Skip to main content

Tech - in Vogue Again?

First of all, Happy New Year...Due to holiday travels my new year blog got delayed..it's about time to write first blog of the new year...and last two weeks of action in markets, inflation and general economy definitely deserve a look and make some predictions for what's ahead in 2023.

What a change on the calendar makes a difference in sentiment...technically year change should not matter ..it's abstract boundary created by humans to manage their life...animals don't have any calendar year..they have only seasons..but humans also invest in markets and somehow change of year makes change in psych of investors..as if all the worries of 2022 are over and it's new start. Well if it helps change the sentiment, I am all for it every now and then!

Let's look at some of the trends and make some predictions.

  • Inflation trend is definitely downwards and it can reach near desired fed target of 2% - at least when it comes to core CPI. I won't be surprised that by end of year, inflation could be below 3%
  • Fed rate hikes also may be near end...most likely we will see another 75 basis point increase (50, 25 or 25, 25, 25) to reach around 5% and then stay there for 6-9 months. Fed could start cutting rates at end of 2023 or early 2024 (similar to what happened in 2019)
  • Despite all tech layoffs, employment would remain strong. It's at lowest levels since 1969 and would remain below 4.5% throughout 2023
  • What about trillion(s) $ question - Recession? Despite all the gloomy predictions by many experts, US economy may just skirt the recession or have a very shallow recession - almost unnoticeable to everyone except record keepers and people making gloomy predictions (you know these people from their tweets)
  • Earnings - Q4 earnings have started coming out. All major banks had decent earnings. Big tech earnings would be out in next 2-4 weeks. Given analysts have already cut their predictions, Q4 earnings would be ok. Most of the companies would reset expectations for 2023 earnings and set lower foundation. Since stocks of all tech companies took big drubbing in 2022, the stock prices would go up even when earnings forecast are reset. After all earnings are not coming down by 30-50%. In summary - after Tech Drubbing of 2022, Tech would b in Vogue in 2023!
  • Markets - look at how markets did in 2019. 2023 could be repeat of that - may not return 30% the way it did in 2019 but low teens is possible. Means S&P could end 2023 between 4200-4500.
So where to invest? Given dismal record of 2022 stock predictions, I decided not to make individual stock predictions. Instead I would suggest sectors which look promising.
  • Semiconductors - Semi is the Oil for the Digital Economy. Now that valuations are reset to reasonable levels, 2023 would be great year for Semi. (ETF: SMH)
  • SAAS companies - this sector was even worse than semi and it was much needed reset given that valuations were out of whack as companies were getting 20-80 times sales valuation. After drubbing of 50-80%, valuations have come down to 2-20 times sales. There are so many companies in this sector. Best way to decide which ones to buy - you would have to do your own homework to create the list. But I use these general rules
    • Price-to-sales less than 5
    • ARR growing at 20% plus
    • Renewal rates over 80% - ideally over 100% 
  • Advertise based companies - Ad market has slowed down but not falling off the cliff. So companies in social/search sector (e.g. META, GOOG, AMZN and SPOT), streaming (e.g. PARA, SPOT, NFLX) provide a great way to get exposure to this sector
  • Energy - This was the best sector with returns over 50% in 2022. While 2023 would not have similar performance, this is safe sector to get decent dividends (ETF: XLE)
  • Defense/Industrials/Healthcare - I had not studied individual companies but given the macro view, these would be another safer areas to explore. 
  • China - after abrupt shift in zero-covid, Chinese leadership is focused on revising economy with less more friendly approach towards tech companies. That means investors patiently waiting should get rewarded (ETF: KWEB)
But if you want to keep it simple, just do periodic (bi-weekly/monthly) investments in SPY. S&P could reach all time high again in 2023/2024 - that would be 20% from current levels.

Happy Sankranti and let's enjoy the NFL playoff season leading to Super Bowl.

/Shyam



Comments

Post a Comment

Popular posts from this blog

Clicks to Tokens: Will 2026 Echo 1998's Boom or 2000's Bust?

My "blogging" was in hibernation last 8 months due to my self-imposed restraint given the environment as well as built-in inertia to get started despite so many interesting events and markets reaching all time highs after taking a big dump around "Liberation Day" in Apr...Around that time I had the blog ready that it would be repeat of Mar/Apr 2020 panic and recovery during onset of Covid Pandemic. The hunch happened to be correct and I was glad that I could keep and take some positions which I am still holding especially around AI theme. But that was then...as 2025 is about to wrap up in 10+ weeks, let's look at what's in store for rest of 2025 and 2026. And what's better time than to start writing again just before one of the most important week on the calendar with multiple key events coming up next week... Fed meeting to decide the course of interest rates - it's almost guaranteed that Fed will cut rates by 25 basis points (2nd time in 2025) and...
Post a Comment
Read more

2026: The Year of Convergence – Melt-up, Moonshots, or Mid-cycle Correction?

Happy New Year! After another period of self-imposed hibernation from the blog—partly due to the festivals, travel, intertia and partly to watch the dust settle on a chaotic 2025—I decided to use the quiet of this New Year’s morning to finally reboot.  Looking back at my October post,  “Clicks to Tokens,”  the hunch about the AI theme held firm. We spent much of 2025 debating whether we were in 1998 or 2000. As we enter 2026, the answer seems to be "neither and both." We have the roaring optimism of the 1920s fueled by "Silicon Spirits," but with the high-speed volatility of the 2020s. So, as the calendar flips, what is in store for 2026? Markets may experience melt-up (S&P touching 8000),  with some moonshots (like SpaceX and OpenAI) IPOs or even see mid-cycle correction bringing down S&P to 6000. That's a wide range and will be decided by Four R's... Here are my thoughts on the " Four R’s ":  Rates, Robots, Rotations, and Real Assets. 1. ...
Post a Comment
Read more

And the Oscar goes to...

It's Oscar Sunday and time for predictions for few categories - before I digress into talking about drama in DC or markets.  First of all, I want to recognize the damage LA fires have done to the beloved areas of Los Angeles and impacted families across all spectrums. My heart goes out to them and wish them recovery and rebuilding of their lives... This year's Oscar nominees and post nomination period had been interesting to say the least. Due to this, the field is wide open in almost all categories and that's what makes prediction game so interesting. Just to set expectations, I would consider a win if I get even 50% predictions correct given the dynamics of nominees this year. So here are my predictions - "And the Oscar goes to..." Best Picture - Anora (surprise could be "The Brutalist") Best Director - Sean Baker for "Anora" (Surprise could be Brady Corbet for "The Brutalist") Best Actor - Adrien Brody for "The Brutalist"...
Post a Comment
Read more