Thu Jan 12 2023 - 2022 turned many of the stock market's darlings into duds. In 2022, Meta fell by 64%, Netflix by 51%, and the other three companies fell by at least 27%.

2022 turned many of the stock market's darlings into duds

Over most of the past decade, investors flocked to fast-growing technology companies' shares, betting on their upward trajectory due to their excellent annual returns. Major indices reached dozens of new highs as a result of rising stock prices for companies including Alphabet Inc., which owns Google, Facebook's parent company Meta Platforms Inc., Amazon Inc., Apple Inc., and Netflix Inc.

The trade's popularity led to the creation of the acronym FAANG.

Why do major tech stocks get so much interest? 

 in the index have the most influence over the direction of the S&P 500 because it is weighted by market value. S&P Dow Jones Indices reports that despite the five FAANG stocks' brutal falls over the past year, they still account for 13% of the index's weighted, down from around 17% at the end of 2021.

In other words, a group of mega-cap tech firms, including the FAANG stocks, Microsoft Corp., Nvidia Corp., and Tesla Inc., was more accountable for the S&P 500's falls in 2022 than the other constituents put together.

Things changed drastically when the Federal Reserve aggressively raised interest rates last year. Investors were compelled to reevaluate the benefits and drawbacks of owning stock in companies whose allure was based on their potential to produce windfall profits for many years in the future.

In 2022, Meta fell by 64%, Netflix by 51%, and the other three companies fell by at least 27%. 

The FAANG stocks collectively lost more than $3 trillion in market value, contributing to the overall stock market's decline

. The S&P 500 had its worst year since the financial crisis of 2008, falling 19%.

Investors were more willing to pay a premium for growth companies and hazardous investments when interest rates were close to zero because they were looking for better returns. 

However, the market climate has changed to favor assets that create fast cash for the holder as a result of the Fed raising rates 

Investors turned to safety plays and beneficiaries of inflation, relative outperformers in the shaky market conditions of the previous year. 

In 2022, the S&P 500 energy sector increased 59%

 as geopolitical unrest drove up oil prices in the first quarter. Utility, consumer staples, and healthcare sectors, which are regarded as defensive stocks since they typically remain stable regardless of market conditions, beat the broader index.

During the Covid pandemic , technology equities rose to popularity and reached excessive valuations, The values then dropped with same vigor.

The leaderboard of the stock market was shuffled as a result of the rotation. For instance, Tesla started 2022 as the fifth-largest S&P 500 firm and ended as the eleventh-largest. Meta, who was sixth at the start of the year, dropped to the nineteenth. Exxon Mobil Corp., on the other hand, began the year outside the top 25 and finished the year in seventh position.

Tech companies that had previously seemed impervious to the pandemic's economic problems have seen their earnings stall as consumers and businesses restrict their budgets in preparation for a looming recession. Microsoft and other companies posted their worst quarterly performance in years. Amazon and Meta made major job cuts.

There was a perception that the revenue streams from technology and communication services were immune to economic ups and downs. The perception proved incorrect.

Some investment companies claim that they like value equities, which are ones that are thought to be trading below a gauge of their worth by investors, and are wary of mega-cap tech equities. Even after the decline in tech equities last year, the industry still seems expensive when compared to the overall market. 

According to FactSet, the stocks in the information technology sector of the S&P 500 are currently trading at about 20 times the expected earnings for the upcoming 12 months. The wider index, however, has a multiple of about 17.

However, barring a few more years of performances similar to those of 2022, strategists and investors argue that Big Tech's disproportionate market impact is unlikely to shift anytime soon. That implies that as long as mega-cap tech fails, the broad indices may continue to be under pressure.

Apollon Wealth Management's chief investment officer, Eric Sterner, stated that his company reduced its exposure to technology in 2022 and placed a stronger emphasis on healthcare, utility, and energy stocks.

 In 2024, when the Fed is anticipated to start lowering interest rates, he predicted tech may once again dominate the market.

 Because they are the most innovative businesses out there, he continued, "I expect those tech companies to reassume their leading position once we set up for recovery.

Why 2022 Was A Brutal Year For Tech Stocks?

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