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Monday, January 2, 2023
Today’s newsletter is from Brian Sozzi, Editor and Anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn. Read this and more market news on the go with the Yahoo Finance app.
Yes, the markets are closed today.
So you’re probably wondering why I deliver a Morning Brief newsletter straight to your inbox.
The answer to that question is simple: If you don’t try to get better as an investor every day — even on days when the market is closed — you’re likely to lose in the long run.
And you best believe that others around the world are trying to improve themselves 24/7. Eat or be eaten in global markets.
To that end, I’m offering a quick investing lesson for those who might be preparing to go all out and buy run-down tech stocks in 2023.
We all know the background for technology entering the new year.
Check out this exchange I and my colleague Brad Smith had with veteran tech analyst Mark Mahaney at Evercore ISI on Yahoo Finance Live last week:
Yahoo Finance: Without a Fed pivot, or at least a pause, can technology recover?
Mahaney: I pause on your break question. So I guess the answer is no, it can’t. But it’s the scale of the movement. So going from zero to expectations above 4%, 4% to 5% is a huge move. And from here, I just don’t think the rate shock will be as big as it was last year. That’s sort of the answer to your question. I think if rates continue to rise and the Fed stays hawkish, it will be very difficult for growth tech stocks to outperform significantly. I don’t think they would do as badly as they did this year.
We caught the show’s friend Mark by surprise and underlined how difficult it is to pick tech stocks right now.
The story goes on
Investor sentiment about what tech companies can achieve in terms of top- and bottom-line results this year is low as most economists and investors brace for sluggish economic growth.
The easiest way to spot this concern is through the prism of the markets: The Nasdaq Composite plunged 33% in 2022.
Previously high-flying tech stocks like Snap (SNAP) and Tesla (TSLA) ended the year down 80% and 65%, respectively. Cash-cow and safe-haven stock Apple (AAPL) is down 27% over the past year.
Apple CEO Tim Cook presents the new iPhone 14 at an Apple event at its headquarters in Cupertino, California, U.S. September 7, 2022. Portal/Carlos Barria
Here, too, the atmosphere is terrible at the moment.
And that should be until tech companies can prove they’re capable of accelerating growth again and turning more revenue into profits for investors.
But that’s the rub — tech stocks will continue sucking wind until the Federal Reserve signals a turn in interest rate policy. And everyone knows it.
So the first part of your lesson is to tread with caution on what appear to be “cheap” tech stocks until we get that more dovish Fed.
The second part is that you must be ready to act before the Fed gives the all-clear.
And when you think you’ve found a great thesis that comes with a heavily discounted valuation, it may be worth a nibble.
One of those names could be Meta Platforms (META), as Mahaney suggests.
“I just think you’re going to have a big re-rating of Meta’s stock,” Mahaney says.
The embattled social media company formerly known as Facebook enters 2023 with a valuation near bottom and the looming benefit of billions of dollars in cost-cutting.
Those are cost cuts that tech rivals like Amazon (AMZN) and Google (GOOGL) have yet to make — making Meta’s stock “relatively” more attractive.
And if cost-cutting isn’t exactly a thesis that gets you excited about tech stocks, you can thank Jay Powell for it. The ball is his.
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