Positive signs fighting the pandemic … and for reopening the economy … tech takes a beating in a market rotation … but history instructs to stay the course

There is a growing light at the end of the tunnel.

According to The Washington Post, 54 million Americans have received some version of the COVID vaccine.

And earlier this week, President Biden said we will have enough vaccine by the end of May so that every American who wants to be vaccinated, can be.

It feels like we’re entering a new phase in this pandemic.

And if you doubt that Americans are getting more back to “normal” a Bloomberg headline from Wednesday may convince you.

The story notes that, according to Google Community Mobility Reports data, in the last week of February, the average number of visits to U.S. workplaces hit its highest level since March 20 of last year.

On Friday morning, the U.S. Department of Labor reported that nonfarm payrolls jumped 379,000 for the month, and the unemployment rate fell to 6.2%.

So, things are starting to look up.

But let’s not get too far ahead of ourselves. For investors, not everything has turned rosy.

Before the positive jobs report, markets were headed for the third straight week of losses. We’re seeing a rotation from growth stocks to value stocks as companies that took a beating from the pandemic slowly start to recover. Plus, the recent rise in the 10-year Treasury yields has only contributed to the rotation that started about a month ago.

And what feels especially disconcerting is that the leaders of the recent decline have been the market darlings for the past year – tech stocks.

But history teaches us a lot about why tech investors shouldn’t panic as we enter this new phase of COVID recovery.

***“Those who don’t learn from history are doomed to repeat it…”

That’s how Luke Lango began his monthly issue of Innovation Investor that came out on Thursday. Regular Digest readers will recall that Luke is a hypergrowth investing expert – and that usually means investing in the companies pioneering the latest tech innovations.

What lessons from history is Luke referring to, exactly?

Let’s rewind to a year ago – March 2020.

The Covid-19 virus had broken out of China and was spreading rapidly across the globe. As a result, the world economy shut down, stocks fell off a cliff, and hypergrowth stocks were hit particularly hard. Lots of investors threw in the towel on some of the most innovative companies in the world, like Square (SQ) and Pinterest (PINS).

Square stock dropped more than 60% in March 2020. Pinterest stock shed 60%, too.

To help illustrate, here’s a chart of both stocks, SQ in black and PINS in blue, from Feb. 15 to March 15 last year.

Luke continues:

Yet, over the next few months, neither company let the Covid-19 pandemic stop their innovation. Square built out a robust e-commerce platform and more heavily invested in its mobile money Cash App ecosystem, which has since grown like wildfire. Pinterest doubled down on enabling consumers to discover cool new things to do while sitting at home in quarantine.

How did these companies fare from their focus on innovation?

Here is the chart for both companies from March 15 last year to Thursday.

Pretty easy to make the case for staying in. Or, as Luke phrased it:

Investors who exercised patience amid the market sell-off in March 2020 – and instead of selling, doubled down on innovation – have since made multi-bagger returns. On the flipside of that coin, those who ran for the hills are still regretting it…

***Not just a COVID phenomenon

And for any skeptics who think we are cherry-picking one case; Luke presents more evidence. This time from 2008.

Much as was the case in early 2020, the world felt like it was ending in late 2008. The housing bubble popped and America’s financial system was on the brink of collapse. Due to this, millions of jobs were wiped out and millions of homes were foreclosed on. The world was spiraling into its worst recession since the 1930s…

The stock market reflected this apocalyptic mentality. Everything fell off a cliff. And once again, investors threw in the towel on hypergrowth, innovative companies like Apple (AAPL) and Netflix (NFLX).

From August 2008 to January 2009, Apple stock lost more than half of its value. Netflix stock dropped 45%.

The rest doesn’t really need explaining, does it?

Investors who stayed in, and kept their money invested in innovative companies, reaped the rewards. From their lows, Apple stock has surged more than 5,100% and Netflix 21,000%.

This is why Luke focuses on the most innovative companies. As he explains:

The pattern here could not be clearer.

Innovation doesn’t stop.

A historic valuation bubble didn’t stop innovation back in 2000. After that bubble burst, Amazon stock soared more than 100,000%.

A worldwide financial crisis of nearly unprecedent proportions didn’t stop innovation back in 2008. After that crisis shook the world, Netflix stock soared more than 20,000%.

A global pandemic that closed the physical economy for months didn’t stop innovation last year. After that pandemic emerged, Pinterest stock soared 800%.

Innovation doesn’t stop for anyone or anything.

***Leaning in to innovative companies

Talk is cheap, so Luke goes all in with three new recommendations for Innovation Investor subscribers.

The first is a 3D printing company with a breakthrough technology process.

The second is a flying car company looking to redefine transportation.

And the third is a hypergrowth software company looking to become “the Google of marijuana.”

Innovative companies all.

Those are the kinds of companies Luke recommends in Innovation Investor. If you’re into the next wave of tech, and you’re willing to ride through the ups and downs along the road, check out Luke’s presentation about his service here.

Enjoy your weekend,

Luis Hernandez

Editor in Chief, InvestorPlace