January gave investors hope that the bear market is finally ending. The S&P 500 rose 6%, while the tech-heavy Nasdaq jumped more than 10%. A handful of important market trends emerged thanks to evolving risk tolerance and growth expectations.
These five stocks all made big moves that highlight some of those key trends as we look to February and beyond.
1. Tesla
Shares of electric vehicle (EV) maker Tesla (TSLA -3.55%) charged higher in January thanks to a positive earnings report and a rebound for growth stocks in general. Tesla reported record quarterly revenue, and it narrowly exceeded analysts' expectations for both sales and net income. Wall Street was pleased with Elon Musk's commentary on production forecasts and demand for 2023, and it seems the company could conceivably produce more than two million vehicles this year. Investors did not seem particularly concerned with Tesla's shrinking gross margin and operating cash flows.
Growth stocks have taken a beating over the past year as investors adjust valuations downward to reflect higher interest rates and slowing economic growth. Those issues are still prevalent, but we're seeing signs that stock prices may have overcorrected during the difficult year. This is most apparent for high-growth stocks, such as EV makers, with Tesla rising along with its peers Lucid and Rivian. The rapid rebound of beaten-down growth industries was a major market catalyst last month.
Image source: Getty Images.
2. Nvidia
Semiconductor powerhouse Nvidia (NVDA 0.76%) climbed nearly 35% last month, despite no major positive news coming out for the company. Nvidia was among the growth stocks that clawed back some of the major losses sustained over the past year, but it also benefited from momentum among semiconductor stocks.
The cyclical microchip industry is likely to struggle with weak consumer electronics sales over the next year, but investors are optimistic about long-term demand from the artificial intelligence, data center, and automotive markets. Nvidia and its peers seem to have partially navigated the issues posed by high inventories and supply chain disruptions. Both of those issues previously dragged on semiconductor stocks.
There was room for optimism in January, and that spurred an ongoing recovery for Nvidia.
3. Block
Block (SQ -1.97%) joined the growth stock rally in January, rising 30% in the month. The fintech stock benefited from some of the catalysts already discussed above, but it also received a boost from cryptocurrency markets.
Block generates most of its cash flow from payment processing, transfers, and investment services. However, its significant Bitcoin holdings and association with blockchain technology mean that the stock tends to rise and fall with major cryptocurrencies. Bitcoin rose nearly 40% relative to the U.S. dollar in January, driving crypto-related stocks higher. Shares of Coinbase were also buoyed.
Data by YCharts.
Block might have some room to run higher now that it has a more reasonable valuation relative to its operational results. If it continues to grow and generate cash flow, there's a real opportunity for big returns. However, it probably needs cooperation from cryptocurrency prices to sustain its gains near term.
4. Airbnb
Airbnb (ABNB 1.09%) rose to prominence by occupying the intersection of travel, the burgeoning sharing economy, and a popular marketplace business model. It quickly disrupted the lodging and online booking industries, and its price-to-sales valuation quickly rose to 35 after its IPO, near the top of the pandemic bull market.
That valuation wasn't sustainable, and high interest rates combined with recession fears caused Airbnb to drop along with other companies across the travel industry. Now that the stock has a more reasonable (but still premium) P/S valuation of 9.7, it has some room to build on its 30% rally last January, which was supported by bullish quarterly figures from major airlines. Airbnb stood out from the pack, but it was also a great month for booking services, cruise lines, airlines, and hotel operators.
5. Pfizer
It wasn't all good news last month. Pharmaceutical giant Pfizer (PFE -0.12%) dropped 15% in January. The stock has been volatile since reaching its pandemic-era peak in late 2021. Investors are skeptical about Pfizer's short-term growth potential, and there are doubts its new candidate pipeline has the potential to stimulate cash flows over a longer time frame. The value stock also wasn't helped by renewed investor risk appetite, which saw capital moving disproportionately toward growth stocks. There just wasn't much to excite investors about the pharmaceutical leader, and it slumped without any clear catalyst to move higher.
Pfizer isn't going away anytime soon. It still has a valuable product portfolio, even if the medium-term growth outlook is uncertain. However, the stock is likely to continue lagging the market as long as the appetite for risk and growth rises.
