Zooming Up: Zoom Shares Skyrocket After Better-Than-Expected Results, Upbeat Forecast

There’s a saying about the weather in March: It comes in like a lion and goes out like a lamb.

While we don’t know how the market will end the month, it started off with a roar. Stocks surged Monday as the 10-year Treasury yield seemed to be stabilizing and investor optimism about the vaccine rollout and coronavirus stimulus from Congress brightened the mood considerably from the selling pressure last week. 

In a sense, Monday’s trading let investors have their cake and eat it too as equities tied to the economic recovery, those that have been stay-at-home stalwarts, and tech-related stocks that have been hot during the pandemic did well. The calmer 10-year yield also seemed to ease concerns about more-expensive corporate borrowing.

See also: How To Buy Zoom Stock

This morning is starting off on a quieter note, which is perhaps to be expected after such a strong rally yesterday. There doesn’t seem to be a strong urge to book profits. It just seems like investors maybe want to take a breather as the session gets going.

One notable pocket of activity, though, is in Zoom Video Communications Inc ZM. Its shares are up more than 7% in pre-market trading this morning, and that’s after they surged nearly 10% in regular trading yesterday. The video conferencing software company handily beat expectations on its top and bottom lines and issued strong guidance for its fiscal first quarter and fiscal 2022 year. 

There has been some worry that stay-at-home stocks might begin to fade along with the pandemic, but the ZM results at least show that the company is hanging on to clients pretty well for the moment. 

In other earnings news, Target Corporation TGT reported better than expected earnings and revenue but didn’t give guidance for the year ahead. Its shares were up slightly in premarket trading this morning. 

This morning, signs favorable to a risk-on mindset include a Cboe Volatility Index (VIX) that’s under 25 and higher U.S. crude. But it remains to be seen whether stocks will add to yesterday’s incredible rally or whether investors will just take it easy today to try to get the lay of the land. 

Broad-Based Rally

During yesterday’s trading, in the camp of companies that would likely be helped as vaccines bolster a recovery, American Airlines Group Inc AAL and United Airlines Holdings Inc UAL both gained more than 1% while the Energy sector was one of the best performing in the S&P 500 Index (SPX).

Information Technology took the best-performing-sector crown and the Nasdaq Composite (COMP) outperformed the other two main U.S. indices as technology names such as Apple Inc AAPL did well. Another darling of the lockdown era, Amazon.com, Inc. AMZN, also gained, as did ZM and Peloton Interactive Inc PTON, the poster children of the stay-at-home trade.

Straddling both worlds, shares of Walt Disney Co DIS rose more than 3% yesterday. DIS is a hybrid stock with its strong streaming business that has benefited from people entertaining themselves at home and its theme parks business that would be helped by a more robust vaccine rollout. 

Defensive sectors that aren’t as tied to economic growth including Consumer Staples and Health Care were also up, as was every sector in SPX. 

That combined with both reopening and stay-at-home stocks being up seems to indicate a broader base of support than just the reopening optimism from the vaccine and stimulus news. It seems that Monday’s rally was helped by a buy-the-dip mentality that extended the buying action in the SPX after its recovery from a brief dip below its 50-day moving average on Friday. Broad support for equities also seemed to come from a continued pullback in the 10-year Treasury yield.

Nothing Secret About These Gains

Monday was also a big day for cryptocurrencies. Although there’s been talk of crypto assets being safe-haven investments, at the moment the young market seems to be more of a risk-on trade, and Monday’s risk switch seemed to be definitely flipped to “on.”

It also didn’t hurt the crypto space that Citigroup Inc C issued a report noting that bitcoin adoption is growing and institutional interest is accelerating. It said the leading cryptocurrency could “become the currency of choice for international trade.” While the report did say obstacles remain to widespread institutional cryptocurrency adoption, cryptocurrency traders seemed to take the report as generally bullish. 

In other bullish crypto news, Reuters reported that Goldman Sachs Group Inc GS has restarted its cryptocurrency trading desk, with the bank to begin dealing bitcoin derivatives next week. GS is also looking at the potential for a bitcoin exchange-traded fund, the report said.  

CHART OF THE DAY: Bitcoin futures (/BTC—candlestick) had a solid day yesterday as the market’s fear level subsided substantially, as measured by the Cboe Volatility Index (VIX—purple line). While the risk-on sentiment may have been the primary driver, the cryptocurrency space was also helped by news from Citigroup and Goldman Sachs (see above). Data sources: CME Group, Cboe Global Markets. Chart source: The thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.  

Inflation Investigation: Concerns about inflation have reared their head in recent days. But it seems far from a sure thing that the economy will see a prolonged period of problematically rising prices. So we decided to drill down a little deeper into the inflation issue. In broad brush strokes, it seems possible that government stimulus and a vaccine-spurred economic recovery could lead to a spike in demand that pushes up consumer prices. But in addition to that not being certain, there’s also the question about whether the jump in prices would be transitory or prolonged. If it’s the former, then the Fed could probably tolerate it without raising interest rates because yearly inflation at the moment is still below its target of 2%. And remember that the central bank has changed policy to allow inflation to run hot for a bit as long as it averages out to their goal.

Data Dive: Concerns that we’re beginning to see that inflation spike as the economy recovers have ratcheted up along with solid economic data, but all the numbers don’t point to problematic inflation. Data this month showed that retail sales in January were much higher than expected while producer prices in January were also a good bit above expectations. But the January consumer price index rose less than expected for the month, and the rate of increase for core CPI slowed on a yearly basis. The core PCE price index, which is the Fed’s preferred inflation gauge, was pretty tame in January, and the yearly reading was well under the central bank’s 2% target. Interestingly, personal income skyrocketed 10% in January and the personal savings rate rose to 20.5% of disposable personal income. That last bit is interesting because it could lead to inflation if that money starts getting spent. But it also might not, if people decide things are still too up in the air and want to keep that money in their savings accounts. 

Both Sides: With actual inflation in check but potential inflation a concern, experts remain divided. Peak Capital Management said in a recent note that there are many data points suggesting inflation is rising, such as increases in the Shanghai shipping index, prices paid numbers from the ISM manufacturing index, and the 10-year breakeven inflation rate. But the note also mentions points from economist David Rosenberg that point to the potential for economic growth to languish, including the number of households unable to pay monthly bills, the number of homeowners in some type of loan forbearance, and the amount of government stimulus payments that have been used to pay down debt or bolster savings. Meanwhile, according to investment research firm CFRA, i10Research thinks the 10-year yield will keep rising, with a technical target between 1.67% and 1.97%, but Action Economics thinks the yield peaked in February and projects it to average 1.40% through the middle of this year. “Rates are on the rise but are not likely to corral the bull,” the CFRA note said. “History indicates, but does not guarantee, that rising rates reflect the optimism surrounding an improving economy and will need to move much higher before causing concern by forcing the Fed’s hand in hiking short-term rates sooner than anticipated.”

TD Ameritrade® commentary for educational purposes only. Member SIPC.

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