The Nasdaq Composite Index has dropped 10% in the last three trading sessions, wiping off almost a month’s gains. The index has declined below its 50-day moving average. Until now, I’d vouched that this is just another market correction, as the index was overbought. However, a decline below its 50-day moving average is an early indication of a possible market crash. Don’t rush to sell.
The TSX Composite Index is doing better than Nasdaq and even the S&P 500 Index.
Why did the Nasdaq dip 4% on September 8?
Tesla stock led the Nasdaq dip, as it tanked 21% yesterday, losing $82 billion in market value. It fell because it was removed from the S&P 500 Index.
Semiconductor equipment suppliers KLA Corporation, Lam Research, and Applied Materials dipped 8-9%, which wiped off combined market value of $12.2 billion. These stocks fell after media reports stated that the U.S. agencies are considering banning exports to Semiconductor Manufacturing International Corporation (SMIC).
The six largest tech stocks, popularly known as FAANGM stocks, fell 3-6%, losing a total market value of $281.4 billion. After the March market crash, investors rushed to buy these stocks as a safe haven. They were good investments in a market with lower interest rates.
The TSX is better off than the S&P 500 Index and Nasdaq
The S&P 500 Index has fallen 7% in the last three trading sessions, while the TSX Composite Index slumped only 4.3%. The TSX performed better as the U.S. stock markets are pricing in the U.S. election, the growing trade tensions with China, and the uncertainty about another fiscal stimulus package. These uncertainties do not directly impact the TSX Composite Index, although there are indirect implications.
While the Nasdaq dipped 4% yesterday, the iShares S&P/TSX Capped Information Technology Index ETF fell 1.8%. The ETF has declined 8.7% in the last three trading sessions and is now trading below its 50-day moving average.
All three market indexes — Nasdaq Composite, S&P 500, and TSX Composite — as well as the tech ETF, are almost oversold with a Relative Strength Index (RSI) below 40. They have fallen below their 50-day moving average, hinting a technical weakness. The market could be on the brink of another crash, although some analysts feel that it is just a correction.
What should you do in a market crash?
Warren Buffett says to never sell in a market crash, as you will only lose money. Instead, just wait and watch, as there could be steep declines coming. Keep your cash ready and buy the fundamentally strong stocks with growth potential.
In the Toronto Stock Exchange, Lightspeed began its journey just 18 months back. During this time, the stock surged 150%, as the COVID-19 pandemic brought out the best of the point-of-sale platform. In the March sell-off, the stock fell 67.5%, as its sales were hit by the lockdown. But it converted the pandemic into an opportunity and grew its sales by 51% in the second quarter. This growth reflected in its stock price, which surged more than 280% from its March low.
Keep an eye on Lightspeed. The stock has declined 10.5% in the last three trading sessions, wiping away two weeks of gains. It has the potential to grow double digits in the post-pandemic economy.
Lock in a high dividend yield in your TFSA
The market decline has reduced Enbridge’s stock price by 3% and inflated its dividend yield to 7.86%. If you are someone in your 30s and have never invested in Tax-Free Savings Accounts (TFSA), you can contribute up to $69,500 and put that money in Enbridge. It will give you $5,400 in annual dividends, which could grow to $8,000 by 2025. It will also increase your $69,500 to $83,500 when the market recovers.
If you don’t have such a high amount, you can divide your $6,000 TFSA contribution into the two stocks. Lightspeed can double your $3,000 to $6,000 as the economy re-opens and heads to recovery. Enbridge can pay you dividends even during a downturn, and when the market recovers, it can grow your $3,000 to $3,600.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Puja Tayal has no position in any of the stocks mentioned. David Gardner owns shares of Tesla. Tom Gardner owns shares of Tesla. The Motley Fool owns shares of and recommends Enbridge, Lam Research, and Tesla. The Motley Fool owns shares of Lightspeed POS Inc. The Motley Fool recommends Applied Materials.