Tech stocks are having their best January in decades — here’s why that may not be a good sign

In case you don’t bear in mind what was occurring in 2001, it grew to become often known as the dot-com bust. After years of optimism concerning the path of know-how took the inventory market to new peaks in 2000, the underside fell out, and whereas there have been a number of reversals just like the January 2001 features, the general downward course of the market after the tech bubble popped did not flip round fully till late 2002.

The setup feels comparable this yr, as tech stocks plunged in 2022 from document peaks skilled throughout a wave of optimism concerning the trajectory of younger public tech firms. The Nasdaq had its fourth worst yr on document, and worst since 2008.

Admittedly, prior durations in which the Nasdaq loved a 10%-plus achieve in the primary month of a yr panned out higher. The index’s common efficiency in such conditions was a 14.1% rise for the remainder of the yr.

The Nasdaq is seeing its best month-to-month efficiency since July 2022, in accordance with Dow Jones Market Data, and it’s additionally on observe to log its seventh best January achieve on document.

The S&P 500 Communication Services Sector, which incorporates Meta Platforms Inc.
META,
+3.01%,
Netflix Inc.
NFLX,
-1.12%
and lots of large telecommunications stocks, is about to document its fourth straight week of features. That would mark its longest successful streak since one that ended in October 2020. It’s up 14.8% to date this month and on observe for its best month since October 2002, together with its best January on document.

The rally in tech comes at the same time as quite a few large names have issued grim warnings. Microsoft Corp.
MSFT,
+0.06%
saw its cloud business slow in the most recent quarter and expects additional deceleration, a forecast suggesting that the remainder of the cloud trade might be in for additional ache as nicely. And Intel Corp.’s
INTC,
-6.41%
enterprise continues to melt down, partly as a result of industrywide challenges and partly as a result of its personal missteps.

Opinion: Intel just had its worst year since the dot-com bust, and it won’t get better anytime soon

Tech firms have been giving buyers what they appear to need in the present surroundings, executing on layoffs and different value cuts. But given large run ups in hiring through the pandemic, it stays to be seen whether or not the latest wave of job cuts could have a lot monetary affect. Alphabet Inc.’s
GOOGL,
+1.90%

GOOG,
+1.56%
12,000 deliberate 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 might get a lot clearer subsequent week, when a number of the largest tech firms in the world ship vacation earnings and probably forecasts for the yr forward. In addition to Facebook guardian Meta and Google guardian Alphabet, outcomes are anticipated from Amazon.com Inc.
AMZN,
+3.04%
— which could determine on its own if profit grows for the S&P 500 index
SPX,
+0.25%
this yr — Apple Inc.
AAPL,
+1.37%
and Intel rival Advanced Micro Devices Inc.
AMD,
+0.32%.