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Lessons from the Nifty Fifty

Source: OpenAI’s DALL-E

“In the memorable words of a Forbes columnist, the Nifty Fifty were taken out and shot one by one.”

Although the recent tech stock massacre is giving me flashbacks to the 2000 dotcom crash, I’m also seeing even greater parallels to the 1973–1974 massacre of the Nifty Fifty. The Nifty Fifty was the nickname given to the highly profitable, high-growth large-cap glamour stocks of the late 1960s/early 1970s that were meant to be bought and never sold, like Xerox, Avon and Polaroid, as well as McDonald’s, Coca-Cola and Disney.

I’m worried we could see a repeat of the Halloween Week Massacre in a few weeks as we are seeing signs that the tech giant earnings apocalypse could be worsening. Amazon’s move to increase its corporate headcount reduction from 10,000 to 18,000 employees, combined with Salesforce’s decision to cut 10% of its workforce, reinforces my concern that cloud spending could be decelerating faster than expected as hiring turns from a tailwind into a headwind. I’m also worried that Google might face not only cyclical threats as the recessionary winds pummel down the ad tech marketing funnel, but also now the potential structural threat to its advertising-driven search business model as Microsoft brings OpenAI’s ChatGPT to Bing. And demand destruction could be finally moving up the income curve to Apple as it has apparently notified several of its suppliers to build fewer components in Q1 for its AirPods, Apple Watch and MacBook.

To gain insight into the potential fate of the tech giants, it is insightful to look at these journal entries written during the 1973–1974 bear market by Bob Frick that he shares in his Kiplinger article, Diary of a Bear Market:

June 30, 1973 (Dow, 892): The Nifty Fifty aren’t so nifty anymore. The glamour stocks among them are getting creamed. McDonald’s share price is in a free fall – dropping to $56 from its 1973 high of $77 – but its P/E ratio is still a lofty 54. Disney, which sold for 70 times earnings last December, is trading for 51 times earnings now.

January 14, 1974 (Dow, 840): There’s no consensus on what the new year will bring. Analysts can’t seem to agree on anything, and they load down their predictions with qualifications. Says Barron’s columnist Alan Abelson: “Never have so many said so much to such little purpose.”

June 15, 1974 (Dow, 843): The big-name, high-priced stocks continue their long fall to earth, accompanied by yet more wishful thinking that the worst has passed. A Business Week article asks the question, “Time to buy the glamour stocks?” Avon has fallen from its 1973 high of $140 to $51 with a current P/E of 22. Coca-Cola has slid from $150 to $115, with a P/E of 31. But the bargain basement is still several floors down.

October 4, 1974 (Dow, 585): The bear market of 1973–1974 is over, 21 months after it began. At 585, the Dow industrial average is off 44% and won’t regain the 1051 level set on January 11, 1973, for another eight years…You can buy McDonald’s for $21 (down 72% since January 11, 1973) and Coke for $46 (down 69%). If Disney was a good value when its P/E stood at 70, on this day it’s a steal at only 13 times earnings. Avon, down 85%, saw its P/E plop from 63 to 9. No longer will investors refer to such stocks as the Nifty Fifty.

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