What happened
On a wild day for the markets, software-as-a-service (SaaS) stocks were among the big winners. Investors are still waiting for the results from the U.S. presidential election, and a final outcome could be delayed for a few days.
Stocks rallied broadly, with tech stocks among the biggest winners. The reason for the market rally wasn't fully clear, though investors may be relieved that the election has thus far gone off with no major disruptions, and also that a divided government, which looks likely, also tends to mean no major changes, which the market generally likes.
Tech stocks were big gainers, as they are increasingly seen as a safe haven by investors despite sometimes high valuations, especially during the pandemic. What's also important is that these companies provide necessary services and therefore can deliver strong results even in an uncertain environment like a government transition or pandemic. No matter what happens in Washington, the transition to the cloud will continue, and investors again bid up a sector that has already won big this year.
Among today's gainers were PagerDuty (PD -1.06%), which was up 7.7%, Adobe Systems (Nasdaq ADBE), which gained 7.3%, Okta (OKTA -1.79%), which increased 9.7%, Alteryx (AYX), which was up 5.8%, and Twilio (TWLO -1.49%), which gained 9.8%. At the same time, the Nasdaq was up 3.8% and the S&P 500 gained 2.4%.
Image source: Getty Images.
So what
There was no company-specific news out on any of these five stocks, but the broader trend was enough to lift them higher. Uncertainty is shaking other parts of the market as interest rates are down and energy stocks are off, but the cloud sector is likely to deliver strong growth even if there's gridlock in the Capitol.
PagerDuty has underperformed some its peers this year, though the stock is still up 23% year to date. Its business, notifying companies of issues that arise in their technology infrastructure, is an essential service, and its diversified customer base spans a range of industries and includes both start-ups and Fortune 100 companies.
Tech heavyweight Adobe, the maker of design products like Photoshop and others under its Creative Cloud suite, was one of the first converts to cloud software, making the transition away from physical software nearly a decade ago. Its Creative Cloud and Document Cloud, which include Acrobat and a PDF reader, are considered the market leaders in their categories. Up 47% this year, the stock has long been a reliable outperformer.
Okta, the identity-for-the-enterprise software maker, specializes in password security and securing digital access for employees and customers for a wide range of companies. As a provider of essential tools that help facilitate working from home, the company has delivered solid growth this year with 46% revenue growth through the first half of the year, and the stock has nearly doubled in 2020, benefiting from the work-from-home transition.
Alteryx, a provider of data analytics software, has been volatile this year. The stock tumbled after its August earnings report but recouped some of those losses when its third-quarter preliminary earnings report was better than expected. While its once-surging growth slowing this year is one sign that the company has struggled to make new sales, investors seem to be giving it the benefit of the doubt today, lumping it together with other SaaS stocks.
Finally, Twilio, which makes software that programmatically sends communications like phone calls, text messages, and Uber alerts, for example, has been one of the biggest winners in SaaS this year -- the stock has more than tripled. It's routinely topped guidance as its product has seen strong adoption during the pandemic from customers speeding up their digital transformations.
Now what
Tech stocks have been volatile in recent weeks. The Nasdaq crashed 3% last Friday after big tech companies reported strong earnings, but the market still seemed to believe the sector was overvalued. With the U.S. presidential election hanging in the balance as well as questions about rising coronavirus cases and whether Congress will pass another stimulus package, there are a lot of reasons to expect volatility from the market, including these SaaS stocks.
The sector could see exaggerated movements over the coming days as Americans parse the election results, and the market makes a guess about where the economy is headed over the next four years.
