Over 2022, the tech sector saw highly high volatility. Taking the brunt of changes in Fed tightening predictions and the outlook for the USD. The Nasdaq and the XLK (SPDR Tech fund), two major tech indexes, are down on the year by 27% and 23%, respectively. As we transition into the first quarter of 2023, both markets have rebounded from their year-to-date lows, leaving traders to wonder what the future holds for the tech industry. Will the recovery last, or will the bear trend resume sooner rather than later?
What 2022 Was All About, Struggles
2022 became a year of reckoning for the IT industry and its stockholders. Following years of unrelenting growth that transformed each member of the so-called GAMAM (previously GAFAM) group into a trillion-dollar enterprise. Tech giants last year brought the market down with them after outperforming it for years—the better part of the previous two decades, even.
While Alphabet, Microsoft, and Apple all underperformed the market in 2022. With share prices falling an average of 27, 29, and 39 percent, compared to 19 percent for the S&P 500. Amazon and Meta fared considerably worse, with valuations nearly reduced in half (Amazon) or by almost two thirds (Meta). The latter two even left the trillion-dollar club, leaving only Apple, Microsoft, and Alphabet in the exclusive group, along with Saudi Aramco, the world’s largest energy company.
High inflation, high-interest rates, and a wide range of macroeconomic concerns hamper the growth prospects of technology businesses. These companies’ stratospheric values are frequently dependent on the promise of future profitability rather than on current performance. For instance, Apple and Microsoft are still performing well. Yet investors are still determining if they can maintain the rate of growth that shareholders have grown to expect. On the other hand, Alphabet and Meta are affected by a general slowdown in advertising. With Meta’s expensive wager on the metaverse making matters worse. Finally, while trying to control rising expenses and the possibility of a slowdown in consumer spending, Amazon needs help keeping up with its rapid expansion.
China Is Reopening, Yes Its a Big Deal
The possibility of China reopening in Q1 is another aspect to consider. On the strength of an allegedly leaked internal Chinese government letter referencing a planned March date for the reopening of the Chinese economy, there had been some conjecture in early Q4. As a result, there were many initial stock price gains, especially in the technology sector. Although Chinese authorities quickly denied this allegation, the following developments have brought China’s reopening tale back to the fore.
For the first time since the pandemic began, the government has started reducing numerous COVID restrictions due to recent protests across China. A full reopening of the Chinese economy is reportedly the government’s goal, according to the trajectory of these efforts. Given the significance of the Chinese market for the technology industry. A reopening of the market would be a tremendous boost to demand. And should lead to a sharp increase in tech stock prices. Additionally, the expansion of international trade ought to encourage risk appetite once more, providing tech stocks with even more favorable support.
Tech Stocks Are Still ‘It’
The market has been fierce on tech stocks, with market leaders like Amazon dropping more than 50% from their all-time highs. The Nasdaq, heavily weighted in the technology sector, is down more than 30% from its 52-week high. Apple and Microsoft, ‘s two most influential companies, have significantly underperformed their yearly high watermarks. However, such decreases present chances for the future.
After the rate hikes have subsided and the long-expected “recession” occurs or does not, Frigon predicts that software will do well. It’s challenging to discover a place with more potential for growth in the present or the future than that one.
Given the significant declines since late 2021, Keller agrees: “If and when a market bottom develops in the first half of 2023, we’d be looking to technology as a fantastic long-term opportunity.”
In addition, Tadrus believes that tech companies could perform well in 2023 after a decade of long-term success. Considering that they “tend to be pretty stable and are less prone to economic downturns,” he also believes that the healthcare and utility sectors may fare well.
You need to stay invested in receiving the market’s long-term rewards. Which is the hardest to achieve while equities are down. But it’s essential to continue to be involved. Furthermore, even if 2023 proves to be another challenging year for investors, it will pave the way for a more significant comeback the following year, making this the ideal opportunity to invest additional money at lower prices in anticipation of the rebound.
Inside Telecom provides you with an extensive list of content covering all aspects of the tech industry. Keep an eye on our Tech sections to stay informed and up-to-date with our daily articles.