The Narrowest of Markets

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Or, So You Want To Be A Speculator?

Through October 13, the S&P 500 is up 8.8% year-todate and the FAANG stocks* are up an average of 56.0%. These five stocks dominate the market today, so you can imagine the average return of the other 495 stocks in the index. Clearly, this is a COVID-19 market. 

It’s understandable that Amazon and Netflix have per-formed well (88% and 69%, respectively, year-to-date) since all of their business is done online, but one stock in particular stands out: Zoom Video Communications (ZM). Zoom is up 662% so far in 2020. 

Many of us have come to both love and loath Zoom as a technology. But focusing just on Zoom’s stock performance this year can yield valuable insights that every serious investor should consider. So, let’s start by looking at the chart below. 

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One of the first things I thought when I looked at this chart is: What person in their right mind would not have purchased Zoom at some point in this debacle (if, of course, they’re inclined to speculate in individual stocks)? Hindsight is a nasty little devil that taunts and tempts the most rational minds at times like these. 

Despite Dr. Anthony Fauci’s remarks in late January and early February,** it was obvious by the movement of this stock that people were already “locking down” and staying home—or at least anticipating this eventuality. By February 28, Zoom stock was up 54% and the market was down 8%. The market was working. 

The next thing I noticed was how visually deceiving this chart is. Do you see the 31% decline in the S&P 500 (blue line) that occurred in March? It’s that little dip below the 0% line. This is what happens when you compare an index that has gained 9% for the year with a stock that’s risen 662%. Now consider this perception as you look at all the dips in Zoom’s stock. 

At the close on March 23, Zoom was up 135% and the market was down 31%. Bad news obviously drove this gain in Zoom and clobbered the overall market. What was it? Depends on your favorite news (and science) source! 

By April 7, Zoom had fallen 29% and the market had recovered 19% (but still down for the year). Good news about the virus obviously caused this drop in Zoom and encouraged the overall market. What was it? Again, that depends on your favorite news (and science) source. In any case, do you have any doubt that the decline scared many investors out of Zoom stock? The party, it appeared, was over. 

Over the course of the next two weeks or so, Zoom stock recovered, zooming 49% by April 23 (the market gained a mere 6%). Seven days later, Zoom had dropped again by 20% and the market had risen slightly. 

Now let’s fast-forward to September 1. The “Starship Zoom” went into hyperdrive, blasting off to a year-to-date gain of 573%. But over another seven days, it dropped 38%! It has since risen another 83% to a new record high. 

On October 13, the Wall Street Journal published a story titled “The Boss Says It’s OK to Take a Break From Zoom. Why Are You Still on Video Calls?” 

What will the stock do now? That’s the point of this article, of course. Why would anyone want to ride this roller coaster with serious money? Could they ride it? We urge you not to let a narrow market narrow your mind. Let’s keep your precious mind open and your market exposure wide. 


* FAANG stocks are Facebook, Apple, Amazon, Netflix, and Google (Alphabet).

** Fauci said of the virus then: “It isn’t something the American public needs to worry about or be frightened about…” Of course, his voice was/is powerful and evolved over time as more information became available to him. Point is, the market was ahead of him and the science.

Equius Partners is a Registered Investment Advisor. Please consider the investment objectives, risks, and charges and expenses of any mutual fund and read the prospectus carefully before investing. Indexes are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio.

Past performance is not a guarantee of future results. This information is provided for educational purposes only and should not be considered investment advice or a solicitation to buy or sell securities. There is no guarantee an investing strategy will be successful. Investing involves risks, including possible loss of principal. Diversification does not eliminate the risk of market loss.

© 2020 Equius Partners, Inc.

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