What a single stock's $251 billion rout teaches about investing 🧐
It's almost hard to believe the S&P 500 ended the week higher 📈
One stock that didn’t go up last week was Facebook parent Meta Platforms (FB).1 After reporting disappointing quarterly results on Wednesday, the company’s shares plunged 26% in a single trading day. After losing an eye-popping $251 billion of market cap, the social networking company quickly went from being the sixth largest company in the S&P 500 to the seventh.
It’s the kind of move that could’ve rattled the confidence of investors and traders with positions in other stocks. And it did: That same day, the S&P 500 fell 2.4%.
But losing 2.4% isn’t remotely close to losing 26%. That’s diversification at work. By investing in a variety of assets that aren’t perfectly correlated, you limit the ability of a single stock to ruin your finances.
Zooming out a bit, the S&P 500 actually gained 1.5% for the week while FB shares lost 21.4%. Diversification is looking pretty great right now.
Of course, there is an opportunity cost.
Investors who are diversified through index funds like SPY didn’t fully experience the jumps in Alphabet and Amazon, which gained 7.5% and 9.5%, respectively, last week following strong financial results.
Now, I’m not going to tell you not to try your hand at picking stocks. How you invest your money is up to you.
But before you decide to abandon index funds as you try to get in front of the next Alphabet or Amazon, keep in mind there is an entire industry of professionals trying to beat the market this way. And most of them fail to do so, year in and year out.
Few market observers, if anyone, could’ve confidently told which stocks would surge and which stock would fall last week. However, the historical data says when you’re invested broadly in the stock market — understanding that you’ll have exposure to both winners and losers in the market — you’ll probably be pleased over time.
That’s because over time, the stock market as a whole usually goes up.
Some recent stock market features from TKer:
📈 Stock market rally: The S&P 500 climbed 1.5% last week. It’s down 5.6% since the beginning of the year but up 16.2% from 12 months ago. For more on market volatility, read this.
🎉 Jobs surprise: The U.S. economy added 467,000 jobs in January, which was much stronger than the 125,000 gain expected. Additionally, the previously reported November and December estimates were revised up by 709,000. “The feared disruption of the labor market from the omicron variant was not as bad as expected in January,“ Nick Bunker, economic research director at Indeed Hiring Lab, wrote on Friday.
🎉 A bullish jobs detail: From MacroPolicy Perspective’s Julia Coronado: “The number of people working part time but wanting full time work fell again in Jan to the lowest level since 2001. The labor market has now unwound that entire source of worker insecurity that was so persistent after the Great Recession, and we should expect further improvement!“ For more on part-time jobs, read this.
🎉 More hiring to come: There were 10.9 million job openings in the U.S. as of December, according to the BLS’s Job Openings & Labor Turnover Survey. That means there are now 1.7 job openings per unemployed person. For more on job openings, read this.
🚗 Autos recovery: Vehicle sales in the U.S. were pacing at a 15.0 million annualized rate, which was stronger than the 13.0 million expected. “Looks like supply chains finally caught up with demand a bit,“ Liz Young, head of investment strategy at SoFi, said.
Here’s GM CEO Mary Barra (via Joe Weisenthal) on auto supply constraints: “... we're seeing, definitely seen improvement in first quarter over fourth quarter. We saw fourth quarter better than third quarter, and we really see with the plans we have in place now, by the time we get to third and fourth quarters, we're going to be really starting to see the semiconductor constraints diminish.“
📉 Facebook face plant: Facebook parent Meta Platforms shares crashed 26% on Thursday after the company reported disappointing Q4 results. Facebook’s daily active users declined during the quarter for the first time in the company’s history. Also, the company’s ambitious metaverse business lost over $10 billion in 2021.
📈 Amazon Prime time: Amazon shares rallied 13.5% on Friday after the company reported better-than-expected Q4 results. Management said it was raising the annual price of its Prime membership to $139 from $119.
Up the road 🛣
The January consumer price index report will be released on Thursday. It’s broadly anticipated that the report will confirm that inflation remains hot, and it’s already the case that the Federal Reserve is working to address it with its monetary policy tools. Nevertheless, the report will still be of interest as inflation has increasingly become a politicized issue.
Earnings season also continues with Pfizer, Uber, Disney, Coca-Cola, PepsiCo, Kellogg’s, and Twitter among the big companies to announce quarterly financial results.
I wanted to use “Facebook” in the headline of this piece, but it technically wouldn’t have been accurate because the company changed its name to Meta Platforms, which — let’s be honest — few really recognize. Even if I did use Meta Platforms, the headline would’ve still been ambiguous and may have had some people thinking the company lost $251 billion in earnings not market value. And I wasn’t about to send an email with “What Facebook parent Meta Platforms’ stock’s $251 billion market rout…” Also, the company still hasn’t changed its ticker from FB to MVRS, adding to the confusion. [NOTE: A reader pointed out that I incorrectly said Meta Platforms would change its ticker from FB to META. It’s actually changing its ticker to MVRS.]