Wall Street kills its darlings

January 3, 2023 4:20 pm

Verbose writers afflicted with the tendency to deliver copy well above their requested word count are often advised by editors to kill their darlings – to throw out large swaths of stories that they’re particularly fond of.

It appears that Wall Street has also caught on to the concept. This was a miserable year for stocks overall – the S&P 500 is down about 20% in 2022 – but the big surprise is the almost Shakespearean downfall of companies that have dominated markets for years.

Investors are rushing to kill their darlings – er, sell their stocks– and even safe-havens like Apple (AAPL) and Intel (INTC) are getting crushed in the stampede.

Article continues after advertisement

What’s happening: It’s been a shaky year full of economic uncertainty, geopolitical chaos, elevated inflation and a hawkish Fed. It’s no wonder that markets haven’t fared well – the only thing driving stocks overall from oblivion this year has been the energy sector, up about 60% year-to-date.

But what’s been most surprising is that market-cap titans, traditionally expected to weather storms on Wall Street well, haven’t held up against the rising macroeconomic tides.

Stalwarts – the large, well-established companies that offer long-term growth potential, got crushed. Just look at Apple. Even the Oracle himself, Warren Buffett, thought it was a good idea to purchase more Apple shares in early 2022, but the stock is now down 29% for the year (Buffet’s Berkshire Hathaway (BRKA) is doing fine, though, up over 3% this year). Intel, another blue chip, has fallen 51%.

Tech companies have long been seen as invincible, essentially money-printing machines by investors. That has not been the case this year as Alphabet stock fell nearly 40% and Microsoft (MSFT) by 28%. Facebook parent company Meta, down 64% this year as it pursues virtual reality dreams, experienced the largest drop in market value over a single day of trading in February. The company lost $232 billion.

Other recent darlings have been sent sputtering this year – Moderna (MRNA) was one of the top performing stocks of 2021 thanks in large part to its covid vaccine, and now it’s amongst the worst, down 24% this year.

Even Walmart (WMT), the big-box chain known for weathering many economic storms, is in the red this year, down just under 2%.

Surprising to the upside: There have been some companies that have been able to keep chugging along in 2022. Consumer staples posted their best relative performance to the S&P 500 since 2008 this year. Coca-Cola (KO) shares, up nearly 8%, trounced markets this year. Snack food company Mondelez (MDLZ) is also up 1.5%.

IBM (IBM), meanwhile, has managed to grow in a year when the entire tech sector is faltering – the company is up nearly 4%. The company is “trading well above its historical range,” wrote Bernstein Research analysts in a recent note. But “given its defensive characteristics and historical performance, we believe that IBM (IBM) is likely to fare well if we continue to have pressured markets, and likely to lag major indices if we enter a recovery period,” they said.

The bottom line: Markets have been full of surprises this year. Blue chips are no longer blue, and the safe-havens that were surefire bets just one year ago have plummeted. The question is whether this new market order will ebb in the year to come or if investing strategies have been permanently altered.