The stock market has been on a absolute tear over the last 18 months, with major indices reaching new all-time highs seemingly ever other week in 2024. But more recently, warning signs are emerging that the bull market rally may be winding down.

In last week's newsletter we said the stock market may've actually peaked March. Since then the S&P has started its longest losing streak of the past 2 years; falling 6 days in a row back below the 5000 mark.

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And while a 7-day losing streak doesn't ever guarantee that a new bear market is eminent, it's hard not to notice some eerie similarities between now and the last major bull-bear market cycle of 2020-2022.

Cast your mind back to that period and you may recall the huge run-ups in stock prices especially for companies that were perceived as "pandemic winners" poised to benefit from the stay-at-home economy (Zoom, Peloton, Roku, Etsy, and others). Fast forward to 2024, and many of those same high-flyers have come crashing back down to earth. The hype wasn't sustainable.

Now as the market has fevered back up again we see a different class of stocks soaring to inflated stock valuations behind hype and speculation, this time around AI and big tech. Stocks like Nvidia, Super Micro, Tesla, and friends have had record runs since 2023, and over the past week or so we've seen a few of them crater -- sound familiar?

It all begs the question: are we seeing the beginnings of another hype-cycle bubble burst like we saw after the pandemic? Of course this is probably a bit Chicken-Little of me, but allow me to humor myself a bit.

I think our best bet is to look back at how the pandemic-era market hype cycle of 2020-2022 came and went, and see if we can use it to draw any inference about what's to come. So without further ado:

How COVID Stocks Have Fared:

If you remember, during COVID there were a class of pandemic-related stocks that were all absolutely skyrocketing. Stocks like Peloton, Zoom, Roku, Carvana, Moderna, and Etsy climbed 4-5x in share value throughout the course of 2020, owing to increased revenues and projections as the world economy transitioned to stay-at-home mode.

But since 2020, the world has shifted. Remote work has gradually dwindled, with more and more major employers now requiring their employees to be in the office. Gym membership rates are actually higher now than they were pre-pandemic.

So what happened to all those COVID-era 'stocks of the future? Here's the performance of 10 pandemic darlings since their respective peaks in 2020-2021:

• Peloton: -98%
• Zoom: -90%
• Roku: -87%
• Carvana: -80%
• Moderna: -78%
• Alibaba: -77%
• PayPal: -77%
• Etsy: -76%
• Carnival: -72%
• Charter: -67%

They've fallen by an average of 70% or more. From this bird's eye perspective, a trend emerges: the hype that inflated their share prices during COVID has clearly dissipated. It was unsustainable. The bubble has burst. But why?

Let's take a look at two specific examples in more depth: Peloton and Zoom.

1. Peloton Down -98% Since 2020

Peloton was arguably the best example of a pandemic-era hype beast stock. It had everything: revenues increased by more than 100% YoY in 2020 as Americans were forced to live and exercise at home. The stock ballooned +430% throughout 2020-2021, and since then it's died a slow and painful death -- falling -98% over the past 3 years in share value.

Here are the events that led to Peloton's demise:

1. 🚨 May '21 - Product Recall
   Following the tragic accident that resulted in a child’s death, Peloton recalled its Tread+ treadmills, significantly impacting the stock as it raised concerns over product safety​
2. 🎬 Sep '21 - Price Reduction and HBO Incident
   Peloton reduced the price of its original bike to make it more affordable, which was followed by a PR mishap when a character in HBO’s "Sex and the City" reboot died after using a Peloton bike, impacting stock negatively due to the controversial depiction
3. 👔 Feb '22 - Leadership Change
   Barry McCarthy replaced John Foley as CEO, aiming to revitalize the company’s strategy amid slowing growth and increasing competition. This change was a significant shift intended to bring new energy and focus to Peloton
4. ⏰ Aug '22 - Financial Difficulties and Vendor Payments
   Throughout 2022, Peloton struggled with financial management, indicated by issues like late payments to vendors, which signaled potential financial distress and further impacted investor confidence negatively
5. 💪 Nov '22 - Competition Intensifies
   The rise of competitors offering similar products at lower prices increased pressure on Peloton, forcing them to innovate and adjust their strategy in a crowded market
6. 💲 May '23 - Subscription Price Increases
   In an effort to improve profitability, Peloton increased the subscription prices for its services, marking the first such increase since its inception. This move aimed to stabilize revenue streams amid fluctuating stock performance​

Looking back, it was more than just "changing consumer dynamics". While the back-to-work trend clipped the upside for the at-home fitness equipment market, Peloton still had a head-and-shoulders lead above its competition. They dropped the ball with a series of mistakes and couldn't recover ground.

