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Why Is Lemonade Stock Falling Today?

By Matthew Frankel, CFP® - Feb 23, 2021 at 3:09PM

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The insurance tech company is having a rough Tuesday.

What happened

To say that the stock market was having a volatile day on Tuesday would be a massive understatement, and that's especially true for some of the best-performing tech stocks. The tech-heavy Nasdaq is by far the worst performer of the three major indexes today, and there are quite a few "momentum stocks" taking quite a plunge.

Insurance technology company Lemonade (LMND 0.71%) is one of the worst-hit stocks on Tuesday. As of 2:45 p.m. EST, shares were down by 9% after falling by more than 15% earlier in the session.

Man with money flying out of wallet

Image source: Getty Images.

So what

To be perfectly clear, there doesn't seem to be any company-specific news fueling today's move. Instead, this seems to be a sharp correction in high-momentum names. Just to name a few other examples, Roku (NASDAQ: ROKU), CrowdStrike Holdings (NASDAQ: CRWD), and Appian (NASDAQ: APPN) have all more than tripled over the past year, like Lemonade has, and all are down by 6% or more today.

One potential catalyst -- although it doesn't likely account for today's move all by itself -- is the recent rise in interest rates, which is typically a negative catalyst for high-growth stocks. The 10-year Treasury yield (a good barometer for overall interest rate activity) has risen from less than 1% at the start of the year to 1.37% now, including a pretty decent jump this week.

Now what

Given the tremendous gains we've seen in Lemonade in its short history as a publicly traded company, as well as elsewhere in the tech sector, it can be easy to forget that corrections like this are a normal part of a healthy stock market. Even if a stock has massive long-term growth potential and everything is going right with the business, stocks can and do move in both directions. Days like this are a good time to take a step back and take a breath. And if anything, consider moves like this an opportunity to add to your highest-conviction stocks.

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