Insights

Why Shopify Stock Was Popping Today

What happened

Shares of Shopify (NYSE: SHOP) were climbing today even though there was no company-specific news out on the e-commerce software leader. Instead, macro-level news and several strong earnings reports gave investors some confidence that a recession could be averted. 

That prompted a surge in beaten-down tech stocks like Shopify, which was up 10.5% as of 3:17 p.m. ET. At the same time, the tech-centric Nasdaq gained 2.6%, and the S&P 500 gained 1.6%.

So what

Stocks rallied this morning as macro-level data showed the U.S. economy continuing to grow in spite of fears of a recession. The Institute for Supply Management’s service index showed accelerating expansion in July with its index reading from 55.3 to 56.7. Growth in new orders was solid, and services companies reported lower prices, a sign that inflation may be easing.

Along with strong job growth and solid corporate earnings reports this season, the report was the latest data point to show that the U.S. economy could avoid a recession

In earnings reports out last night and this morning, payments giant Paypal and CVS, the country’s largest pharmacy chain, both raised their earnings forecast for the year, a bullish sign for consumer spending. Starbucks, meanwhile, reported strong same-store sales growth and said it was able to pass along price increases to its customers.

Shopify already reported second-quarter earnings last week with the stock diving on news of slower-than-expected revenue growth and layoffs, but today’s jump shows how sensitive the stock is to the macro-level economy.

Now what

The Nasdaq is now up 20% from its bottom in June, meaning that there’s a good chance the worst fears of a recession have passed for tech stocks like Shopify. That’s key because the e-commerce stock is still down more than 75% from its peak last year, so there’s a good argument that the stock is oversold due to recession fears. If that’s the case, the stock should continue to rally if the economy remains resilient.

Jeremy Bowman has positions in CVS Health, PayPal Holdings, Shopify, and Starbucks. The Motley Fool has positions in and recommends PayPal Holdings, Shopify, and Starbucks. The Motley Fool recommends CVS Health and CVS Health Corporation and recommends the following options: long January 2023 $1,140 calls on Shopify, short January 2023 $1,160 calls on Shopify, and short October 2022 $85 calls on Starbucks. The Motley Fool has a disclosure policy.

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