“Work From Home” Trade Fades, Now Facing Watershed Moment With Potential Recession Looming

The glow of Zoom and other stocks that boomed on the “work from home” trade has faded in 2022 amid a widespread tech sell off and a push from many companies to reduce or eliminate their employees’ remote work arrangements. However, the drive to bring workers back into the office may not be warranted based on studies that show working from home can increase productivity and reduce costs.

Those factors could become more critical in the year ahead as the US and many other economies appear to be staring down the barrel of recession. While more than half of companies are preparing for layoffs, up to 70% are planning to expand remote work. Additionally, cutting back investments in real estate has become the top way enterprises are trying to conserve cash. Retention of employees and controlling wage growth could also be addressed by more flexible remote work arrangements.

Related ETF: Direxion Work From Home ETF (WFH)

Shares of Zoom Video Communications fell as much as 11% in premarket trading on Tuesday morning following a disappointing quarter of earnings. YTD, that puts the stock down almost -53% and could be the latest sign that the “work from home” trade has reached its end. Though Zoom beat expectations for earnings per share ($1.05 per share vs $0.94 exp.), the company fell short on revenue ($1.10 billion vs $1.12 billion exp.) and reduced its annual sales forecast to about $4.4 billion from its May projection of as much as $4.55 billion.

Zoom isn’t the only stock that boomed in 2020-2021 on the back of COVID-induced lockdowns and office closures, yet is now suffering with a return to office hangover. The Direxion Work From Home ETF (WFH), launched a little over two years ago, gives us a broader portrait of what’s happened to shares of companies that seemed to be beneficiaries of a shift to remote work. WFH is currently trading -33% lower than it was at the start of the year – a narrower decline than Zoom’s, but more than double the decline in the S&P 500 index over the same period.

Despite the downturn in work from home stocks, remote work has continued to make itself a fixture of the US and global economies. Around a third of work was done remotely in the United States in 2021 and 2022, according to economists José María Barrero of the Autonomous Technological Institute of Mexico, Nicholas Bloom of Stanford University, and Steven Davis at the University of Chicago. Globally, 16% of companies are fully remote according to an Owl labs study. This same study found that about 62% of workers aged 22 to 65 claim to work remotely at least occasionally.

Regional survey data from the New York Federal Reserve Bank shows…