What's going on?
Tech stocks took a big tumble on Thursday as the US stock market suffered its second-worst day of the year – and shares of recent public market debutants Blue Apron and Snap (parent company of Snapchat) were among the hardest hit!
What does this mean?
Escalating tensions between the US and North Korea are being blamed as the catalyst for the selloff, which accelerated on Thursday but began on Tuesday. But, there is almost certainly more at play. Many stocks, especially tech stocks, have shot higher over the past year and their prices are at historically high levels relative to profits – which can make investors wary of buying more when the overall environment turns negative (like it has this week). It’s telling that Thursday’s biggest losers were mainly this year’s biggest winners: tech stocks performed substantially worse on Thursday than “old-school” companies like industrial and telecom firms. It is, nevertheless, worth taking a step back and remembering that stock markets still remain close to their record highs.
Why should I care?
The bigger picture: This sort of volatility is totally normal for markets.
This year has been notable thus far for its lack of volatility. Rather than dramatic moves in the overall stock market, it has just moved steadily higher – and there have been very few days where stocks sold off all at once. Prior to this week, volatility had fallen to its lowest level in decades. Whether this selloff continues or not is clearly important but, for now, it’s just a return to normality.
For markets: Blue Apron and Snap investors are nursing some very heavy losses.
Blue Apron’s stock sank almost 20% on Thursday after it said it lost customers in its most recent quarter. Snap’s stock fell more than 10% after it reported that it made less revenue per user than anticipated, and user growth was below expectations (Snap stock is now down about 30% since its IPO). Investors are quickly losing faith in these former high-flying startups.