Guess what? It’s been a good year for US tech stocks. Especially large US tech stocks.
Maybe you heard. Maybe you enjoyed it. Or maybe, on the implicit advice of sundry soothsayers and click-chasing doom tabloids, you fought the “good” fight by refusing to participate in a narrow market high on its own supply of AI hype.
If you fall into that latter camp allow me to apologize for the simple figure below, which is a testament to why you shouldn’t try to reason with irrational equities.
After logging its best first half on record, the Nasdaq 100 proceeded to tack on another ~12% on the way to a 54% gain for the year.
This’ll either be the best or second-best year for the gauge since the height of the dot-com bubble.
All sarcastic derision aimed at bears aside, I’d be positively remiss not to concede that “best year since the dot-com bubble” sounds ominous.
The figure above (which is Info Tech proper, by the way, so it doesn’t include all the names we colloquially associate with “tech”) does seem a bit extreme.
Last week, SocGen’s Albert Edwards suggested 2024 could be the year tech’s “market cap bubble” bursts.
Writing in his final dispatch of 2023, JonesTrading’s Mike O’Rourke described the Magnificent 7’s performance this year as his “greatest accomplishment and greatest disappointment.” “We saw the power and dominance of the group and dubbed the market leaders with the moniker,” he said, of the now ubiquitous nickname for America’s mega-cap septet.
O’Rourke went on to dryly note that despite having spelled out the case for the Magnificent 7 to dominate the S&P 500, he nevertheless “failed to realize the group would spend most of the year becoming the S&P 500.” (You gotta love Mike.)
When reddit (and other social media) frothiness and tech frothiness have strong correlations, it’s best to stay off that roller coaster.
Looking at the charts above, and noting that NASDAQ & tech haven’t gone truly parabolic (yet) this time around…and that history tends to rhyme, at least – then perhaps 2023 was more 1998, not -99, and the best (craziest, most irrational, peak bubble) is yet to come? In ‘9?8-9 I made more $ doing (many irrational) deals and in the markets than cumulatively in my lifetime prior…but came to believe my own BS…until hubris and reality made it all vanish nearly as quickly, requiring a start from scratch in ’03. So I continue to take profits here & there, write a lot of covered calls (many of which likely will be exercised) maintain some modest (albeit losing) short positions and keep healthy positions in long Treasuries and money markets…while keeping enough skin in the game to smile if parabolic happens. But…try to stay wary and alert for signs of the next bubble-bursting, 9/11, Enron, housing crash, GFC, pandemic, Ukraine…or…..what rhymes with any of them?