Embrace ‘the mullet trade,’ Jefferies analyst says


The rebound for tech stocks could still be a year out, one longtime tech analyst stated, and the recovery may even take the shape of an iconic hairstyle.

“We believe in the mullet trade… where it’s kind of business in front, party in back,” Thill said on Yahoo Finance Live (video above), referring to the haircut that rose to popularity from the 1970s through the ’90s. “Hopefully that plays out. [That] it may end up just being a dragged-out, really tough 2023 is the risk, and it may end up being a back half ’24 reemergence from this rather than sometime in early next year.”

Thill added that the tech sector will likely see more “pain” in the first half of 2023 before reaching a “flowy, long, exciting” rally in the back half of the year.

Cameron Smith of Australia shakes hands with Jason Scrivener of Australia at the Royal Queensland Golf Club on November 26, 2022, in Brisbane, Australia. (Photo by Andy Cheung/Getty Images)

As technology companies attempt to chart stock price recoveries, they’re also having to dust off their recession playbooks as businesses enact cost-control measures and consumers pull back on spending.

Decelerating demand has also added to the storm cloud looming over tech companies right now.

“In our coverage, close to 80% to 90% of technology companies will show a deceleration in growth in 2023,” Thill said, “and tech stocks don’t work in decelerating growth.”

In the near-term, according to Thill, earnings multiples will continue to decline before stabilizing later on. Relatedly, some portfolio strategists are hoping that the companies populating the tech-heavy Nasdaq (^IXIC) just rip the band-aid off and cut their guidance for this year.

“Hopefully companies guide very ugly because it’s in their benefit to do so for next year,” Paul Meeks, portfolio manager at Independent Wealth Solutions Management, told Yahoo Finance Live recently. “And if we see inflation under control, the last of the Fed rate hikes, the nastiest of all possible recession nasty numbers reflected with these tech companies’ forecasts, I will feel pretty good because, in the meantime, the valuations on some of these tech names will be right.”

Some companies, such as Amazon (AMZN) and Salesforce (CRM), have already started the year by trimming operational costs through layoffs. Semiconductor companies, meanwhile, have already warned of reduced demand — which may ultimately place them ahead in the recovery curve.

“Perhaps semis and the internet [stocks] will be the ones that come back first,” Thill said. “I think software still has some lag because they have recurrent contracts, and it takes time for that to unwind before you see the weakness.”

Brad Smith is an anchor at Yahoo Finance. Follow him on Twitter @thebradsmith.

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