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 Market Mysteries of the week

  Why is my stock down so much? There’s no news about it.

Answer:

A wide range of factors can affect investors' confidence in a company.

News concerning the broader economy, the company's industry, its competitors, or its business model can drag down optimism. In particular,

the health of Big Tech can affect everything.

What drives stock prices?

The value of a company's stock is all about confidence.

Investors look at what the company is currently producing, then evaluate their faith

in its ability to deliver or grow that production into the future successfully.

The more confidence investors have in a company's growth, the greater the demand for a piece of that growth. More demand for shares drives the price up.

Investing is an opinion on the future, so investors are constantly analyzing the information at hand to figure out the opportunity for growth, moving money around to the places they think they can get an edge.

What happened this week?

Some of

the biggest companies in the world gave less-than-stellar fourth-quarter financial updates

and dented investors' already-fragile confidence in the year ahead. Slowing revenue growth into the end of the year and a pessimistic outlook for 2022 from both

PayPal and Facebook sparked contagious selling

across different technology companies.

Why did PayPal mess everything up?

PayPal is one of the world's largest financial technology companies. It processes massive amounts of digital payments through its brand-name site, e-commerce checkouts, crypto, and Venmo division.

So we know what PayPal does in general, but

it's business model is not quite as easy to explain or analyze

as something like selling cars. PayPal's transactions are integrated into the vast fabric of digital commerce. If PayPal's past its peak, what else could be?

Investors hate uncertainty, so those kinds of questions lead to selling.

They sell similar payments companies, like

Block (formerly Square), which lost 10% of its value

on Wednesday despite its earnings release not happening until the 24th. They also sell things that might be affected, like major e-commerce companies like

Shopify, which also lost 10% of its value

on Wednesday, despite no company-specific news.

Why did Meta mess everything up?

The artist formerly known as Facebook also had an ugly fourth-quarter update. Facebook's

user growth is stagnating, its revenue growth is slowing,

and it's spending a ton of money on the metaverse. Meta makes most of its money from digital advertising on its social sites and

reported taking a massive hit from Apple's new data privacy updates.

If one of the most prominent digital advertising companies has been affected by this update, has the whole industry?

Social media companies like Snapchat, Pinterest, and Twitter tanked on Thursday.

But then

Snapchat

and

Pinterest reported their strong earnings

on Thursday night and roared back (SNAP +59%, PINS +11%)

Is it a social media problem, or are businesses spending less on marketing because they're struggling? That question is

key to the broader loss of confidence.

Investors are already worried about the economy's strength after the central bank removes the stimulus measures. That's why the

updates from these giant corporations are some of the most valuable economic news we have.

Why is Big Tech so important to "The Market"?

Big Tech is "The Market."

The Big Six - Apple, Microsoft, Amazon, Alphabet (Google), Meta (Facebook), and Tesla are

so enormous compared to every other company that the fluctuations of their value drive the changes of "The Market" as a whole.

The S&P 500 Index is the primary way people track whether "The Market" is rising or falling. It's an index of the biggest ~500 companies, weighted by the size of each company.

The Big Six alone account for 25% of the total size of "The Market."

The other ~494 companies make up the other 75%. So if all ~494 companies had a fantastic day, all growing 5%, but these six companies had a bad day, down -20%, the overall market would look like it was a pretty bad day, down over -1%.

So the

success or failure of the overall market depends heavily on the performance of Big Tech

, both from a sentiment perspective and just plain mathematically.

So what should I do?

Read your scoops.

There's a reason we cover the big companies so much. Their news is everybody's news, whether we like it or not.

Practice doing what investors do.

Does this new piece of information today affect my long-term opinion on the economy or my favorite companies?

Please share this with anyone who might find it helpful!

💙 The Share Scoops Team

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