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Avoiding Snap and Peloton in 2023

S&P 500 struggles due to rising rates, high inflation, and recession fears, leading investors to avoid Snap and Peloton.

Two red dices
Two red dices

S&P 500 Struggles in 2022, Down Nearly 20% YTD

The S&P 500 has had a challenging year in 2022, with a nearly 20% drop year-to-date. This decline can be attributed to a triple threat of rising interest rates, high inflation, and recession fears, which have all affected growth stocks. As the selloff continues into 2023, investors should be wary of Snap and Peloton.

Snap Struggles with Headwinds and a Tough Economic Environment

Snap (NYSE: SNAP) has struggled in 2022 due to various challenges, including slowing digital advertising spending and increased competition from companies like TikTok. The social media company relies heavily on ad revenue and has also been impacted by Apple's crackdown on ad tracking across iOS apps. In addition, Snap has faced headwinds in the form of rising interest rates, high inflation, and recession fears. SNAP stock, down 81.5% year-to-date, reached a nearly four-year low of $7.33 on October 21. Currently, the company has a market cap of $14 billion, far below its peak of $136 billion. Despite the year-long selloff, Snap's stock is still overvalued, trading at more than 25 times this year's sales. With headwinds in the advertising industry expected to worsen in 2023, Snap's path to profitability may be prolonged, resulting in further losses in the year ahead.

Peloton Struggles with Shrinking Demand and Ongoing Supply Chain Issues

Peloton (NASDAQ: PTON) was once viewed as a winner of the COVID-19 pandemic but has since fallen out of favor due to a combination of decreasing demand for its at-home fitness products, ongoing supply chain issues, recession fears, and rising interest rates from the Federal Reserve. Year-to-date, Peloton's shares have dropped roughly 74% and are about 95% away from their all-time high of $171.09 in January 2021. PTON stock ended Thursday's session at $9.21, with a current market cap of $3.1 billion, compared to a peak valuation of nearly $50 billion earlier in 2021. Peloton's stock is set to suffer further turmoil in 2023 as the company faces a challenging environment and burns through its cash reserves. With Peloton's management unable to provide a clear roadmap for profitability and the company's valuation remaining high, I recommend avoiding PTON in the year ahead.

Rising Interest Rates, Inflation, and Recession Fears Affect Growth Stocks

The triple threat of rising interest rates, high inflation, and recession fears negatively impacted growth stocks in 2022. As interest rates increase, the value of longer-term cash flows may be eroded, making non-profitable companies with high valuations less attractive to investors. Inflation, or the sustained increase in the general price level of goods and services, can also reduce the purchasing power of investors' money. Meanwhile, recession fears can lead to a decrease in consumer and business spending, impacting the performance of companies in various sectors. All of these factors have contributed to the struggles of the S&P 500 in 2022 and the underperformance of certain stocks, such as Snap and Peloton.

Avoid Snap and Peloton with Further Turmoil Expected in 2023

Given the current market environment and the anticipated challenges ahead, investors should avoid Snap and Peloton in the coming year. Snap has struggled with headwinds in the advertising industry and a tough economic environment and is vulnerable to further losses in 2023. Peloton, on the other hand, is facing a challenging environment with decreasing demand for its products and ongoing supply chain issues and is burning through its cash reserves. With management needs to provide a clear roadmap for profitability and the company's valuation remaining high, Peloton may also suffer further turmoil in the year ahead.