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Zoom (ZM 0.49%) investors trounced the market early Tuesday. The stock jumped 7% in early trading before settling down to a 3% increase by 11 a.m. ET.
That compares to a 1.5% surge in the S&P 500. The video communication specialist’s stock is still down nearly 60% for the year, though.
Tuesday’s rally came amid a broader rally for tech stocks, which got a boost from positive data on the economic front.
Zoom’s stock joined many of its growth stock tech peers in soaring early Tuesday after the government released fresh statistics that implied a potential soft landing ahead for the U.S. economy. Inflation eased in November, according to the latest update from the Department of Labor, declining to 7.1% from 7.7% in the prior month.
That’s good news on Wall Street, because it suggests that the Federal Reserve has room to slow its pace of interest rate increases that are aimed at slowing inflation. Combined with generally strong economic growth numbers, too, the data suggest that the Fed might be able to achieve that goal without tipping the country into a recession in 2023.
Many beaten-down tech stocks, including Zoom, jumped on the prospect of looser monetary policy and stronger economic growth.
Zoom said in a recent earnings call with investors that management is seeing signs of slowing demand from some enterprises. Big companies had been getting more cautions as they consider IT deals amid slowing economic growth.
That slowdown has been the core part of the bearish thesis around the stock, because it threatens Zoom’s ability to continue expanding sales after annual revenue soared through the early phases of the pandemic.
Zoom still has its work cut out for it in 2023, particularly in widening its portfolio beyond just video communications products. But its growth prospects would be clearly lifted by a faster economic expansion, which helps explain the stock’s jump today.
Demitri Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Zoom Video Communications. The Motley Fool has a disclosure policy.
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