By Gunjan Banerji and Peter Santilli
The stock market's star performers are shining brighter than ever and creating a stark divide with the rest of the pack.
More stocks skyrocketed at least 400% at some point in the first three quarters of the year than in any comparable period since 2000, according to a Dow Jones Market Data analysis of companies that were worth at least $100 million to start the year.
Dominating the list are technology and biotech companies, as well as firms that have benefited from changing tastes during the coronavirus pandemic. So far this year, Zoom Video Communications Inc. has rallied 591%, while online retailer Overstock.com Inc. has advanced 956%. Tesla Inc. has gained 413%.
Highlighting the wild ride that many companies have been on, Overstock, for example, was up 1,677% at its high point this year.
To compare, the S&P 500 is up 4.1% for the year, while the Dow Jones Industrial Average is down 2.7%. The indexes both logged gains of at least 7% for the third quarter and notched the best two-quarter performance since 2009.
The run among the highfliers is one that few saw coming, underscoring many of the unusual dynamics at play in markets this year. The pandemic brought economic activity to a halt, and corporate profits are expected to decline 18% this year from last -- the steepest fall since 2008.
The lackluster economy -- and meager expected returns in other corners of the market, including bonds -- has triggered a rush into shares of companies promising high growth in the future, including those that are brand new to the public markets. Initial public offerings are on track for a banner year, with new companies posting the biggest gains during their trading debuts since 2000, The Wall Street Journal recently reported.
"The rate at which momentum and enthusiasm and exuberance took hold over the summer...it hit a fever pitch that I have not seen in the five years that I've been managing my fund," said Justin White, a portfolio manager at T. Rowe Price, who oversees a growth-focused fund at the firm.
Much of this frenzy has stemmed from individual investors, many piling into the market for the first time during the pandemic. These investors have often favored tech stocks as well as shares of companies that they view as lasting winners of changes forced by the pandemic. They recently made up the biggest chunk of market activity than at any time over the past 10 years.
Some of those investors and others aren't just buying their favorite stocks -- they are aggressively betting on bigger gains through the options market, at times even driving the underlying stocks higher and helping send derivatives activity to a record.
The frenetic activity hit a crescendo in the summer when Tesla and Apple Inc. unveiled plans to split their stocks, unleashing even more zeal for shares that had already soared this year and stoking rare dynamics in the stock and derivatives markets.
At their individual peaks in 2020, more than 60 stocks in the tech-heavy Nasdaq Composite had risen at least 400%. But the gap between the star performers and the losers is wide. Of the roughly 2,500 stocks in the index, more than 1,000 suffered declines of at least 50% for the year at their low points.
Some excitement for the broader stock market sputtered in September as stocks slid for four consecutive weeks, roiled by the tech giants that had powered major indexes higher in prior months.
Still, investor enthusiasm didn't disappear. Data-warehousing company Snowflake Inc. made a splash in its initial public offering, with its shares more than doubling on its first day of trading on a stock exchange.
The rally at times has drawn comparisons to the dot-com bubble, when shares of technology companies notched huge gains before plummeting. The S&P 500's information-technology sector has the biggest weighting in the stock-market index than at any time since 2000, according to Dow Jones Market Data. Meanwhile, the heft of groups including financial and energy companies have steadily dwindled to the lowest levels since at least 1990.
The strong gains in individual stocks has in part been fueled by the momentum trade, which entails buying shares of companies that have soared the fastest and furthest. About $18 billion was recently sitting in funds tracking the trade, roughly triple the level from five years ago, FactSet data show.
Some investors have said buying stocks at high prices and attempting to sell even higher can be tough to stomach. But taking the plunge has paid off as the stocks' rallies continued, defying expectations.
David Malmgren, senior portfolio manager at FBB Capital Partners, said a colleague questioned his decision to buy Tesla shares this year as its stock price zipped higher and higher.
"The managing director of the firm came to me and said: 'Seriously, we're buying Tesla at $800?'" said Mr. Malmgren. "You're buying at the highs...it takes courage."
But, he said, it ended up being a profitable position. Tesla's shares closed Wednesday at $429.01, equivalent to $2,145.05 a share ahead of the recent stock split.
T. Rowe's Mr. White says he passed on an opportunity to buy shares of Zoom in March but decided to take on a position in June around the time the company beat earnings expectations. By early June, the stock had already rallied 200% since the start of the year.
"I kept a pretty small position because I didn't want to make a heroic bet at what could have been the top," said Mr. White. "In hindsight, the stock was actually pretty cheap at $200."
Zoom stock closed Wednesday at $470.11, up 591% for the year.
Write to Gunjan Banerji at Gunjan.Banerji@wsj.com