Technology stocks had their best start to a year in more than two decades, but that could actually be an ominous signal.
The Nasdaq Composite Index
COMP,
rose 10.7% in the first month of 2023, its best January performance since a 12.2% gain in 2001, according to Dow Jones Market Data. But that 2001 rally went on to cool in a big way: The Nasdaq plunged 29.7% through the rest of the year.
In case you don’t remember what was happening in 2001, it became known as the dot-com bust. After years of optimism about the path of technology took the Nasdaq to new peaks in 2000, the bottom fell out, and while there were several reversals like the January 2001 gains, the overall downward direction of the market after the tech bubble popped did not turn around completely until late 2002.
The setup feels similar this year, after tech stocks plunged in 2022 from record peaks experienced during a wave of optimism about the trajectory of young public tech companies. The Nasdaq had its fourth-worst year on record, and worst since 2008.
Admittedly, prior instances in which the Nasdaq enjoyed a 10%-plus gain in the first month of a year panned out better. The index’s average performance in such situations was a 14.1% rise for the rest of the year, with a boom year of the dot-com era helping to outweigh 1987 and 2001 declines.
Dow Jones Market Data
The rally in tech comes even as big names have issued grim warnings. Microsoft Corp.
MSFT,
saw its cloud business slow in the latest quarter and expects further deceleration, a forecast suggesting that the rest of the cloud industry could be in for further pain. Intel Corp.’s
INTC,
business continues to melt down, partly due to PC industry challenges and partly due to its own missteps. Snap Inc.
SNAP,
didn’t do the online-advertising outlook any favors after the last session of the month closed out.
Opinion: Intel just had its worst year since the dot-com bust, and it won’t get better anytime soon
Tech companies have been giving investors what they seem to want in the current environment, executing on layoffs and other cost cuts. But given massive run-ups in hiring during the pandemic, it remains to be seen whether the recent wave of job cuts will have much financial impact. Alphabet Inc.’s
GOOGL,
GOOG,
12,000 planned layoffs won’t even walk back the number of hires the company made in the third quarter alone, and one billionaire is pushing for more.
The outlook could clear this week, when some of the biggest tech companies in the world deliver holiday earnings and potentially forecasts for the year ahead. Online ads will be tested again by Facebook parent Meta Platforms Inc.
META,
and Google parent Alphabet, the latter of which will report the same day as Apple Inc.
AAPL,
and the company that could determine on its own if profit grows for the S&P 500 index
SPX,
this year — Amazon.com Inc.
AMZN,
Amazon earnings: Projections show first unprofitable year since 2014 and worst loss since the dot-com bust
