Zoom suddenly my heart went boom

The disparity between the performance of the S&P 500 and stocks in Europe continues. In the past month, the global equities and the S&P 500 both gained over 6%, European equities barely registered any gains at all. The latest technology company for the investor to fall even more in love with is Zoom Video Conferencing, a piece of technology we have all become very familiar with in the past few months, announcing its quarterly results on Tuesday.

The company reported revenue growth year on year of over 350%. Net income attributable to common stockholders for the quarter was $185.7 million, compared to just $5.5m 12 months ago for the same period. The share price which was up three-fold from the start of the year gained another 40% in the space of a few minutes trading. The price to earnings multiple is meaningless at this point in time with that level of growth. It would also appear that the rise on Tuesday was partly due to a rush to close out short positions.  According to NASDAQ, over 3% of the shares outstanding were shorted by traders, which would take two days volume to cover, Ouch!

We have focussed recently on the divergence in performance between value and growth and have attached a chart that demonstrates this gap is wider than it has been since the early 1980s. This diversion in performance is really the true reason behind the divergence between the FTSE 100 a classic value index and the S&P 500. Where are the Zoom opportunities for UK focussed investors?

We have also highlighted the divergence in the volatility measures and the leading US equity indexes. Volatility, in general, over the years since 2008 has, for large periods traded close to historic lows, suppressed largely by the actions of central banks. Modest growth, supportive central bank policy, and low inflation. The Fed expressed the view last week that they remain confident that this mix will continue for the foreseeable future. Despite this confidence, volatility indexes climbed sharply again on Monday.

The economic recovery in many of the larger economies has surprised to the upside in the past months. Germany announced on Tuesday that it revised up its growth expectations for this year, bearing in mind the economy will still shrink, but just not as much as they thought. In the US the latest Institute for Supply Management index rose to 56.0 in August from 54.2 in July, above the consensus, 54.8. The Caixin manufacturing index pointed to higher manufacturing growth in August in China.

September is a tricky month historically for equities, apparently there is something of a correlation between the end of holiday season and equity market performance.