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Switchback.  Stocks rebounded yesterday led by technology shares… the same ones that led markets down a day earlier. Investors used the recent selloff as a buying opportunity, ignoring setback news on the vaccine front.

N O T E W O R T H Y

High hopes.  I have said it before and I will say it again:  the markets are vagrant and attempts to time it are a fool’s errand.  Of course it doesn’t seem that way after the fact, which is why so many continue the search for that magic bullet.  You can read my note every day and I will offer you solid reasons as to why the markets moved in any particular direction in the last day, week, month, year, century, and so on, but it will not increase your chances of beating the markets as a trader with any consistency.  Remember, I am talking about trading and not investing.  Trading involves attempts to make short term gains over minutes or days versus investing which involves a long term goal of principal growth or income creation.  When one buys a WFH (work from home) stock on the day it is due to announce its earnings because one expects the stocks to jump is an outright gamble.  Sure, we can make assumptions that a company has done well based on current economic conditions, but its actual earnings are still a mystery, often even confounding most professional analysts, who are paid to keep a close watch on the company.  Even more confounding is how the market might react to that news.  How about this for an example.  By now we all know about Zoom, the provider of video conferencing services.  It has risen from obscurity in a highly competitive field.  The company went public last April as investors were clamoring to buy growth stock IPOs in the midst of a booming stock market.  For reference, UBER, Slack, Pinterest, and Beyond Meat also went public during that 3-month period.  One of the drivers that differentiated Zoom was the fact that, though the company was touted as a high-tech growth company, it was actually an ordinary technology company that was profitable.  This enabled the company to garner the interest of longer term investors.  But what really sent the company's stock into overdrive was the pandemic crisis that hit 6 months later.  WFH was not even a thing when the company went public but less than a year later, most of the US corporate workforce was forced to work at home for at least some time.  In that period, remote learning also took off.  Zoom, being at the center of it all benefited greatly from the overnight increase in demand for video collaboration. The word “Zoom" has become a household name and it has attracted young and old to use the service, if not to buy the stock. It has also attracted competition from other tech giants who have offered competing products for years, but still the quick rise in demand was enough to enable the company to enjoy significant revenue growth, keeping the stock on a positive growth path. As folks began to return to work, interest in the stock waned somewhat, but it still remained up in the +300% zone for the year. Then came Zoom’s Q2 earnings announcement  in which it beat analyst estimates by 100%!  That is a big beat, and traders thought so as well, propelling the stock up by +40% in one day... wow.  That move attracted other traders who hoped of similar returns for the other WFH stocks which were soon to announce.  One of those companies was Slack Technologies (WORK) which went public right around the same time as Zoom.  The stock did not enjoy the same success in 2019 as Zoom, but it did benefit from the WFH wave.  Slack announced their Q2 earnings after the close on Tuesday and beat expectations, giving rosy future guidance.  But the beat and guidance was not enough, and the stock tumbled as tech shares soared in yesterday’s bounce.  It was a case of good not being good enough.  Analyst expectations were met but investor expectations were not. Slack was not alone in its plight. Similar reactions occurred in response earnings beats by Crowdstrike (CRWD) and Coupa (COUP), both also considered WFH stocks.  If you invested in Zoom on the day before it announced, you may feel rather accomplished.  If you attempted to follow up with some of the other WFH stocks that followed, your success rate would be 1 for many… not so good, making you wonder if the Zoom win was skill… or just luck.  For longer term investors, all of these companies offer a solid investment thesis and could offer solid long term gains, but if a short term reward was your goal, consider yourself schooled.

THE MARKETS

Stocks bounced yesterday as investors scooped up tech shares, ignoring news of a setback in vaccine trials by Astra Zeneca. The S&P500 rose by +2.01%, the Dow Jones Industrial Average climbed by +1.60%, the Russell 2000 Index climbed by +1.45%, and the Nasdaq Composite Index jumped by +2.71%.  Bonds pulled back and 10-year treasury yields climbed by +3 basis points to 0.70%.

NXT UP

- Producer Price Index Ex Food and Energy (Aug) came in greater than expected at +0.4%, down slightly from last month’s +0.5% growth.

- Initial Jobless Claims (Sept 5) came in at 884K, same as last week’s revised number.  It was slightly greater than expected.

- Continuing Jobless Claims (Aug 29) printed 1.3385 million, slightly above last week’s 1.3292 million revised number.

- Dave & Busters, Peloton, Oracle, and Chewy will all announce earnings after the close.

daily chartbook 2020-09-10