA (NVDA 5.16%) was the biggest loser among top Nasdaq stocks, falling between 4% and 5% as past enthusiasm about heavy tech demand and semiconductor chip shortages have given way to worries about the future course of the IT industry.
Even social media giant Facebook (FB 4.24%), search engine leader Alphabet (GOOGL 1.88%) (GOOG 2.32%), and payment network disruptor PayPal Holdings (PYPL 0.37%) found themselves on the losing side of the ledger on Monday.
When you get wholesale declines across the board like this, they tend to signal a broader trend rather than anything specifically wrong with particular stocks. Today's move looks like investors rejecting mega-cap Nasdaq stocks regardless of their respective merits. That kind of mindless selling pressure can create opportunities when one or more stocks have competitive advantages compared to others.
Picking your favorites
Which of these stocks' declines seem unjustified will depend on your mindset and investing strategy. For instance, if you tend to invest with more of a value-oriented bent, then the sell-offs in Apple and Microsoft might hit you as being more troubling and unwarranted than declines for Tesla and Amazon. Conversely, if you prefer the best growth opportunities, then buying into Amazon at less than $3,000 per share or Tesla under $600 might be a bargain in your eyes. There's no one single right or wrong answer that applies to every investor.
What you have to remember is that just as the yearlong surge in the Nasdaq came to an end with this latest correction, the downturn will eventually come to an end and give way to a bounce. When that happens, you'll want to own the stocks that fit best with your investing strategy.
When a broad index like the Nasdaq falls day after day even when other markets are rising, it can make you question your investing philosophy. But don't let short-term fluctuations change your attitude toward the entire stock market. No matter what happens in the short run, Nasdaq stocks will be back, and great companies will lead the way forward.