Insights

Why Shopify Stock Fell Hard Today

What happened 

Shares of Shopify (NYSE: SHOP), an e-commerce platform, fell in response to a broader market sell-off today. Investors are worried that inflation, now at a more than 40-year high, will persist and the Federal Reserve’s response could significantly hurt the economy. 

The tech stock was down by 10.2% on Monday. 

So what 

Late last week, a new report showed that the consumer price index rose 8.6% in May, which was higher than expected. Investors sold off their shares in nearly every sector today as they grew increasingly worried that stubbornly high inflation will spur the Federal Reserve to continue to make aggressive rate hikes. 

Image source: Getty Images.

The Fed will decide on another interest rate increase this week and is expected to make similar moves throughout the rest of this year. 

The rate hikes are intended to slow down the economy and bring inflation back under control. But if the economy slows down too much, consumers could drastically pull back on their spending, which could hurt Shopify’s ability to sell its e-commerce services to businesses. 

The company’s platform allows businesses of all sizes to set up and run online shops, and investors are worried that an economic slowdown or potential recession could have significant negative effects on the company’s sales. 

Investors have been moving away from high-growth stocks like Shopify recently as they look for safer places to put their money, which has resulted in the company’s share price plunging 78% over the past six months. 

Now what 

There’s still a lot of uncertainty for tech stocks and the market in general. More rate hikes are on the way from the Fed, which means that Shopify investors should brace for more volatility in the coming months. 

It’s not easy holding on to stocks as they tumble in this market environment, but long-term investors should remember that buying and holding stocks for years — not a few quarters — is the best way to build long-term wealth. 

Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Shopify. The Motley Fool recommends the following options: long January 2023 $1,140 calls on Shopify and short January 2023 $1,160 calls on Shopify. The Motley Fool has a disclosure policy.

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