Is the Stock Market Signaling the End for 2020's Favorite Stocks?

The stock market once again finished on a mixed note on Wednesday, but the nature of the mixed response was the opposite of what market participants saw on Tuesday. This time around, it was the Nasdaq Composite (NASDAQINDEX:^IXIC) that posted modest losses on the day. Meanwhile, the S&P 500 (SNPINDEX:^GSPC) and Dow Jones Industrial Average (DJINDICES:^DJI) climbed out to gains.


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Data source: Yahoo! Finance.

One thing that was interesting about Wednesday on Wall Street was that it seemed as though some of the market’s favorite stocks were on the chopping block as the end of 2020 approached. Many of the stocks that have worked best during the challenging times we’ve all faced this year saw significant losses. That had some market participants wondering if 2021 is destined to bring a changing of the guard among top stocks, or whether these high-growth plays still have more room to run.

Image source: Getty Images.

A tough day for these top 5 stocks

Among the losers on the day were two companies that have become giants in 2020. Shopify (NYSE:SHOP) was down more than 6%, with the Canadian e-commerce enabling company having helped businesses around the world survive in coronavirus-caused lockdowns by providing a digital alternative to brick-and-mortar sales.

Meanwhile, Zoom Video Communications (NASDAQ:ZM) was also down 6%. Zoom became the go-to video platform during the pandemic, and even now, millions of individuals, businesses, schools, government agencies, and others are relying on the platform to get work done safely and effectively.

Elsewhere, some other strong plays also hit turbulence:

  • Online car retailer Carvana (NYSE:CVNA) was down more than 7% on the day.
  • In the e-commerce furniture and home furnishings business, Wayfair (NYSE:W) ended down almost 10%.
  • Edge computing and network efficiency specialist Cloudflare (NYSE:NET) found itself on the outs as well, losing more than 5%.

Recognizing the noise

It’s easy to see one-day drops like this and inflate them into a much bigger deal than they are. Sure, drops this size could signal the beginning of something longer-term. But it’s far more likely that it’s just the same kind of noise that affects every stock.

All of these stocks are still up sharply for the year. Zoom is higher by 475%, and Shopify has more than tripled. Cloudflare’s sporting gains of more than 350%, while Wayfair and Carvana are in the 180% to 210% return range.

More importantly, the trends that made these companies into well-known growth stocks  aren’t showing many signs of slowing. Even once the COVID-19 pandemic comes under control, it won’t stop people from using video conferencing to have more convenient meetings. People won’t stop going online for cars, furniture, and other shopping needs, and they’ll still want the fastest and most efficient internet connections they can get.

Think long-term

Inevitably, when you own winning stocks, there’ll come times when they suffer short-term drops. When that happens, you have two choices. You can take quick profits and give up the potential for the truly life-changing wealth that comes from identifying top stocks early in their histories. Alternatively, you can hold on, deal with the fact that your stocks will lose value from time to time, but remain steadfast in your assessment of their long-term promise.

The choice is yours. Just know that many of the best investors in the world have followed that second strategy to great success.