Tech stocks are headed into 2023, but that might actually be an ominous sign.
The Nasdaq Composite Index COMP, +0.95% is up 11% so far this month and is on course for its best January performance since posting a 12.2% gain in 2001, according to Dow Jones Market Data. recorded. But that 2001 rally cooled off sharply, with the Nasdaq plummeting 29.7% as the year progressed.
In case you don’t remember, what happened in 2001 became known as the dot-com bust. After years of optimism about the way the technology was going, in 2000 the stock market led to new highs, the bottom fell out, and although there were several reversals like the January 2001 gains, so did the general downturn of the market after the bursting of the Don’t completely reverse the tech bubble by the end of 2002.
The setup feels similar this year as tech stocks plunged in 2022 from record highs seen amid a wave of optimism about the development of emerging public tech companies. The Nasdaq had its fourth-worst year on record and its worst since 2008.
Admittedly, previous periods where the Nasdaq posted gains of over 10% in the first month of a year fared better. The index’s average performance in such situations was a 14.1% gain for the rest of the year.
Dow Jones market data
The Nasdaq is posting its best monthly performance since July 2022, according to Dow Jones Market Data, and is also on track to post its seventh-best January gain on record.
The communications services sector of the S&P 500, which includes Meta Platforms Inc. META, +3.01%, Netflix Inc. NFLX, -1.12% and many large telecom stocks, is expected to record its fourth straight week of gains. That would be the longest winning streak since it ended in October 2020. It’s up 14.8% so far this month and is on course for the best month since October 2002, along with the best January on record.
The tech rally comes despite numerous big names issuing dire warnings. microsoft corp MSFT, +0.06% saw cloud business slow down in the most recent quarter and expects another slowdown, a forecast that suggests the rest of the cloud industry could suffer further pain as well. And the INTC deal, -6.41% from Intel Corp. continues to slump, partly due to industry-wide challenges and partly due to its own missteps.
Opinion: Intel just had its worst year since the dot-com bust, and it’s not going to get better anytime soon
Tech companies have given investors what they seem to want in the current environment by enacting layoffs and other cost-cutting. However, given the massive surge in hiring during the pandemic, it remains to be seen whether the recent wave of job cuts will have a major financial impact. GOOGL, +1.90% GOOG, +1.56% by Alphabet Inc. 12,000 planned layoffs won’t even reverse the number of new hires the company made in the third quarter alone, and a billionaire is pushing for more.
The outlook could become much clearer next week when some of the world’s biggest tech companies report holiday earnings and possibly forecasts for the year ahead. Results are expected from Amazon.com Inc. alongside Facebook parent Meta and Google parent Alphabet. AMZN, +3.04% – which alone could determine whether earnings grow for the S&P 500 Index SPX, +0.25% this year – Apple Inc AAPL, +1.37% and Intel rival Advanced Micro Devices Inc AMD, +0.32%.