Tech stocks are having their best January in decades — here’s why it might not be a good sign

In case you don’t remember what happened in 2001, it became known as the dot-com bust. After years of optimism about the path of technology, the stock market hit new highs in 2000, the bottom crashed, and although there were several reversals like the January 2001 gains, the The market’s general downward direction after the bursting of the tech bubble did not completely turn around by the end of 2002.

The setup looks similar this year, as tech stocks plunged in 2022 after record highs recorded on a wave of optimism about the trajectory of public tech startups. The Nasdaq had its fourth worst year on record, and the worst since 2008.

Certainly, prior periods in which the Nasdaq enjoyed a gain of more than 10% in the first month of a year have fared better. The index’s average performance in such situations was up 14.1% for the rest of the year.

The Nasdaq is off to its best monthly performance since July 2022, according to Dow Jones Market Data, and it’s also on track to post its seventh-best January gain ever.

The S&P 500 Communications Services sector, which includes Meta Platforms Inc. META,
+3.01%,
Netflix Inc. NFLX,
-1.12%
and many major telecommunications stocks, is set to post its fourth straight week of gains. That would mark his longest winning streak since the one that ended in October 2020. He’s up 14.8% so far this month and on track for his best month since October 2002, as well as its best January ever.

The tech rally comes even as many big names have issued dire warnings. Microsoft Corp. MSFT,
+0.06%
saw its cloud business slow in the last quarter and expects further deceleration, a forecast suggesting the rest of the cloud industry could also suffer further. And Intel Corp.’s INTC,
-6.41%
business continues to falter, partly due to industry-wide challenges and partly due to its own missteps.

Notice: Intel Just Had Its Worst Year Since The Dot-Com Collapse, And It’s Not Getting Better Anytime Soon

Tech companies have given investors what they seem to want in the current environment, with layoffs and other cost-cutting. But given the massive increases in hiring during the pandemic, it remains to be seen whether the recent wave of job cuts will have a significant financial impact. Alphabet Inc.’s GOOGL,
+1.90%

GOOG,
+1.56%
12,000 planned layoffs won’t even lower the number of hires the company made in the third quarter alone, and a billionaire is calling for more.

The outlook could become much clearer next week, when some of the world’s biggest tech companies release holiday earnings and potentially forecasts for the year ahead. In addition to the parent of Facebook Meta and the parent of Google Alphabet, results are expected from Amazon.com Inc. AMZN,
+3.04%
— which alone could determine whether profit increases for the S&P 500 SPX index,
+0.25%
this year — Apple Inc. AAPL,
+1.37%
and Intel rival Advanced Micro Devices Inc. AMD,
+0.32%.