How Long Can Tech Keep Extending this Stock Market Rally

In 2022, technology stocks got creamed. So far in 2023, they are leading the rebound and taking the market up with them.

Various factors contributed to tech stocks doing poorly last year and outstanding this year, most of which are related.

Now that tech is up so much for 2023, the question is how much higher these stocks can go and for how long.

Performances YTD

All of the big-name tech stocks have had excellent YTD performances.

• AAPL: Up 40% $Apple(AAPL)$

• MSFT: Up 39% $Microsoft(MSFT)$

• GOOGL: Up 39% $Alphabet(GOOGL)$

• AMZN: Up 40% $Amazon.com(AMZN)$

• META: Up 110% $Meta Platforms, Inc.(META)$

• NVDA: Up 172% $NVIDIA Corp(NVDA)$

All of these stocks have vastly outperformed the S&P 500, which is up 10% so far in 2023.

After having terrible 2022s, with losses almost all greater than 30%, most of these names are quietly approaching new record highs.

Why Tech Sector is Up in 2023

The two subjects that dominated financial news last year were inflation and interest rates. In 2022 they were problems; in 2023 they are *mostly* resolved.

Inflation was as high as 9.1% in the middle of 2022; now it is 4.9%. While that is still above the Fed's desired range, it's an improvement; and after half a year of declining, most believe it is under control.

As a response to high inflation, the Federal Reserve ended its quantitative easing policy. They began to increase interest rates, starting in March 2022 with a 0.25% increase which soon spiraled into four consecutive 0.75% increases; levels never seen before.

An increase this large and this fast spooked investors, especially since we have not seen interest rates this high in 15 years. Tech stocks generally perform worse in high-interest environments, as debt becomes costlier.

In 2023, we've seen inflation come under control, and we now have a good idea of when the Fed will end its rate hikes. With the Fed Fund rates at 4.83%, it is widely believed they are either done raising rates or will raise them only 0.25% once more.

Another key driver for tech stocks has been the explosion of AI. The hype has pushed investors to pay larger premiums for these stocks; it's been especially beneficial for Nvidia, as they are the largest chip producer needed for this type of technology.

META and NVDA

What's interesting to me is that the four biggest names — AAPL, MSFT, AMZN, and GOOGL — are all up the same percentage.

But the two names that are outperforming the others are the story here.

Meta had a terrible 2022 — worse than all the other names here. They had to cut a large number of employees, and Zuckerberg was on the hot seat.

As a result, they have rebounded most out of the traditional Big 5 tech stocks.

And then there's Nvidia, which has been the stock of the year so far. It's benefited more than any other large company from the AI craze.

The chip maker company had a solid start to 2023 and benefited immensely this past week from its most recent earnings report. The stock was up 24% on Thursday after providing a stronger-than-expected forecast. It is now closing in on the exclusive trillion-dollar valuation club.

What's to Come

2022 was the year to be in energy stocks. 2023 (so far) is the year to be in tech stocks.

The future is always uncertain. It will take years to see if AI can provide Nvidia with the revenue boost most expect. And the Federal Reserve still has a hand in how tech stocks may perform via interest rates.

Looking at the remainder of 2023, valuations are at relatively high levels. After these recent run-ups, how much more can tech stocks go up?

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