What happened
The broader economy and where it might be heading have been the among the primary market drivers in 2022. While the U.S. has checked many of the boxes that suggest a recession, other benchmarks have defied that definition, leaving investors uncertain about the future. A key economic indicator released on Thursday seemed to provide a little more clarity, suggesting things may not be as bad as many had feared.
With that as a backdrop, MongoDB (MDB -2.10%) climbed 1.1%, HubSpot (HUBS 2.55%) jumped 2.7%, and Global-e Online (GLBE 0.78%) rallied 8.2% as of 1:35 p.m. ET on Thursday.
To be clear, there was nothing in the way of company-specific news driving MongoDB, HubSpot, and Global-e Stocks higher today. This helps support the conclusion that investors are reacting to the possibility that the economy may actually be on the mend and the worst of the bear market could be behind us.
Image source: Getty Images.
So what
The U.S. Bureau of Economic Analysis released its initial assessment on the state of the economy, which showed that gross domestic product (GDP) for the third quarter actually returned to growth. GDP increased at an annual rate of 2.6% during the third quarter of 2022, following declines of 1.6% and 0.6%, respectively, in the first and second quarters.
The increase was also higher than the 2.3% gain economists had forecast. This is an initial estimate and subject to further revision once the agency receives more complete data.
Two successive quarters of declining GDP is the most commonly used definition of a recession, which suggests that after entering a downturn earlier this year, the U.S. economy may be on the upswing. However, some economists fear an additional contraction could come sometime within the next year.
The report noted that the increase in the third quarter was the result of an uptick in exports, leading to a narrower trade deficit and higher spending by both consumers and the federal government.
The "official" call regarding a recession in the country is up to the eight economists that make up the National Bureau of Economic Research. The panel takes into account a long list of economic indicators, including industrial production, nonfarm payrolls, and personal consumption spending, before making a final determination, which can take a year or more. This decision has historically been announced well into a recession or even after it's over. The committee has yet to release an official decision regarding the nature of the downturn.
Tempering investor enthusiasm was news of a surge in 30-year mortgage interest rates, which surpassed 7% for the first time since April 2002.
Now what
One peripheral development fueling Global-e Online was bullish results by e-commerce partner Shopify (SHOP 0.14%), which sent its stock surging, up 18% (as of this writing). The company reported revenue of $1.4 billion, up 22% year over year, resulting in an adjusted net loss of $0.02 per share. For context, analysts' consensus estimates were calling for revenue of $1.3 billion and a loss per share of $0.07, so Shopify beat expectations by a wide margin.
Accelerating e-commerce sales bodes well for Global-e, which provides cross-border services and is a strategic partner of Shopify -- who also owns a 9.3% stake in Global-e.
Taking a step back, the economy -- and our trio of stocks -- are likely to remain volatile for the foreseeable future. This initial positive read on the economy isn't the final word, and things could worsen from here.
Calling a bottom is hard. If they have the resources and can withstand the volatility, investors would be better served buying stocks in the best companies they can find and hold on for dear life -- and MongoDB, HubSpot, and Global-e stocks are all worthy of consideration. All three have continued to generate impressive revenue growth thus far through the downturn.
Furthermore, their sky-high valuations are much more reasonable than just a year ago, clocking in near all-time lows, though not yet cheap in terms of traditional measures. MongoDB, Global-e Online, and HubSpot are currently trading for 9 times, 7 times, and 6 times next year's sales, when a reasonable price-to-sales ratio is between 1 and 2. That said, I would argue that strong revenue growth makes them worthy of a premium valuation.
For investors looking to hold for three to five years, buying shares of these innovative companies while their valuations are near historical lows represents a clear opportunity to generate impressive gains over time.
