Tech stocks may come out of free fall, but sector won’t return to pandemic-era highs even as Fed eases rate hikes

• Tech stocks won’t return to 2021 highs even after the Fed slows or ends its rate hikes.
• Experts say the sector’s bubble was inflated and eventually burst by wider structural issues.
• As liquidity dries up and investor enthusiasm wanes, the sector could do well in 2023.

Tech stocks may be able to break out of their plunge in 2023, but the sector won’t approach the highs of recent years and will be hampered by drying up liquidity and waning enthusiasm in the space, according to experts.

Even if the economy picks up and the Fed decides it’s time to withdraw its aggressive monetary policy in early 2023, there are other issues for the tech sector.

While many tech titans have apologized to investors for the poor performance of equities this year – citing Fed rate hikes, rising cost of capital and a strong US dollar as reasons why earnings have disappointed – there won’t be much they can change in the new year to increase their wealth.

Tim Hayes, chief investment strategist at Ned Davis Research, told Insider he expects the Nasdaq to recover smoothly after plunging 27% this year, but the sector is unlikely to recover. its 2021 bottom. He estimated the Nasdaq would rise 10% to 15% next year, taking the index around the 12,000 mark, still well below its all-time high of 16,000 a year ago. barely a year, when silver was cheap and abundant liquidity poured into the market.

“I wouldn’t expect a return to over-speculation. Investor caution should be higher following all the losses suffered from tech exposure during the market downturn,” he said. he declares.

Tech’s success could (and is necessary) lead to a new bull market, but it’s a mistake to assume tech will continue to hit new highs, Hayes said, noting that tech stocks’ success over the course of previous years has fostered a sense of complacency among investors.

“It has just become increasingly overvalued and there is excessive complacency and optimism as these stocks continue to drive the market higher,” he added. “It was almost more of a guess: these stocks are going to keep going up forever.”

That fantasy was brutally upended in 2022, but it’s a common occurrence in growth stocks, and especially in tech, that can spark excitement with new products that people don’t yet fully understand, according to Derek. Horstmeyer, professor of corporate finance at George Mason University. . He pointed to the excitement and “valuations you can’t explain” in areas like crypto, which has suffered all year, most recently at the hands of the FTX debacle.

Stagnant tech empires

The kind of blind enthusiasm that has pushed tech to dizzying heights during the pandemic has left the industry vulnerable to all kinds of headwinds.

Bill Maurer, an anthropologist and technology and finance expert at UC Irvine, noted that market speculation may have caused complacency among tech companies themselves. While the pandemic’s stay-at-home orders have boosted consumer demand for technology, recent product releases haven’t been all that exciting.

“There’s a new iPhone, but what does it do? Not much different from the old one, is it? So there’s been a kind of creative stagnation in the industry, and of course a lot of big chess,” Maurer said.

It’s also evident in investor disillusionment with once-adored CEOs like Mark Zuckerberg, whose vision of the metaverse was ruthlessly mocked this year as his company’s shares plunged 65%. Even Elon Musk is feeling the heat as Tesla investors take a bearish view of his ability to steer a turnaround on Twitter while managing the electric vehicle maker.

Tech stocks have been hurt in part by this waning enthusiasm, and complacency about innovation needs to change for the industry to continue to progress and attract investors, according to Maurer.

This change could start with a leadership shake-up. Maurer noted that virtually no major tech company, except Apple, has seen a noticeable change in leadership recently. This means companies can be left vulnerable to the hubris of big tech billionaires and their pet projects.

“Technology is still in this charismatic big man mode, whose vicissitudes and whims overdrive the business. That has to change,” Maurer said, adding that he believes a period of wild volatility is in store for the tech stocks, rather than a retracement to previous highs. “There is a bit of a reality check.”