Tech Rally: Bubble in Search of a Pin?

After a brutal 2022, the technology sector has been on a tear so far in 2023. Tech stocks enjoyed their best start to a new year in more than 20 years. Is that cause for celebration…or consternation?

Of course, no one can say for sure whether the momentum can last. It’s still early, and besides, trying to time the market is a fool’s game. But underlying indicators are auspicious for the stock market as a whole and the tech sector in particular.

Below, I’ll explain why it’s time to overcome fears you may have about tech stocks. I’ll also steer you toward a rare opportunity in the tech sector that’s going undetected by the investment herd.

Investor PTSD…

Even though it occurred more than two decades ago, the dot-com bust still haunts many risk-averse investors. Maybe you didn’t live through the meltdown as an adult; I sure did.

The frenzied stock market speculation of the dot-com bubble occurred roughly from 1994 to 2000. The NASDAQ composite peaked in value in March 2000 then crashed. The long subsequent decline in stocks lasted from March 2000 to October 2002, during which time $6.2 trillion in household wealth was wiped out. That’s trillion with a “t.”

Among conservative investors, the ingrained perception has lingered: technology stocks are simply too volatile. And even many risk-on investors are jittery about the sector, due to the bear market in 2022 that hit the tech-heavy NASDAQ the hardest.

However, if you get into a defensive crouch over tech equities right now, you’ll probably leave a lot of money on the table.

The NASDAQ jumped 10.7% in the first month of 2023, its best January performance since a 12.2% gain in 2001. Maybe the year 2001 rings a few alarm bells in your head. It should. The NASDAQ plummeted 29.7% through the rest of the year, as part of the dot-com bust.

To be sure, previous instances when the NASDAQ enjoyed a 10%-plus gain in the first month of a year worked out more happily. The index’s average performance in such instances was a 14.1% rise for the rest of the year, going back to 1975 (the NASDAQ was founded in 1971). The following chart tells the story:

Is the tech pivot of January 2023 a case of too much, too fast? I don’t think so. For starters, the parallels to the busting of the dot-com bubble in 2000 are limited. Back then, many tech companies with neither earnings nor revenue were sporting astronomical valuations. That’s not the situation now.

Indeed, as February gets under way, tech stocks enjoy several tailwinds for 2023 and far beyond.

WATCH THIS VIDEO: The Narrative Shifts from Inflation to Growth

The NASDAQ jumped Wednesday, following surprisingly dovish comments from Federal Reserve Chair Jerome Powell at his press conference. The tech-heavy index continued its sharp ascent Thursday, as the main U.S. stock market indices closed the trading session as follows:

  • DJIA: -0.11%
  • S&P 500: +1.47%
  • NASDAQ: +3.25%
  • Russell 2000: +2.06%

The spike in the share price of Meta Platforms (NSDQ: META), in the wake of the company’s fourth-quarter revenue beat Wednesday, has provided an upward impetus to Big Tech.

Earnings reports from Silicon Valley stalwarts Alphabet (NSDQ: GOOGL), Amazon (NSDQ: AMZN), and Apple (NSDQ: AAPL) are due after the closing bell Thursday. This slew of operating results will be a crucial litmus test for the sector and the overall stock market.

Tech stocks are interest rate sensitive, and they’d benefit from a pause in Fed tightening. But more importantly, global megatrends are in place that will propel innovative tech companies for years to come. Once inflation and the pandemic are truly in the rearview mirror, society-changing innovations will again occupy center stage.

The tech trends to watch this year include artificial intelligence, machine learning, green energy, robotics, gene editing, the cloud, space exploration, 3D printing, nanotechnology, and the Internet of Things.

It’s unlikely the tech rally that started in January will go bust later this year, especially in light of the sector’s compressed valuations due to the bear market decline in 2022. Forget the ghost of tech stocks past.

Editor’s Note: As I’ve just explained, It’s time to reconsider the tech sector. In a new report, my colleague Dr. Joe Duarte pinpoints a groundbreaking tech disruption worth $75 trillion…and it all starts with one under-the-radar $3 stock.

Dr. Duarte is the chief investment strategist of our premium trading services, Profit Catalyst Alert and Weekly Cash Machine. He’s been making money from stocks for over 35 years, through some of the wildest market swings imaginable…from the explosive 1990s bull run to the devastating dot-com bust and Great Recession that marked the 2000s, and the historic 2010s bull market.

Dr. Duarte currently recommends an investment opportunity in the tech sector that’s poised for market-crushing gains. Learn more by clicking here.

John Persinos is the editorial director of Investing Daily.

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