FTDS - Growth And Tech Stocks In 2023: Why Elon Musk Could Be The Ace Here

Summary

• As we near the close of 2022, we discuss what growth and tech investors need to consider after a hugely underwhelming year.
• FAANG/FANMAG stocks have significantly underperformed the S&P 500. Energy's resurgence against Tech could inflict more pain if the trend change is decisive.
• While Elon Musk's antics have likely not pleased many (including some of his closest supporters), growth and tech investors might need him to get us out of this malaise.
• Whether the market anticipates a severe or mild recession could be reflected in how Tesla and its sector peers perform moving ahead.

FAANG/FANMAG Underperformed In 2022

As we approach the final trading days of 2022, it's time to reflect on positioning our growth and tech portfolios for 2023, given the Fed's hawkish stance through 2023.

FAANG or FANMAG investing has failed miserably in 2022, with Meta Platforms ( META ) taking the most significant hit. Amazon ( AMZN ) and Netflix ( NFLX ) have followed closely, with their YTD total return down more than 50%.

Apple ( AAPL ), Microsoft ( MSFT ), and Google ( GOOGL ) ( GOOG ) made up the top three, with the Cupertino company leading the way. Still, they have all underperformed the S&P 500's ( SPX ) YTD total return of -19.4% significantly.

As such, growth and tech investors have likely felt the brunt of the market's selloff as market operators turned their attention to value stocks, ignoring the relatively pricey stocks that have led the market over the last ten years.

Is Energy's Resurgence Against Tech A Decisive Trend Change?

At this juncture, we believe growth and tech investors could be desperate to know whether there has been a decisive regime change. Should investors still commit their hard-earned savings to stocks that have outperformed previously? Has their growth algorithm been impacted markedly, given the Fed's hawkish stance?

Sundial Capital warned in a recent commentary, arguing that:

There are no permanent relationships in the financial markets. No security, sector, index, or commodity ever has a permanent edge over another. Alert investors often gain an advantage by monitoring key relationships. - Sundial Capital

Energy bulls argue that the energy market has changed decisively in favor of a long-term uptrend. They argue that Russia's invasion of Ukraine has permanently altered supply/demand dynamics. Coupled with the OPEC+'s put, and President Biden's need to refill the SPR. They also highlighted Warren Buffett's ( BRK.A ) ( BRK.B ) decision to invest in Occidental Petroleum ( OXY ), proving that energy companies' prospects have shifted decisively to the upside, given Buffett's long-term investing philosophy.

However, can a resurgent energy sector "cohabitate" with growth and tech stocks amicably? Can energy companies finally unshackle themselves from the cyclical tagging?

The relationship between tech and energy was clear over the past ten years before the COVID pandemic upended the market dynamics. However, as seen in the relationship between the Technology Select Sector ETF ( XLK ) and the Energy Select Sector ETF ( XLE ), XLK's outperformance suffered a decisive blow after it topped out in November 2020.

The Fed's liquidity pump helped lift XLK's outperformance and its valuation to unsustainable heights. It's demonstrated by the steep upward price action of XLK/XLE from its COVID lows, leading to its November 2020 highs.

However, market operators then started to rotate decisively out of tech and into energy when the pullback and subsequent recovery to form its August 2021 highs failed to chart a higher high.

Hence, can tech recover its lost long-term bullish bias at the hands of much more cheaply-valued energy stocks?

We discussed in our recent Apple articles , highlighting that its valuation was still too expensive. Hence, if the leading general in tech is facing headwinds as it looks to recover its lost China production, tech bulls might need to rein in their optimism.

Tesla And Its Sector Peers Could Hold The Key To Salvage Growth & Tech Investors

While not part of the XLK coterie, Tesla's ( TSLA ) ability to dodge further onslaught against its recent battering could be critical toward the recovery of market sentiment for growth and tech stocks.

Elon Musk's recent caution about a severe recession has worsened sentiment toward TSLA, with its hammering reaching nearly 75% from its 2021 highs. As such, the massacre has been brutal, as Tesla bears reloaded their bets in 2022, expecting to take down America's leading EV maker further.

We believe growth and tech investors watching whether a severe recession could occur need to pay close attention to Tesla. As one of the leading constituents in the Consumer Discretionary Select Sector ETF ( XLY ), we have gleaned that the recovery of the XLY is fundamental to the SPX exiting its bear market malaise. Hence, we also need Amazon ( AMZN ) to outperform from here after it almost (very close) roundtripped its COVID gains, setting up a perfect reset opportunity.

We highlighted to our members, how the XLY performs against its more defensive Consumer Staples ( XLP ) peers moving forward could be critical to the medium-term direction of the SPX:

Based on our analysis, the [XLY/XLP] has consistently led the SPX out of a bear market. You can refer to the XLY/XLP monthly or long-term chart. Take a look at the bottom in February'16, November'18, and March'20. If I went back to the Great Financial Crisis of 2007/08, the XLY/XLP bottomed out in November 2008, ahead of the SPX's bottom in March 2009. Therefore, seeing that XLY underperformed the XLP in December, selling off further is a sign of caution. - Ultimate Growth Investing's 21 December 2022 Daily Update

Hence, we believe how AMZN and TSLA could perform from here could be critical to how the FAANG/FANMAG peers could manage their performance in 2023.

We believe it's also fundamental to how growth and tech stocks could tread as the market parses the impact of a potential recession (mild or severe?)

We have also put our money where our mouth is, as we added TSLA as a core holding recently after its recent collapse, as we updated our members:

I highlighted that I would get aggressive in adding TSLA if it reached $110. A [previous] $1,400 PT by Wedbush indicates a post-split price of $467. Wedbush kept going from $1,000 but didn't see the bull trap coming. The media's euphoria didn't help, egging investors to jump in. Now, at $110, nobody wants TSLA anymore? Weird. I will likely start to add exposure to TSLA this week and raise it progressively. - Ultimate Growth Investing 28 December 2022 TSLA Update

Hence, the recovery of Elon Musk's TSLA is likely critical for growth and tech investors. If you want the next bull market to transpire, we might need to depend on Musk's legion to pull us out of the quagmire.

Meanwhile, stay safe, and Happy 2023!

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