The Nasdaq Composite (^IXIC) has been on a massive record run lately, with huge gains in 2020 even as the rest of the market suffered more dramatically from the COVID-19 pandemic. With those big gains, though, can come equally extreme volatility. Wednesday, that's what Nasdaq investors saw, as early gains quickly evaporated before the index pushed back into positive territory shortly after 10:30 a.m. EDT.
Many of the stocks that helped get the Nasdaq where it is today had sizable pullbacks Wednesday morning. Yet bucking the trend was sports betting company DraftKings (DKNG 1.72%), which signed on a key endorsement from an NBA legend.
Some sizable drops among stock favorites
Even the best performers have to deal with pullbacks. Among the stocks that have done the best lately, you can see the short-term damage done:
- Zoom Video Communications (ZM 0.48%) was down more than 8%, giving back just a portion of its explosive gains following its earnings report earlier this week.
- Tesla (TSLA -8.62%) and Apple (AAPL 3.08%) were down 5% and 2% respectively, as the impact of their respective stock splits seemed to wear off.
- Hot tech stocks CrowdStrike Holdings (CRWD 2.73%) and DocuSign (DOCU -1.01%) were off 4% and 2.5% in advance of their impending earnings reports.
Investors who expected those stocks to keep going straight up might be disappointed with pullbacks. However, they're the price you pay for the explosive gains these stocks can produce when their businesses perform well.
Moreover, pullbacks are a good opportunity for investors to think about adding to positions in stocks they believe still have strong growth potential. Rather than assuming there's a problem with a company whose shares are going down, you can capitalize on the short-term motivations of traders and get a nice bargain price.
In this momentum-driven market, winners have tended to keep winning. But that won't happen every single day. You have to be prepared for days like this without letting them call your investing strategy into question.
Drafting a superstar
On the plus side, DraftKings saw a nice rise, with its shares climbing almost 6%. The company celebrated getting a new special advisor to its board of directors, and investors liked the credibility that comes with the legendary basketball player.
Michael Jordan has signed on with DraftKings, accepting stock in the company in exchange for "providing guidance and strategic advice" on "key business initiatives" that DraftKings is pursuing. The board of directors expects MJ will help on items like product development, marketing, inclusion and equity, and overall strategic vision.
The move is consistent with DraftKings' overall work toward making the most of its growing base of customers. The online sports betting site has taken off during the COVID-19 pandemic, and now that sporting events are back, there's more for users to look forward to on the site.
Investors have been happy with DraftKings' stock performance since the company went public through a reverse merger with a special purpose acquisition company earlier this year. If sports keep bouncing back, then having Jordan on its side should help DraftKings cash in.