Extreme price movements
Amazon, Spotify, Snap – the stock market is spinning
By Daniel Saurenz
2/4/2022 10:48 am
Thrills and excitement on the stock exchange are guaranteed. The atmosphere is similar to that in the football stadium during exceptional games. Meta pulverizes a fifth of its market value, Amazon packs it on top. One money transfer from Zuckerberg to Bezos. What does that mean?
In football, it’s the crazy games that you remember forever: Liverpool as champions league winners after 3-0 at half-time against Milan in Istanbul. Or the “mother of all defeats”, Bayern against ManUnited. In the 88th minute, Franz Beckenbauer put the trophy in the elevator for his Bayern and was then allowed to hand it over to Manchester.
February 3, 2022 was just such a day for stockbrokers. It all started with the Facebook group Meta, which lost more than 200 billion in stock market value in a single trading day and really scared all market participants. The tech exchange Nasdaq underperformed the major S&P 500 in relative terms for just five days earlier in the past 30 years. There was a loss of more than four percent and investors trembled before Amazon’s numbers. After the market closed, things really got down to business.
Because Amazon surprised positively with its figures and easily added to its market value what the competitor had just lost. Once a money transfer from Mark Zuckerberg to Jeff Bezos, you could flippantly say. The Amazon major shareholder can use additional billions, as he is having a huge sailing ship built in Rotterdam that still has to pave its way to sea. That could be extra expensive, because a listed bridge stands in the way.
Too much volatility
The latter madness seems to be emblematic of what is happening in the US stock market right now. Because price movements between ten and fifty percent on quarterly figures from large corporations are not normal and possibly not healthy. “Snap is up 50 percent according to its numbers and with a market value of $50 billion is not a fifth-ranked stock,” commented Jürgen Molnar of broker RoboMarkets.
Spotify went down by almost 20 percent, where growth was just as unconvincing as Netflix was a week earlier. Its market value has fallen by a whopping fifty percent. The stock market only shows how much investors are willing to pay for a share in a group on a daily basis. This is the original part of the stock business. But you should be aware that neither Meta nor Netflix, Spotify, Snap or Amazon had changed their basic business model and bankruptcy was imminent. The movements show something else.
Bring peace to the depot
Investors tend to speculate wildly during periods of excess cash, seeing companies on the top far better than they really are – and doing worse than they are when they are down. This offers a good opportunity for private investors. “Anyone who keeps their nerve in such an environment can make intelligent long-term purchases of high-quality stocks,” remarks Stefan Riss, capital market strategist at the Acatis fund house. Because whether some customers subscribe to Amazon Prime more expensively, whether Spotify is used better than YouTube or Snap and Pinterest do outstanding business – this is justified to be reflected in price changes.
It is doubtful whether it should increase company value by fifty percent, as it did with Snap. Porsche once rejected the extremely cyclical quarterly reporting and some stockbrokers would not find two reports a year bad at all. Fluctuations in big tech stocks bigger than in crypto, that can’t be healthy. The price explosion at Alphabet is hardly noticeable, but there was also a share split that drove prices up. Why not.
Daniel Saurenz operates the stock exchange portal Feingold Research.