What happened
Shares of Fastly (FSLY +3.52%), Pinterest (PINS 0.68%), and Virgin Galactic Holdings (SPCE +1.46%) all fell sharply on Monday morning. As of 12:07 p.m. EDT, shares of the three companies were down 4.6%, 4.1%, and 5.9%, respectively.
The three stocks are down as the overall market continues last week's sell-off. As of this writing, the S&P 500 was down about 2.2% as many assets viewed as higher-risk, such as cryptocurrency and stocks, are getting hit hard on Monday. The market pullback seems to be driven by a combination of concerns about an indebted major property developer in China and worries about potential signals from the Federal Reserve this week regarding plans to reduce monetary stimulus.
Image source: Getty Images.
So what
It's not surprising to see stocks of edge-computing specialist Fastly, visual search and media platform Pinterest, and aerospace and travel company Virgin Galactic falling more sharply than the overall market today. Historically, shares of tech, growth stocks, and cryptocurrency often decline more than the broader market when investors have concerns about the U.S. or global economy. This is because these assets are often viewed as high-risk.
The more unusual reason for Monday's market sell-off was continued deterioration in large China-based real estate developer Evergrande Group's (EGRNF +0.00%) shares as concerns about the company's debt load continued to mount. The real estate developer, which has about $300 billion of debt, is on the brink of default. Investors are concerned about the repercussions this could have on China and, ultimately, the global economy.
Meanwhile, investors are bracing for the potential news of the Federal Reserve sharing plans for the central bank to begin the tapering of its monetary stimulus efforts. The Fed will meet for two days this week, starting on Tuesday.
Now what
Investors shouldn't automatically assume the market's decision to sell off growth stocks on Monday was correct. It may be wise for investors to be more discerning and thoughtful, analyzing the fundamentals of various stocks relative to their valuations, and basing decisions on this objective information in relation to market dynamics.
Staying focused on fundamentals makes volatility more bearable and could lead to more intelligent investment decisions, detached from emotions. Consider Pinterest's business amid these market concerns; while it's impossible to know how the stock will perform in the short term, its underlying business is performing very well. On the heels of a strong advertising business and 9% year-over-year growth in monthly active users in the second quarter, management expects revenue to rise more than 40% year over year in the third quarter.
Investors should also bear in mind that lower prices generally mean assets are more attractive long-term investments. This could be a good time for investors to look to see if any stocks are a good buy after their recent sell-offs.
