Shares of top growth names MercadoLibre (MELI -0.81%), Sea Limited (SE 2.46%), and The Trade Desk (TTD 2.69%) were up strongly this week. All three were up double digits at one point but finished Thursday up 8%, 6.1%, and 12.2%, respectively, for the week.
There wasn't any material news from any of these companies this week. It's likely that each growth stock surged due to easing fears over inflation and higher rates -- or at least the recognition by some that the valuation effects of higher rates had been priced in.
While January inflation numbers just came in higher than expected, a lot of inflation and interest-rate fears had already been rapidly priced in during November's and January's tech sell-offs. So this week's price action in high-growth stocks was likely a relief rally.
It may seem strange that e-commerce giants MercadoLibre and Sea Limited both surged this week. After all, recent results from Amazon showed softer-than-expected e-commerce sales. And the Trade Desk may also have been a surprise, given the turmoil in social-media advertising stocks over the past week, which are feeling the effects of iOS privacy changes.
Alphabet's results came in better than expected, and Amazon's ad sales were strong, which likely gave some hope that the digital ad market is more resilient amid a surging economy despite iOS privacy changes. The Trade Desk helps advertisers get exposure to a variety of digital ad formats, apart from social media.
Still, the main reason behind each stock's performance likely had to do with macroeconomic factors, or a rebound from a reaction to macroeconomic factors. These three stocks all corrected by a significant amount in January, reaching a top from a sell-off that began in November. Each was already down markedly from all-time highs.
Higher rates will likely lower the value of future earnings, so stocks with much of their profitability in the future got hit hard. MercadoLibre and The Trade Desk both trade at high multiples of current earnings, and Sea Limited is racking up hefty operating losses at present.
While these stocks surged this week, all are still well below the levels they traded at three months ago.
These three companies are best in class, so each could make for good buys today, even after the nice gains this week. Inflation and interest rates are a concern. If we have persistently high inflation for a year or more, it could be a problem for all growth stocks -- these three included.
However, if inflation abates as we get through the year as supply-chain problems ebb (as many expect), growth stocks like these three could find their way back toward highs. If you're a young investor with a long time horizon, consider putting these names on your buy list.