Keep a Close Eye on Where the Money Is Headed in the Stock Market
Investing in the stock market 101: know where the money is going. At the moment, there could be a big gyration happening that could hurt investors’ portfolios if they aren’t careful.
A Little background first…
After the stock market crash of March 2020, investors rushed to buy big technology companies. They thought those companies were the best place to be. It made sense at the time: their business wasn’t as impacted by the pandemic as other companies, and they were in great shape prior to pandemic.
Over the next few months, big technology names got a lot of attention and their stock prices surged. And then investors got complacent about them and formed a belief that these stocks would continue to go higher.
Then, not too long ago, we heard from pharmaceutical giants like Pfizer Inc. (NYSE:PFE) and Moderna Inc (NASDAQ:MRNA) that they have found vaccines for COVID-19 that seem to be very effective.
This has given investors some hope that the pandemic will be controlled—there’s some light at the end of the tunnel. After hearing the good news, it seems as if investors who bought the big technology names are rethinking their portfolio.
Investors Selling Momentum & Buying Value
Investors could be looking to ditch the big and fast-moving technology stocks and instead go into companies that they had previously ignored because they thought those companies would get hurt during the pandemic.
How could one tell that this might be happening? Just look at the chart below. It plots the stock-price performance of Zoom Video Communications Inc (NASDAQ:ZM) and Delta Air Lines, Inc. (NYSE:DAL) over the past month.
Zoom stock was an investor favorite during the pandemic because the company made communicating and working from home easy for businesses and gained a massive market share.
Delta stock was trading near its book value because investors thought airlines in general would not survive if the pandemic dragged on too long.
Chart courtesy of StockCharts.com
Over the past month, ZM stock has dropped by about 30% while DAL stock has surged by more than 23%. This shows that investors have been ditching technology stocks and have been moving toward stocks that they had previously ignored.
Mind you, this has been happening across the board. Zoom stock and Delta stock are just two examples.
Why You Should Care About This Gyration
Dear reader, the gyration in the stock market calls for extreme caution.
You see, the technology stocks that investors could be ditching now were once heavyweights in the key stock indices—if they moved, the indices moved. You have to wonder what will happen now.
I think it’s possible that, as technology stocks lose momentum, the key stock indices may get dragged down a bit.
How should one play all this? I’ve been saying one thing over and over again: be selective. I believe now is the time to be more selective than at any time in the past eight months or so. Maybe consider choosing value over momentum. If you own a lot of technology stocks, it might not be a bad idea to trim positions a bit and see how it all plays out.