Big Tech has had a huge run in 2023, and tech stocks are poised to notch another strong week. But the rally still hasn’t been enough to bring the Nasdaq back to its 2021 record.
The
Nasdaq Composite
was on track Friday to eke out yet another gain, nudging it ever closer to a 35% rise for 2023. Through Thursday’s close, the tech-heavy index has climbed 9.8% so far in November alone.
Plenty of the companies that have helped propel the Nasdaq to this level have done even better. Among the Magnificent Seven big tech stocks—namely Apple (AAPL), Amazon.com (AMZN), Google parent Alphabet (GOOGL), Facebook parent Meta Platforms (META), Microsoft (MSFT), Nvidia (NVDA), and Tesla (TSLA)—all are up 50% or more since the start of the year.
Nonetheless, the Nasdaq is still down roughly 12% from its record close of 16,057.44 that it hit on Friday, Nov. 19, 2021—two years ago come Sunday. It still needs to deliver another double-digit percentage gain to surpass that level.
Some stocks have already blown through their previous records:
Microsoft
closed at a record high Thursday, and
Nvidia
notched a new record earlier this week.
Still, it seems a tall order for tech to keep chugging given the impact of elevated interest rates. When the Nasdaq scored its previous high two years ago, benchmark interest rates were hovering just above zero. Today, the Fed funds effective rate is 5.33%, and the yield on the 10-year Treasury is around 4.4%.
That’s a headwind for stocks in general, given that many investors are opting for virtually risk-free returns from government debt over equities. But it’s especially troublesome for tech firms, as current high yields devalue the future earnings that investors are so keen on.
That conflict led
Apollo Global Management
‘s chief economist, Torsten Sløk, to argue last month that high rates and tech gains can’t coexist: “Tech valuations are very high and inconsistent with the significant rise in long-term interest rates…In short, something has to give.”
A tumultuous geopolitical backdrop doesn’t help either.
Yet, tech hasn’t been slowed down by naysayers this year. While it’s hard to quantify the long-term revenue potential around artificial intelligence, the industry’s fundamentals look strong, thanks to recent earnings reports from a number of players.
Wedbush analyst Daniel Ives argues tech’s upbeat earnings reports will continue next year. He estimates spending on AI and cloud applications will be up at least 20%, as tech becomes more central to numerous areas of the corporate and consumer world.
“Over the past few decades covering tech stocks we have always used macro jitters/agitation, Fed jawboning, and bond vigilantes taking over the narrative as opportunistic times to buy the best quality growth tech stocks and this time is no different,” he writes.
In addition, as DataTrek Research co-founder Jessica Rabe notes, the January effect is on the bulls’ side. Stripping out big shocks, like 1987’s Black Monday and the 2001 terrorist attacks, years that begin with January rallies—as 2023 did—typically produce double-digit annual percentage returns for the Nasdaq.
Likewise, Rabe notes that for those worried that tech has bounced back too quickly from 2022’s lows, the index doesn’t look too overheated.
“The Nasdaq doubling in a year is a reliable sign of a dangerous and unsustainable bubble-like rally, but its comeback so far from last year’s low is modest compared to that benchmark,” she writes “While a ‘gen AI’ tech bubble could eventually happen, the Nasdaq has a long way to rally before reaching that kind of top.”
In that sense, it wouldn’t be such a bad thing if the index took its time retaking its 2021 highs. Slow and steady wins the race.
Corrections & amplifications
The Nasdaq Composite exited a bear market in May. An earlier version of this article incorrectly stated the index remained in a bear market.
Write to Teresa Rivas at [email protected]
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