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Why Shares of Lemonade Are Rising Today

By Bram Berkowitz – Jun 24, 2021 at 10:56AM

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This seems to be a continuation of volatility resulting from fears of inflation.

What happened

Shares of insurtech company Lemonade (LMND -6.59%) got off to a good start this morning, trading more than 3.4% higher as of 11:05 a.m. EDT for no obvious reason.

So what

Seeing as there is no obvious company-specific news, the rise in shares likely has more to do with the market easing, or at least getting used to, some of its fears on inflation, which is good news for high-flying tech companies like Lemonade.

Last week, the Federal Reserve surprised a good chunk of the market by indicating that it expects to have to start increasing the federal funds rate, which is currently near zero, in 2023, a full year ahead of when it initially expected to. Rate hikes are typically driven by inflation, so the broader market feared that inflation could be more severe than the Fed has been letting on.

Inflation and rate hikes are typically not great for high-growth tech stocks because they increase returns on safer assets, leading investors to demand even better returns on already fast-growing tech companies.

Blue line with arrow moving upward.

Image source: Getty Images.

Now what

Lemonade has been volatile since going public in July 2020. Over the last six months, shares are down roughly 11% as investors shifted to sectors that benefited from the economy reopening. But over the last month, shares of Lemonade are up more than 37%.

Today appears to be a continuation of the ebbs and flows of inflationary fears. But Lemonade certainly looks like it can be a major disruptor in the insurance space. Expect volatility to be normal right now, but long-term the stock has a bright future.

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Lemonade, Inc. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Lemonade, Inc. Stock Quote
Lemonade, Inc.
LMND
$20.99 (-6.59%) $-1.48

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