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The highflying technology stocks that drove much of the U.S. stock market’s advance in 2023 are struggling so far in 2024, with the Nasdaq capping off its longest losing streak since late 2022 on Thursday.
Meanwhile, health-care stocks, utilities and energy stocks, which all finished 2023 in the red, have taken the lead this week, according to FactSet data.
But portfolio managers and investment strategists who spoke with MarketWatch said investors should not be worried about the Magnificent Seven, or the information technology, consumer discretionary and communications services sectors more broadly. At least not yet.
Because rather than being driven by some fundamental catalyst, most blamed this week’s pullback on investors waiting until the new year to take profits after a torrid rally that saw the Nasdaq Composite
COMP
gain 13.5% during the final two months of the year, according to FactSet data. This brought the index’s calendar-year advance to 43% in 2023, excluding dividends, handily outperforming the S&P 500.
“For a taxable investor, waiting until Jan. 2 is beneficial relative to Dec. 31. Certainly, there were a lot of gains generated in the prior year,” said Bill Northey, senior investment director U.S. Bank Asset Management Group, during an interview with MarketWatch.
Both the Nasdaq Composite and Nasdaq-100
QQQ
fell for a fifth-straight day on Thursday. For the Nasdaq Composite, which includes every stock trading on the Nasdaq exchange, this was the longest streak of daily losses since Oct. 12, 2022, according to Dow Jones Market Data.
For the Nasdaq-100, which is limited to shares of 100 of the most valuable Nasdaq-traded companies, it was the longest losing streak since December 2022.
According to data from Bespoke Investment Group, Tuesday was only the fifth time since the Nasdaq Composite was launched in the late 1970s that the index began the year with a drop of 1.5% of greater. It is also only the third time it started a year with back-to-back losses of 1% or greater.
Looking below the surface, some major Nasdaq constituents are seeing some serious weakness at the start of the year. On Thursday, Walgreens Boots Alliance Inc. nearly halved its dividend and shared a downbeat outlook on the strength of the U.S. consumer with investors. Shares tumbled as a result.
Apple Inc.
AAPL,
a member of the Magnificent Seven group of megacap technology stocks, has fallen more than 5% this week thanks to downgrades from Wall Street analysts.
Piper Sandler analysts Harsh Kumar and Robert Aguanno downgraded the consumer-technology giant and cut their price target in a report published Thursday. A prominent Barclays analysts also lowered his rating and price target on Apple earlier in the week.
Also among the Magnificent Seven, Tesla Inc.
TSLA,
shares are sliding at the start of the year after Chinese electric-vehicle maker BYD produced more vehicles than the U.S. EV giant once again in 2023.
While these individual stories are notable, they likely don’t portend more pain ahead for the broader big-tech space. James St. Aubin, chief investment officer at Sierra Investment Management, said investors should wait until more corporate earnings reports from the final three months of 2023 start rolling in later this month.
After the artificial-intelligence driven boom in 2023, investors have lofty expectations for corporate earnings in 2024, with the current bottom-up FactSet consensus estimate for the S&P 500 calling for growth of 11.7% for the calendar year.
“Our perspective is that earnings estimates in the aggregate are too high, ultimately,” Northey said.
To be sure, both indexes appeared poised to snap these losing streaks early Friday. Both were up 0.1% in recent trade following the release of the December nonfarm payrolls report, which showed the U.S. economy added more jobs than economists had expected.
