2022 was a tough year for tech stocks, with the tech-heavy NASDAQ ending the year down a whopping 33.1%. Unfortunately, 2023 doesn’t look much better, as the NASDAQ continues to lag the S&P 500 and Dow. From production issues, mass layoffs and more regulations, the sector continues to face the same challenges from the past year.
Case in point: Apple Inc. (AAPL) dropped 3.7% on Tuesday – its lowest close since June 2021 – and knocked the company below a $2 trillion market cap as fears of production problems in China continue to weigh on the stock.
Tesla, Inc. (TSLA) was hit by similar production concerns. The company’s planned eight-day shutdown of its Shanghai plant it was extended through the end of January, due in part to rising Covid cases in China and slowing sales. I should also add that to start the year, the electric vehicle (EV) maker revealed that it missed its fourth-quarter delivery estimates, which triggered a 12% drop in the stock on Tuesday. By Friday, TSLA came dangerously close to breaking below $100 as it continued to slip lower throughout the week.
But could a tech turnaround be in the cards?
In a word? No.
First, there were some big tech earnings disappointments during the last earnings season. Amazon.com (AMZN), Google (GOOG), Meta Platforms (META) and even Microsoft Corporation (MSFT) all posted disappointing results for the latest quarter.
Here’s the thing: I’ve been in this situation before. I was here when the tech bubble burst in March of 2000. And what happened is, back then 54% of the S&P was in seven giant technology stocks. And for the next seven years, the tail end of the S&P 500 (the bottom 10% of the stocks on a capitalization basis) did better than the top end.
So, what’s going to be happening is you’re going to see net selling in some big flagship stocks that don’t have the earnings they used to. The Googles, the Amazons, the Metas, and even the Microsofts, keep guiding lower. As a result, these stocks will remain under persistent selling pressure.
Now, I can’t see seven years out, but I can see a couple of years out and there is one bucket of stocks that should be the primary beneficiary of the exodus from major tech companies.
The Primary Benefactor of the Major Tech Exodus
You probably already know what I’m going to say… energy. It’s no secret that I’m incredibly bullish on energy stocks right now. It’s why I decided to hold a special event – my Big Energy Bet – yesterday to discuss the opportunity in the energy sector this year. (If you missed the event, you can watch a replay of it here.)
But I’ll say here that the energy sector is coming off a strong year where it was by far the best-performing sector of 2022. The energy sector surged about 59%, while the S&P 500 fell almost 20%.
And despite energy’s slow start this year, I fully anticipate this strength will continue throughout 2023. The fact is the technology and energy stocks’ weight in the S&P 500 is shifting. Just over a year ago, energy accounted for less than 2% of the S&P 500, while technology accounted for about 48%. And I am predicting that energy stocks will account for 30% of the S&P 500 in early 2025, as technology stocks fall to about 32%.
With this leadership change now underway, the stocks that post the biggest fourth-quarter earnings surprises are poised to be the new market leaders in 2023. And FactSet currently estimates that the energy sector is expected to post earnings growth of 64.4%.
If my predictions are correct, this year should be a phenomenal year for the energy sector. That’s why I’m putting my “big bet” on the energy sector this year. But these kinds of “big bets” don’t come around too often.
To make sure that you’re betting on the right stocks this year, you’ll want to hear what I had to say during yesterday’s Big Energy Bet event. I explained why I’m so certain the energy sector will be a dominant force in the economy for years to come and why this is just the early rounds of an incredible rally. Also during the event, I shared the best opportunities in the energy space – including a free stock pick – ticker symbol and all.
If you missed my Big Energy Bet event, you can watch a replay of it here.
The Editor hereby discloses that as of the date of this email, the Editor, directly or indirectly, owns the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below:
Amazon.com (AMZN), Google (GOOG), Meta Platforms (META), Microsoft Corporation (MSFT)