Big tech stocks plunge with creepy parallels to dot com bust

Big tech stocks plunge with creepy parallels to dot-com bust: -25% to -66% from previous highs

But the market is poised for a rebound, in keeping with the WOLF STREET dictum “Nothing goes the heck in a straight line”.

By Wolf Richter for WOLF STREET.

Monday would be a good start for an upleg. It could also start on Tuesday or in November or whatever. And maybe not much bounce. But the market should recover after what it went through in September, or actually since August 16th, which was the end of the bear market rally.

The unsightly end to this bear market rally reinforces the eerie parallels to the dot-com bust, which was also punctuated by a rally in the summer of 2000 when the Nasdaq Composite rallied 33% without returning to its previous high, and then eventually plummeted 78%, from which it only fully recovered 15 years later, in July 2015, after the Fed injected trillions of dollars into the market with QE. But back then, inflation was well below the Fed’s target. Now inflation is raging well above the Fed’s target.

Since this summer’s bear market rally ended on Aug. 16, the S&P 500 Index is down 16.7% and the Nasdaq is down 19.5%, both just above where it was in February 2020.

Many of the stocks on my list of imploded stocks have plummeted 50% or more over the same period to hit new lows after surging 100% in the previous weeks — like Carvana [CVNA] the round trip from $20 on July 14 to $54.59 on August 16 and back to $20.30 on Friday September 30. Up 170% in five weeks and gave up all over the next six weeks. Carvana is down 95% from its intraday high of August 10, 2021.

This market is still that crazy and that’s why the bottom is far from in sight and there is absolutely no capitulation, but stocks need to recover.

In September, the S&P 500 Index fell 9.3%, its worst monthly decline since March 2020 and its worst September since the dot-com bust.

Every sector was hit in September, even energy. Health care was hit the least (-2.6%). The sectors hardest hit in September were: Information Technology (-12.0%), Communication Services (-12.1%) and Real Estate (-13.1%).

Year-to-date, energy was the only sector up (+34.9%) despite falling 9.3% in September according to S&P Dow Jones indices.

Another spooky parallel to the dot-com bust year-to-date: the two tech-related sectors — communications services and information technology — are down 31% and 39%, respectively. And some of the big tech stocks have fallen far more than that from their respective highs; more same.

S&P 500 index sectorsSeptember course of the year
consumer goods-8.0%-11.8%
health care-2.6%-13.1%
Consumer Discretionary-8.1%-29.9%
information technology-12.0%-31.4%
communication services-12.2%-39.0%

But it’s worse compared to their respective highs:

The S&P 500 index closed at 3,586 on Friday, down 25.6% from its intraday high of Jan. 3 and the first level in November 2020.

The Russell 2000, which tracks small-cap stocks, is down 31.8% from its Nov. 5 peak, maintaining its early warning function.

The Nasdaq closed at 10,576, down 34.8% from its intraday high on Nov. 22, the very day that Microsoft CEO Satya Nadella shed 50.2% of his Microsoft stock in a series of frantic trades totaling $285 million. It has to be at the top of the list of the best insider trades of all time. Since then, Microsoft shares have fallen 33.4% to $232.90, its lowest close since March 2021.

The Big “Tech” Plunges From Recent Highs.

But Microsoft is the second-best performing stock in the cadre of big tech stocks. Apple is the top performer, down “only” 24.5% from its early January 2022 peak.

The worst-performing big tech stocks are Meta, Netflix, and Nvidia, all of which are about 65% off their respective highs. These are massive sellouts for big companies.

Two of those companies — Cisco and Intel — had peaked 22 years ago; Cisco is down 51% and Intel is down 65% from that peak 22 years ago.

The “from high” drops shown in the table are the drops from the recent highs.

“Tech” giants$, September 30from highdate of high

Big tech stocks are now back where they first were…

  • Apple: January 2021.
  • Microsoft: January 2021.
  • Tesla: January 2021.
  • Alphabet: January 2021.
  • Amazon: April 2020.
  • Cisco: November 1999. Peaked at $82 in March 2000 and down 51% in 22 years, a nightmare come true for buyers and holders of technology stocks.
  • Salesforce: July 2018.
  • Adobe: September 2018
  • Intel: 1998. Hit at $75 during the infamous bear market rally of 2000 and down 65% in 22 years – an even bigger nightmare for tech stock buyers and owners coming true.
  • Meta: January 2017.
  • NVIDIA: August 2020
  • Netflix: April 2018

If such a bubble dissolves, it can become brutal. As Cisco and Intel show, some of the stocks may “never” reach their bubble tops — “never” means either “never” or just beyond a reasonable timeframe for long-term investors. During the dot-com bust years and beyond, hundreds of stocks disappeared, either going to zero or being bought at a few dollars a share. We only remember the winners that have emerged from the dot-com bust and thrived, such as B.Amazon. But Amazon was a rare exception.

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