Earlier this week, Fed Chair Jerome Powell announced that interest rate rises were likely to be higher than expected, prompting a sell-off in US equities. Over the past two years, a hawkish Fed has been the main driver behind the equities sell-off, with high-growth stocks faring the worst. Stocks such as $Pinterest, Inc.(PINS)$ , $Shopify(SHOP)$ and $Etsy(ETSY)$ have cratered more than 80% since their pandemic highs as valuation multiples compressed and revenue growth slowed down. However, the charts suggest that the worst may be over for these high-flying names. Is this another bull trap or can this rally be sustained? With the use of technical analysis, this article will posit where the stock prices of these companies could be headed.
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Pinterest is a social media website that allows users to create and manage theme-based image collections such as events, interests, and hobbies. The social media platform makes money from advertising, similar to other platforms such as Facebook and YouTube. In 2021, Pinterest’s revenue exploded by over 52% as people stuck at home spent more time on social media and added more items to their Pinboard. However, the company’s stellar performance abruptly ended in 2022 when the Fed announced that it was raising interest rates to fight inflation. The company recently warned that macroeconomic instability would continue to have an impact on small and medium-sized businesses and advertisers, which will cause a weakening of demand from this market segment. Despite the headwind Pinterest stock has rallied over 52% since its low in March 2022, indicating that the worst may already have been priced into its share price.
Shopify
Shopify is another high-growth company that benefited from pandemic-induced tailwinds but is now suffering from sluggish demand. The company operates a cloud-based commerce platform designed for small and medium businesses. Merchants use Shopify to run sales channels across multiple platforms, including web, tablet and mobile storefronts, social media storefronts, and brick-and-mortar and pop-up shops. Like Pinterest, Shopify experienced a 57% revenue growth rate in 2021 as the pandemic created an e-commerce boom as people could not engage in physical shopping. Since then, revenue growth has slowed, with analysts forecasting it to grow at a double-digit rate for the next few years. Shopify bottomed in October 2022 and has rallied over 75% over the past few months.
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Etsy
Etsy is another online marketplace offering handmade products such as shoes, clothing, bags and accessories. It was recently double-downgraded by research firm, Jefferies on concerns of a slowdown in consumer spending. Its stock is currently sitting at a crucial level of support, coinciding with the 200DMA and trendline support. Given that the stock is oversold, we could soon see a rally to the upside if the market continues to shrug off news of more rate hikes.
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After crashing more than 80% from their pandemic highs, growth stocks are looking to recover some of their gains. All 3 stocks are currently trading above their 200DMA, with a moving average that is hinging upwards, indicating a medium-term trend reversal to the upside is on the cards. I would initiate a small long position on these stocks as the worst may already have been priced in and the market begins to recover from macroeconomic tailwinds.
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