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Not all ‘Growth’ is the same – macro analysis


Last year was not a good year for equity markets. 2022 was the worst year for US equity markets since 2008. The S&P lost just under 20% of its value, whilst losses for the Nasdaq100 were closer to one-third.

A significant contributor to that underperformance was technology and growth stocks, particularly the mega caps, which in the boom times had led the market higher, but which had precisely the opposite effect over the last 12 months. Darren Sinden, writing for broker, ActivTrades analyses what happened to Growth Stocks.

The chart above plots the percentage change in two of the best-known and most widely followed mega-cap tech names, Apple [NASDAQ:AAPL] and Tesla [NASDAQ:TSLA], during 2022.

Apple which is among the world’s largest and most profitable companies, fell by -28.61% whilst Tesla, which is perhaps the ultimate growth story, declined by more than -69.0%.

Both stocks have fallen further in the early days of 2023 so what exactly has happened here?

Wider universe

Before we try to answer that question let’s look at the 2022 performance of a wider universe of growth stocks, for example, those tracked by the Invesco S&P 500 Pure Growth ETF, which trades under the ticker RPG.

The Exchange Traded Fund tracks a basket of stocks, within the S&P, which exhibit ‘strong growth’ characteristics.

RPG returned -27.56% in 2022, a performance that’s not dissimilar to that of Apple, but well above that of Tesla. One reason that RPG performed so much better during 2022 was its exposure to the energy sector, with around 30% of the fund invested in energy stocks. The S&P 500 energy sector rallied by more than 54% last year.

That weighting highlights the fact that growth stocks don’t exclusively come from the world of technology, and that growth investors and traders have opportunities outside of software and microchips.

Victim of success

Looking specifically at Apple the stock became a victim of its success. Traders took the view that it wouldn’t be possible for the company to continue to grow as quickly as it had previously. Particularly if the global economy entered a recession in 2023, as many analysts are predicting.

Those issues were compounded by a series of lockdowns in China which hampered the production of Apple’s latest products, such as the iPhone 14, ahead of the key holiday shopping season. That meant that in Mid-November the average wait time for an iPhone 14 pro, ran to 34-days. An interval that analysts at UBS described as extreme.

Unsated demand

The fact that there is such strong demand for Apple’s flagship phone is a positive, but the notion that this demand went unsatisfied, in a key quarter, is a big negative.

Turning to Tesla it’s almost impossible to separate the fortunes of the EV maker from the antics of its high-profile CEO, Elon Musk. That task became even harder last year as Musk took control of Twitter using a large portion of his Tesla holdings as collateral against loans, which financed the takeover, and then seemingly spending more time focusing on his acquisition, rather than on his day job at Tesla.

Musk sold around USD5.7bn worth of Tesla stock during November and December. That followed on from significant stock sales in April and August last year. The fall in Tesla’s stock price meant that the world’s richest man became the first person in history to see their net worth fall by USD200bn in a single year.

For a long-time Musk couldn’t put a foot wrong, but in 2022 he couldn’t seem to get anything right. And any action he did take was always in the spotlight of both financial and social media.

Tesla updated the market on Tuesday and reported record deliveries of 1.3 million new vehicles in 2022, a figure that was 40% higher than that seen in 2021.  Despite that Tesla stock fell by another 12%. Why? Quite simply it undershot Wall Street estimates for production in the final quarter of 2022.

Greek mythology warns us about the perils of flying too close to the sun. Icarus ignored those warnings, his wings melted, and he plunged into the sea.

Mega-rich South African CEOs take note.

The information provided does not constitute investment research. The material has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and as such is to be considered to be a marketing communication.

All information has been prepared by ActivTrades (“AT”). The information does not contain a record of AT’s prices, or an offer of or solicitation for a transaction in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information.

Any material provided does not have regard to the specific investment objective and financial situation of any person who may receive it. Past performance is not a reliable indicator of future performance. AT provides an execution-only service. Consequently, any person acting on the information provided does so at their own risk.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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