Black Swan
By Thu, Apr 30, 2020
Hey Scoopers,
The hope for possible COVID-19 treatment and the excitement about better than expected results of big technology companies sent the market surging. â More on that in the “Overall Market” section.
Beyond the overall market, investors decided to ignore March, once again, and got spooked when they learned about one tech company’s plan to eat another tech company’s cake. â More on that in the “What’s Up?” and “What’s Down?” sections.
Oh, by the way, which one is a black swan? The market’s COVID-19 crash or its rapid recovery so far? â More on that in the “Water Cooler” section.
But, first, here is a recap of what happened in the market on yesterday:
Market Recap
- U.S. markets: The stock market indices rallied and finished Wednesday in the green. Scroll down to the “Overall Market” section to read more.
- Cryptocurrency: Bitcoin had its own rally, and Bitcoin’s price surged to above $8,000.
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Hope = Market Rally
The hope for a COVID-19 treatment by Gilead (Ticker: GILD) gave the market a boost, and better than expected results by the largest technology companies in the U.S. stock market fueled all three indices to higher levels. Overall, the earnings season rages on, and by large, investors are blissfully ignoring the revenue and earnings impact on companies’ March performance.
Those N95 Masks Made Their Mark.
Let’s Close Our Eyes To March Numbers.
Shares of Facebook (Ticker: FB) were up more than 16% on Wednesday after the company announced its latest quarterly earnings report. It’s surprising that investors are so positively impressed. Daily Active Users were up in Q1. However, revenue per user was down from $8.5 in Q4 2019 to $6.9 in Q1 2020. The doubling of profit, measured by earnings per share, in Q1 2020 compared to the same time in 2019, is the most likely reason for investors’ excitement. Whatever the reason was, investors are certainly ignoring the effect of the pandemic and closing their eyes to the March results.
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Eating Someone Else’s Cake.
So, what happened?
Shares of Zoom (Ticker: ZM) were down by more than 7% on Wednesday. The reason is not what you are thinking. The company didn’t announce bad quarterly earnings results. Investors got spooked after Alphabet (Ticker: GOOG / GOOGL) announced it is providing its Google Meet product for free to all users. The provider of a video conferencing platform is enjoying a 140% year-to-date gain, thanks to the widespread work-from-home situation we all live in. However, Alphabet is a tough competitor and can eat away Zoom’s cake if it wants to.
Which One Is The Black Swan Event?
So what happened here?
The way the stock market keeps going up, not that we are complaining, makes us wonder if the black swan event was the COVID-19 pandemic, or the stock market recovery despite all odds.
A black swan event is when using the historical data, you’d expect a certain outcome, and the reality is 180 degrees different from such expectations.
Most financial analysts argue that the impact of the COVID-19 pandemic on the stock market was a black swan event. However, the recovery we are observing, however temporary it may or may not be, is a lot more unpredictable than the actual crash.
The earnings reports season and the way investors close their eyes to the impact of the pandemic on the company’s earnings in March is something almost no stock market analysts could have predicted, and yet it’s happening. Again, this can be a very temporary event. However, its occurrence is astonishingly surprising.
What a thrill it is to be an investor these days! Email us at members@tradestocks.com, and share your thoughts, questions, and ideas.
About the Author
The authors of this Scoop are the editorial team at Stock Card, led by Hoda Mehr. Hoda Mehr is CEO and Co-founder of Stock Card and the host of Renegade Investors podcast. She runs a community of 40,000 stock market investors and manages Stock Card's successful flagship portfolio, Roll with Our CEO, on Stock Card Portfolio Store. Hoda is an Economist with an MBA from Concordia, John Molson School of Business. She applies behavioral economics, data journalism, and storytelling to all aspects of her work. Before starting Stock Card, Hoda worked as a strategy and insights lead at technology companies including Symantec, Aimia and Sony. Create a free account to do your stock market research easily and mistake-free: Stock Card Stock Card
