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Stock Market News: Zoom Loses New York Schools; Will Tesla Race Past Rivals in a Recovery?

By Dan Caplinger – Updated Apr 6, 2020 at 11:43AM

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Hopes that the acceleration in new coronavirus cases in the U.S. could have peaked sent stocks higher.

The stock market jumped on Monday morning, buoyed by a drop in the number of new coronavirus cases reported in the U.S. on Sunday compared with levels in previous days. Despite warnings that the coming couple of weeks could be especially tough on the coronavirus front, investors were quick to embrace a more optimistic view. As of shortly after 11 a.m. EDT today, the Dow Jones Industrial Average (^DJI 2.16%) was up 1,000 points to 22,052. The S&P 500 (^GSPC 2.40%) had risen 116 points to 2,605, and the Nasdaq Composite (^IXIC 2.65%) gained 350 points to 7,723.

Missing out on the upsurge to begin the week was Zoom Video Communications (ZM 4.77%), which sank as a large user cited security concerns in dropping the video conferencing provider. Meanwhile, shares of Tesla (TSLA 1.21%) gained ground as investors tried to assess how quickly sales of the electric vehicle (EV) manufacturer could bounce back once the worst of the pandemic is over.

Zoom hits a speed bump

Shares of Zoom Video Communications fell 6% after having been down more than 15% earlier in the session. Investors reacted negatively to news surrounding a recently discovered flaw in the platform's security provisions, especially since it led a major client to move away from Zoom.

Room with white table and six chairs, along with video equipment, and Zoom logo on the purple wall.

Image source: Zoom Video Communications.

The New York City Department of Education cited privacy concerns over the weekend in telling schools across the city not to use Zoom's virtual meeting platform. Instead, city educational officials said that they should use Microsoft's (MSFT 2.75%) Teams, which the officials said complies with the privacy laws governing students.

The news stands in stark contrast to the experience of many students across the country. With Zoom having made its platform available to schools on an as-needed basis, many school systems have embraced the service. Yet some believe Zoom's new popularity has made it a target of hackers and others seeking to exploit security weaknesses.

Zoom is working to respond to the problems, with CEO Eric Yuan having admitted his mistakes. Nevertheless, it could take further effort to regain the confidence of those who shifted to Zoom only to encounter these problems.

Tesla gets an upgrade

Elsewhere, shares of Tesla were up 6%. The EV company got favorable comments from Wall Street analysts, further highlighting the upscale manufacturer as a standout in the auto industry.

Analysts at Jefferies upgraded Tesla stock from hold to buy, looking beyond some of the near-term challenges to focus on long-term opportunities. The prevailing trend away from gasoline- and diesel-powered vehicles toward electric remains solidly in place throughout much of the world, including the key markets of China and Europe. Admittedly, the plunge in oil prices will make it harder for EVs to compete with conventional cars and trucks, but cheap gasoline won't last forever.

In addition, Tesla has demonstrated an ability to raise capital even in tough situations, and that could bode well even if the economic impacts of the coronavirus pandemic last longer than hoped. Jefferies did cut its price target on Tesla from $800 per share to $650, but that still implies healthy gains from current levels.

Tesla has seen its stock price fall dramatically from its highs above $900 per share recently, and the latest news on delivery figures showed that the automaker is holding up well even under difficult conditions. That resilience is just one argument favoring Tesla, but it's a compelling one for investors right now.

Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Microsoft, Tesla, and Zoom Video Communications and recommends the following options: long January 2021 $85 calls on Microsoft, short January 2021 $115 calls on Microsoft, and short May 2020 $120 calls on Zoom Video Communications. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Tesla, Inc. Stock Quote
Tesla, Inc.
$245.34 (1.21%) $2.94
Zoom Video Communications Stock Quote
Zoom Video Communications
$77.46 (4.77%) $3.52
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
$30,128.81 (2.16%) $637.92
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
$3,766.77 (2.40%) $88.34
Microsoft Corporation Stock Quote
Microsoft Corporation
$247.36 (2.75%) $6.62
NASDAQ Composite Index (Price Return) Stock Quote
NASDAQ Composite Index (Price Return)
$11,102.55 (2.65%) $287.11

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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