2022 brought an end to an impressive bull run for technology — and the worst year for the Nasdaq Composite since 2008. Don’t be surprised if 2023 kicks off with a rocky start. As of Friday’s close, the tech-centric index had plummeted nearly 33% this year, dragged down by mega-cap tech, electric vehicle stocks, semiconductors and software names. Energy stocks, meanwhile, found favor in investors’ portfolios, as did healthcare and financials. Looking at the Nasdaq 100, this year’s pullback accounted for at least $6.5 trillion in market cap losses as of Dec. 22. About 38% of that stemmed from once high-flying FAANG stocks that suffered a brutal fall from grace . Meta Platforms reigned as one of the worst performers this year, plummeting nearly 65%. Even Apple wasn’t immune to the fallout. Add Tesla , Nvidia and Microsoft to the mix, and you’ve accounted for almost 56% of the Nasdaq’s market cap losses. “The Nasdaq is not known for value, it’s known for growth stocks,” said John Stoltzfus, Oppenheimer’s chief investment strategist. “And the biggest problem for the Nasdaq right now is growth is its middle name. That’s why it got hit much harder than the S & P 500, and certainly much harder than the Dow.” But the outlook for 2023 also looks gloomy — at least from the get-go. Even those expecting a solid turnout for the index this time next year are betting on a leg down at least during the first half, as recession fears linger. Data from Bespoke Investment Group found that three of six times the Nasdaq has fallen more than 20% in a year, it also fell more than 20% the following year. Of the three instances the index rose the next year, it gained at least 29% on average. Other data from Canaccord Genuity suggests the Nasdaq’s relative underperformance to the S & P is only beginning, Tony Dwyer, the firm’s chief market strategist, wrote in a note to clients this month. “We still think there’s probably double-digit downside as risk is still present and multiples still need to contract,” said Chris Harvey, Wells Fargo’s head of equity strategy. “We have to price in some more fundamentals and Fed fears.” But GARP, or growth at a reasonable price, should find favor among investors in the second half as inflation comes down and revisions ensue, along with stocks that focus on services instead of goods, he said. Hardware names face some of the biggest risks, and potential estimate cuts, but this year’s selloff helped alleviate some of the overbought conditions in the index, Harvey said. He now views a better risk-reward in areas like media and entertainment, with a neutral view on software. Given this outlook, CNBC examined some of the worst and best-performing stocks in the Nasdaq 100 this year. These are the names that made the cut, and what the near future could bring as 2022 turns the corner. The Nasdaq winners The Nasdaq clearly got the memo to stay defensive this year. Healthcare, energy and old-school tech stocks dominated as ports in the storm, while investors ditched one high-flying pandemic winner struggling to earn money and reeling from higher rates. That included shares of Amgen and Gilead Sciences , surging about 17% each. Auto parts company O’Reilly Automotive , and telecom giant T-Mobile rallied about 18% and 21%, respectively. “It’s been a pretty defensive year,” said Sameer Samana, senior global market strategist at Wells Fargo Investment Institute. “At least for the first half of next year, we would expect something very similar.” Energy stocks Energy won 2022, benefitting from volatile oil prices triggered by the war in Ukraine. Oil prices briefly rose to record highs , with supply concerns propelling shares of Diamondback Energy and Baker Hughes 27% and 21%, respectively. Both stocks held on to some of those gains even as prices reversed . Their respective price targets suggest there’s more room to run — about 33% and 16%, respectively. The oil crisis also paved way for alternative energy and solar stocks. Those got another boost from the passage of the Inflation Reduction Act , which included a slew of tax credits to help the U.S. slash its carbon emissions . Given this backdrop, it’s no surprise that Enphase Energy persevered as the top-performing Nasdaq 100 stock this year, with shares soaring nearly 61%. Analysts expect those tailwinds to continue next year, with about 64% saying shares are a buy. The consensus price target means the stock could gain more than 13% near term. Pinduduo and Chinese tech Another unexpected winner was Chinese technology stock Pinduoduo . The stock rallied 44% even as the country faced harsh Covid restrictions amid a resurgence in cases. Seventy-eight percent of analysts say the stock is a buy, with a 24% potential upside. Other stocks in that category, including Alibaba and JD.com , struggled, but the relaxation of the country’s strict policies and reopening of its economy could lift the China tech sector going forward, said Paul Meeks, a portfolio manager at Independent Solutions Wealth Management. “I might be early, because at any time we could read in the news that they shut it down again, but it looks like even with the recent spike in infections, they are starting to realize they just can’t have their economy go to zero,” he said. Recent news that the U.S. accounting watchdog gained access to information needed to investigate Chinese companies have also alleviated some delisting fears, and may also improve confidence in the sector, some investors say. The Nasdaq losers Once high-flying pandemic winners struggled in 2022, tumbling toward record lows as recession fears mounted. The losers included stocks focused on the consumer and growth, and once unstoppable Big Technology stocks that hit expansion mode during the pandemic only to enact layoffs expected to continue into 2023. Meta Platforms was the worst-performing FAANG name, and one of the poorest-performing Nasdaq stocks. But even Apple, Amazon , Alphabet and Netflix weren’t immune to the selloff, with shares on pace to finish the year with losses. Netflix took a hit after it shared its first subscriber loss in over a decade amid heightened streaming competition, with shares down 51% as of Friday’s close. Apple shares fared the best, down 26% as it faces supply disruptions in China. Alphabet’s stocks stumbled 38% amid a weakening advertising environment , while Amazon grappled with consumers returning to in-person shopping and inflation denting spending budgets. The stock shed 49%. While some supply chain disruptions stemming from the pandemic eased this year, dwindling demand for discretionary goods like PCs stunted some semiconductor stocks . That included names like Nvidia , Advanced Micro Devices and Marvell Technology , all tumbling at least 48%. Many investors expect that uncertainty to continue in 2023. “Semiconductors are probably going to be a very volatile and risky area while they try and rebalance supply and demand — get their supply chains in order,” said Shawn Cruz, head trading strategist at TD Ameritrade. A slew of original equipment manufacturers from Ford to General Motors rolled out new electric vehicle plans . But 2022 was not the year for EV stocks, with shares tumbling amid chip shortages, supply constraints and inflation putting pressure on consumers. Both Lucid and Rivian ranked as the worst-performing stocks in the Nasdaq 100, falling more than 81% each. Tesla followed close behind on the list, falling 65% and taking a hit as Elon Musk’s Twitter takeover unfolded . The consensus price target on all three stocks suggests shares can more than double next year, but not all investors say the storm is over. “We see both the US economy and financing conditions as headwinds to auto demand, outweighed by increased inventories and production,” Morgan Stanley’s Adam Jonas wrote in a note to clients this month, saying he expects lower prices and higher volumes as a result. Software stocks also took a beating this year, with shares of Atlassian , Zscaler , CrowdStrike and Datadog slumping at least 50% as investors rotated out of growth. Some investors are more optimistic about the sector, specifically, names focused on IT spending, which should hold up even as companies trim budgets elsewhere. About 72% of analysts say Zscaler is a buy poised to rally almost 68% from Friday’s close Despite a gruesome year for all these groups, the pain probably isn’t over just yet. Strategists anticipate the start of a long-awaited recession next year, and that should dent demand in the short term. “I actually expect us to go lower between now and the spring,” as a recession hits, said Meeks. “But at that point, inflation will be moderating, and the interest rate hikes will be almost to their conclusion. We’ll see a brighter future for the economy in the second half of next year.”
© heardonwallstreet.com