Second, let's look at another pandemic darling: Zoom

2. Zoom Down 90% Since 2020

Zoom was another perfect pandemic-era poster child company. The video conferencing industry had existed prior to COVID, but in 2020 the technology became an absolute imperative. From mundane job meetings and college classes, to major life events like wedding, and court hearings -- everything was remote, and Zoom was the first choice for most people and organizations.

Here's a look at how remote conferencing king - Zoom - when from hero to zero between 2020 and 2024:

1. 💉 Nov '20 - Pfizer Vaccine
   The announcement of a successful COVID-19 vaccine by Pfizer led to a sharp drop in Zoom's stock, as investors anticipated a return to in-person activities and reduced need for Zoom's services.
2. 🔒 Feb '21 - Security and Privacy Issues
   Zoom faced several security and privacy challenges, including "Zoombombing" incidents. These issues raised concerns about the platform's reliability and safety, contributing to fluctuations and a gradual decline in stock price.
3. 🥊 Jul '21 - Market Saturation
   Zoom faced increased competition from other tech giants like Microsoft and Google, who enhanced their own video communication platforms. This competition put additional pressure on Zoom's market share and stock price.
4. 📉 Jan '22 - Back To Office Trends
   With the winding down of pandemic restrictions and a return to more traditional work environments, Zoom's stock experienced a market correction.
5. ⚠️ Mar '23 - Missed Q1 Earnings
   Zoom reported earnings that missed Wall Street's expectations for the first quarter of 2023, citing slowing growth in their core markets. This resulted in a sharp decline in stock price as investors adjusted their growth expectations for the company.
6. 🔻 Sep '24 - Slashed Revenue Outlook
   Zoom updated its revenue forecasts downwards, reflecting slower than anticipated adoption of its expanded services and products. This announcement led to a drop in investor confidence and a decrease in stock price.

The story of Zoom is similar to Peloton, in that while the market demands shifted, it was still the front-runner of the video conferencing industry during COVID, and managed to blow the lead with a string of miscalculations, leading to declining revenues, and subsequent falling shareholder value.

Parallels Between 2020 and 2024

Considering the fall-off of many COVID-era stocks over the past few years, the current market cycle takes on a different light.

The market's euphoric rise in recent months has been fueled by a new hype cycle: this time its AI and technology stocks that have driven the market upwards. The vast majority of the S&P's dominance over the past 12 months is owed to a handful of AI-adjacent stocks: Nvidia is the first name to come to mind.

And over the past month we have seen Nvidia lose more than 16% of its stock value (though it remains up nearly 200% over the past 12 months). Will Nvidia and other AI stocks succumb to the same economic pressures that brought down Peloton and Zoom?

There are surely some major differences between the market dynamics of 2020 and the market dynamic today. 2020's hyped stocks were driven up by the tangible short-term pressures of the pandemic and remote work. And while in hindsight its's easy to say that the pandemic was a temporary phenomena, at the time there was plenty of uncertainty as to how long the pandemic economy would last, and what affects would be permanent.

Now looking at the AI economy of 2024, some similar questions arise. Surely AI will continue to play an increasingly dominant role on the economy, reshaping entire industries forever. But the same was said during COVID, and before that during the Automation hype cycle, and before that during the Dot.com bubble.

Yes winners emerged, and yes the economy was forever affected by these periods. But the valuations and stock prices reached during those periods were clearly pricing in a assumptions about who and what companies would maintain dominance over their respective markets.

The question is not whether AI will continue to impact the markets, its whether the current dominant players will continue to dominate. It's important to keep that in mind as you consider the longer-term prospects of today's AI stocks.

Will 2028's market winners be the same companies that are dominating in 2024? Only time can tell.

Price Change Alerts

Whichever stocks end up having the biggest impact on the market over the long-term, over the short-term it is certainly looking like more volatility will be ahead. One of the best ways to keep an eye on that volatility is by setting alerts to be notified about significant events and price change alerts -- that's exactly where Uptrends.ai comes in.

So if you haven't already, create an account on Uptrends and get notified about major market-moving events and price changes today: Create Account