The Rebound Is Coming, And It Could Be Epic

Let’s be honest. 2022 was a “challenging” year. From peak to trough, the S&P 500/SPX (SP500) dropped by approximately 28%, with some of its most significant components experiencing sharp declines of 50% or more during this downturn. Here’s how our favorite technology companies faired during the 2022 bear market phase (peak to trough):

• Apple (AAPL): down by 32%
• Microsoft (MSFT): down by 37%
• Alphabet (GOOG) (GOOGL): down by 45%
• Amazon (AMZN): down by 52%
• Meta Platforms (META): down by 75%
• Tesla (TSLA): down by 75%
• Nvidia (NVDA): down by 65%

Despite the significant selloffs, these seven tech titans still account for a substantial portion of the S&P 500’s weight (roughly 20%). While we could see more volatility in early 2023, most of the downside is likely priced into the share prices now. Therefore, just as the prominent tech companies have led the declines in 2022, I am looking for leadership from the big tech names in 2023’s recovery.

Key Catalysts For 2023 – The Fed Pivot

The Fed raised interest rates considerably in 2022. With the benchmark rate at around 4.5%, the rate hike path is limited. The FOMC raised the funds rate by 50 bps points instead of 75 in its last meeting, and there is about a 69% probability that the Fed will slow down to just 25 bps when the FOMC meets on February 1st.

Interest Rate Probabilities

Therefore, the benchmark rate should reach around 5%. We also see inflation coming down substantially, and the economy continues slowing during this tightening process. Next, the Fed could pivot to a more dovish stance and possibly return to easing before 2023 ends. Stocks should bottom well before then, and we could see the next bull market begin sometime in Q1 2023.

Progress On Inflation

CPI inflation peaked at 9.1% around mid-2022. This level is the highest inflation the U.S. has seen in more than 40 years. However, we’ve made significant progress as inflation has declined significantly, more than expected, and is floating around 7% now. As the Fed’s tightening policy continues impacting prices, inflation should drop further in early 2023 and may normalize by around the middle of next year. As inflation continues moderating, the Fed should become more accommodative, leading to a possible pivot before the year ends.

The War in Ukraine

Another positive catalyst in 2023 may be the end of the Ukraine/Russia conflict. I was in Ukraine when the war started, and I wrote about my surreal experience in this article. Now, Russia is losing the battle for Ukraine. There is too much international support for Ukraine, and the Ukrainians are fighting for their homes, land, families, lives, and everything. Moreover, there is overwhelming global support for Ukraine, and the U.S. alone has provided around $50 billion in assistance.

On the other side, Russia looks weak and tired. Also, what are the Russian people fighting for? For Ukraine never to be a part of NATO? To demilitarize and denazify the country? Denazify Ukraine? This policy is ridiculous. Do the Russians, led by their illustrious leader Mr. Putin realize that Ukraine is the only country outside of Israel to have a Jewish President? Yes, Ukraine has a democratically elected Jewish President. Therefore, the claim that the government is run and controlled by Nazis is preposterous.

What is the next move for Russia? Do they escalate, or do they negotiate? I don’t see a winning scenario for the Russian regime, and they could come to the negotiating table soon. An end to the Ukraine conflict could add stability to markets and fuel a rally in 2023. Therefore, we should keep an open mind and a strategy for a possible resolution to the Ukraine/Russia conflict in 2023.

Big Seven’s Valuations – Much Better Now

The selling of our favorite tech names has been relentless, bringing valuations down to desirable levels. In November 2021, the tech top blew off for most tech companies. Valuations were running wild back then but have come way down to earth since then. Let’s look at several examples:

Forward P/E ratios (relative to consensus analysts’ estimates)

• Apple: 2023 consensus EPS estimate $6.20 = 20 forward P/E ratio
• Microsoft: 2023 consensus EPS estimate $9.54 = 25 forward P/E ratio
• Alphabet: 2023 consensus EPS estimate $5.33 = 16 forward P/E ratio
• Amazon: 2023 consensus EPS estimate $1.66 = 49 forward P/E ratio
• Meta Platforms: 2023 consensus EPS estimate $8 = 15 forward P/E ratio
• Tesla: 2023 consensus EPS estimate $5.53 = 22 forward P/E ratio
• Nvidia: 2023 consensus EPS estimate $4.37 = 33 forward P/E ratio

The Takeaway

We’ve seen P/E ratios come in substantially over the last year. I remember when Tesla, Nvidia, and others traded at high double-digit or triple-digit P/E multiples. Now, Apple is trading back at 20 times forward earnings estimates. Alphabet appears most attractive at just 16 times forward EPS projections today. Meta has become very cheap due to growth concerns. Remarkably, Tesla is down to just a 22-forward P/E ratio, making the stock highly attractive. While Nvidia’s and Amazon’s P/E ratios remain elevated, the companies have remarkable earnings potential as they advance.

The Bottom Line

Tech was the leading segment in the robust bull market leading up to its 2021 peak. Then, as the epic drop became a reality, technology stocks got obliterated in 2022. The downturn even dragged the best and brightest companies to highly oversold levels. Significant opportunities in our favorite tech stocks for the next bull market are here now and could increase in Q1 2023. While we could see more volatility in the coming months, there is likely limited downside in quality big-cap tech stocks. Moreover, the best-quality tech names will likely become the leaders in the next bull run.

Therefore, I have significant positions in Amazon, Alphabet, Meta, Tesla, Nvidia, and other leading tech stocks. Moreover, I will increase my positions if there is more downside in the coming weeks and months. These and other tech stocks are the core holdings in my All-Weather Portfolio, and I expect their stock prices to be significantly higher one year from now.

2023 Year-End Price Targets

• Apple (AAPL): $150-180 = 16-39% upside
• Microsoft (MSFT): $270-300, = 13-26% upside
• Alphabet (GOOG) (GOOGL): $120-140 = 35-60% upside
• Amazon (AMZN): $120-150 = 45-80% upside
• Meta Platforms (META): $160-200 = 35-68% upside
• Tesla (TSLA): $200-250 = 65-107% upside
• Nvidia (NVDA): $180-220 = 25-50% upside