dollars & sense
By Jill Schlesinger, CFP
It has been almost a year since the NASDAQ Composite and the NASDAQ 100 indexes hit all-time highs. Since then, a lot has changed.
To start, the Federal Reserve got busy raising interest rates, which tends to hurt the earnings of growth companies, like those in the technology sector. Rate hikes might have been manageable but compounding the problem for the once-high flying tech sector is a simple fact: management got it wrong.
The storyline a year ago was that the pandemic had accelerated the trends that were in place: consumers, workers and businesses were moving to a full online existence, where brick and mortar would be a thing of the past and so too would in-person experiences like going to the gym, attending concerts and events, and shopping for everything from toilet paper to cars to houses.
After cashing in on huge pandemic era profits, the leaders of many tech companies staffed up as if the trends would continue to fuel even more profits in the future.
A year later, the once-lauded geniuses of these companies had to sheepishly admit that they had gotten ahead of themselves. In a letter that announced a 13% reduction in workforce (11,000 workers), Meta CEO Mark Zuckerberg outlined the problem that he and many of his fellow tech CEOs made: “At the start of COVID-19, the world rapidly moved online and the surge of e-commerce led to outsized revenue growth. Many people predicted this would be a permanent acceleration that would continue even after the pandemic ended. I did too, so I made the decision to significantly increase our investments. Unfortunately, this did not play out the way I expected.”
Meta, Getir, Twitter, Lyft, Carvana, Stripe, Opendoor, Netflix, Shopify, Snap, Peloton, Twilio - along with more than 700 other companies, have laid off almost 120,000 tech workers this year, according to Layoffs.fyi. These losses are occurring amid a labor market which has added an average of 290,000 workers per month for the past three months.
So where does this leave investors in the once high-flying companies?
The NASDAQ Composite and NASDAQ 100 indexes have dropped by almost 30% from year ago high prints, and many of the biggest names are down two times that amount. That’s a far cry from the end of last year when mega-tech firms helped boost the S&P 500 by almost 27%. In fact, tech was the biggest contributor to the S&P 500’s stunning 2019-2021 more than 90% gain, the best three-year performance since 1997-99.
As a self-declared wimp when it comes to investing, that three-peat of stock performance prompted me to warn, “We know what happened after that period—the dot-com boom went bust and it took a decade for the NASDAQ to recover.” To be clear, I did not have a crystal ball, but was pointing out that very little in the investment world is new or groundbreaking.
Yes, what moves markets is different, but the patterns remain the same. Human beings tend to get euphoric when times are good, and despondent when they are bad. It’s also why a year ago, when every crypto bro made you feel like you wanted to buy Bitcoin or Ethereum, you had to remind yourself that investing is a risky endeavor.
I don’t know whether the tech rout is over or if there are more shoes to drop. What I do know is that the patient investor who sticks to her game plan is usually better off than the one who jumps on the bandwagon in either direction. If that doesn’t sound like advice from a self-proclaimed investment wimp, I don’t know what does!
Jill Schlesinger, CFP, is a CBS News business analyst. A former options trader and CIO of an investment advisory firm, she welcomes comments and questions at email@example.com. Check her website at www.jillonmoney.com.