It was just days ago that cries of “stocks only go up,” and “no it makes sense that Tesla is going up because it split” and other bits of unironic stupidity were the only thing you could read online about the equities markets. Today, and yesterday, that all went to hell.
Stocks, it turns out, can go down, and they can do so very quickly. And, yes, even Tesla can endure a strong slump, giving up tens of billions of dollars in market capitalization at the same time.
What’s going on? It’s impossible to point to a single thing as the reason, but it’s worth noting that the United States is still suffering from the business impacts of COVID-19, with high unemployment and other related issues plaguing the broader economic climate.
Update: While this piece was in edit, news broke in the FT and the WSJ that SoftBank — yes, that SoftBank — was at least partially responsible for the run-up in tech stocks due to some huge wagers. Obviously we’re still figuring this out, but I wanted to note it here given the above paragraph.
The U.S. had also seen its stock market set successive all-time highs in recent days. Perhaps the better question is why were things so good for so long before this particular two-day (so far) correction to the value of domestic — particularly domestically listed, technology-related — stocks?
And notably it’s the sub-cohort of tech companies that was expected to perform the best in the future that are taking the most lumps. Yes, SaaS and cloud shares, after enjoying a historic run that saw their revenue multiples stretch to what felt like a breaking point, are snapping back, giving back weeks’ worth of gains generated during earnings season (though concerns cropped up more recently).
Yesterday, the damage was severe:
- Dow Jones Industrial Average: -808 points, or -2.8%
- S&P 500: -126 points, or -3.5%
- Nasdaq: -598 points, or 5%
- SaaS and cloud stocks (via the Bessemer index): -8.2%
That’s a goddamn mess. And today is looking pretty awful as well, though the following results include material bounce-back from session lows:
- Dow Jones Industrial Average: -381.3 points, or -1.35%
- S&P 500: -69.5 points, or -2%
- Nasdaq: -403.2 points, or 3.5%
- SaaS and cloud stocks (via the Bessemer index): -6%
Tech stocks are taking the worst hits. And inside of tech stocks, SaaS and cloud stocks are enduring even bigger declines. As we’ve noted that some tech shares have taken lumps when their growth has underwhelmed investors, perhaps we’re seeing the entire SaaS sector see their growth expectations slip?
Bulls may say that the above declines are merely a few weeks’ gains and that the accelerated digital transformation is still a key tailwind for SaaS. Bears may say that this is the start of a real correction in the value of tech shares that had become simply too expensive for their fundamentals. What we can say with confidence is that software shares are in a technical correction, and other equities cohorts that we care about are not far behind.
Monday is an off day for stocks. Let’s see what happens Tuesday and if the bleeding stops or simply keeps on letting.