What happened

Shares of Alibaba Group (NYSE:BABA) dropped nearly 20% last month, according to data from S&P Global Market Intelligence. Fears of a worsening trade war between China and the U.S. weighed on the Chinese e-commerce titan's stock price. Stock sales by a major shareholder also probably contributed to the decline.

So what

Tensions between the U.S. and China and fears that escalating tariffs could slow economic growth in both nations led investors to take a more negative view of Alibaba's stock.

In addition, Altaba (NASDAQ:AABA) -- the company created to house Yahoo!'s Alibaba stock holdings upon its sale to Verizon -- announced a plan to liquidate its assets, beginning on May 20 and ending by the fourth quarter. That announcement and the subsequent shares sales probably furthered Alibaba's stock price decline.

A keyboard button labeled sell

Altaba is selling its Alibaba holdings. Image source: Getty Images.

Now what

The pressure from Altaba's stock sales will only be temporary. And once this supply overhang abates, Alibaba could see its stock price lift.

Moreover, Alibaba's management believes investors are overreacting to the trade war. And should China and the U.S. eventually strike a trade deal, Alibaba's share price would probably rebound sharply on the news. Investors appear to be growing more optimistic in this regard; Alibaba's stock price is already up more than 7% so far in June. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.