2020 was a dark year, but the light shined bright on certain areas of the stock market. Anything that was seen to be a beneficiary of people working and living from home went to the moon in 2020. In 2021, these names are returning to earth.
Of the 52 stocks that gained 100% or more in 2020, 38 of them have lost money so far in 2021. The average of these 52 stocks is in a 30% drawdown.
You can see in the chart below that the names that did the best in 2020 are falling the hardest in 2021.
Nobody knows when the selling stops, but right now investors are dumping these stocks as fast as they bought them.
These stocks are still expensive on traditional valuation metrics, but I’m not sure that even matters. Valuation didn’t matter on the way up and I’m not sure it’ll matter on the way down. These names trade on sentiment, and right now that’s heading in the wrong direction. The selling will continue until morale improves.