With major tech stocks such as Amazon and Microsoft reporting earnings, we thought it would be an good time to discuss this year’s strange market environment…
Traditionally in tough market environments, blue-chip stocks are considered the de-facto safe haven as far as stocks are concerned.
Sure, they don’t provide the excitement of growth plays, but they do one thing really really well…
They tend to provide the most stability in turbulent market conditions!
Tech on the other hand tends to get destroyed.
Take a look at what happened during the Great Recession…
We’ll use Walmart as an example, as it tends to be one of the best-performing stocks during tough times.
Contrast that with a stock like Google which saw a substantial dip in 2008!
Let’s now fast forward to 2023…
If we look at WMT’s performance so far, we can see it’s up around 13.8% for the year.
Mind you, this is very good compared to most blue-chip stocks!
Coca-Cola for example has gotten destroyed…..especially over the last few months.
Yet, if we look at the numbers…
Magnificent 7 stocks have outperformed even Walmart!
This begs the question, what is causing these changes in market sentiment?
While the hype in AI has certainly played a role, it is not enough to explain why all of these stocks have vastly outperformed the S&P 500 this year.
If we look at what most of these Mega-cap tech stocks have been doing this year, an interesting pattern emerges.
A lot of them have been cutting employees and looking for different ways to operate the businesses more efficiently as the macro environment looked increasingly bleak.
Not to mention, most of these companies have tremendous balance sheets…
For example, if we compare assets minus liabilities for Google we can see that they have a net positive of around 256 billion as of the end of 2022 (according to Yahoo Finance)!
Coca-Cola on the other hand is sitting at only around $25 billion…
When you put these pieces together, it’s not hard to see why Wall Street is more interested in these “growth” opportunities even in a market environment like this.
That’s all for now.
Until Next Time,