The once high-flying technology stocks that drove the U.S. stock market’s success in 2023 have encountered challenges in the early days of 2024. The Nasdaq, in particular, experienced its longest losing streak since late 2022 on Thursday.
In contrast, health-care stocks, utilities, and energy stocks, which had negative performances in 2023, have emerged as leaders in the market this week, according to FactSet data.
Despite the recent downturn, portfolio managers and investment strategists remain optimistic about the Magnificent Seven — the information technology, consumer discretionary, and communications services sectors. It is worth noting that this decline seems to be a result of investors waiting until the new year to secure profits rather than any fundamental catalyst. After a strong rally that saw the Nasdaq Composite gain 13.5% in the final two months of 2023, investors are taking a cautious approach. In fact, the index recorded an impressive 43% calendar-year advance in 2023 (excluding dividends), outperforming the S&P 500.
Bill Northey, senior investment director at U.S. Bank Asset Management Group, explains that waiting until January 2nd benefits taxable investors compared to December 31st due to generated gains from the prior year.
Both the Nasdaq Composite and Nasdaq-100 QQQ have experienced a fifth-straight day of declines on Thursday. For the Nasdaq Composite, comprised of all Nasdaq-traded stocks, this marks its longest losing streak since October 12, 2022, according to Dow Jones Market Data.
Similarly, the Nasdaq-100, limited to the most valuable Nasdaq-traded companies, faced its longest losing streak since December 2022.
Bespoke Investment Group’s data reveals that Tuesday marked only the fifth instance since the late 1970s launch of the Nasdaq Composite where the index began the year with a drop of 1.5% or more. It is also only the third time it has experienced consecutive losses of 1% or greater at the start of a year.
Major Nasdaq Constituents Experience Weakness
Looking below the surface, some major Nasdaq constituents are experiencing significant weakness at the start of the year. Walgreens Boots Alliance Inc. recently announced a nearly halved dividend and shared a downbeat outlook on the strength of the U.S. consumer with investors, resulting in a sharp decline in its shares.
Setbacks for Apple Inc.
Apple Inc., a member of the prestigious Magnificent Seven group of mega-cap technology stocks, has faced challenges this week. Downgrades from Wall Street analysts have led to a more than 5% decline in Apple’s stock price.
Analysts Harsh Kumar and Robert Aguanno from Piper Sandler downgraded the consumer-technology giant and reduced their price target in a report published on Thursday. Additionally, a prominent Barclays analyst also lowered both his rating and price target on Apple earlier in the week.
Tesla Inc. Experiences Slide
Another member of the Magnificent Seven, Tesla Inc., is also experiencing a decline at the beginning of the year. Chinese electric-vehicle maker BYD outproduced the U.S. EV giant in vehicle production once again in 2023, contributing to Tesla’s sliding stock price.
Broader Outlook for Big Tech
While these individual stories are noteworthy, they do not necessarily indicate more trouble ahead for the broader big-tech sector. James St. Aubin, Chief Investment Officer at Sierra Investment Management, suggests that investors should wait until more corporate earnings reports from the final quarter of 2023 are released later this month.
Following the boom driven by artificial intelligence in 2023, investors have high expectations for corporate earnings in 2024. The current FactSet consensus estimate for the S&P 500 projects growth of 11.7% for the calendar year.
Northey, an industry expert, believes that earnings estimates, when taken together, are overly optimistic.
The First Big Test for the Market’s Rally
This earnings season will serve as the first significant test for the market’s year-end rally. Unfortunately, the forecasts are not painting a positive picture.
Indexes Show Signs of Recovery
To provide some balance, it should be noted that both indexes appear to be ready to break their losing streaks early on Friday. Following the release of the December nonfarm payrolls report, which revealed that the U.S. economy added more jobs than expected by economists, both indexes were up 0.1% in recent trade.