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Why Lemonade Stock Tumbled Today

By Chris Neiger – Updated Oct 4, 2021 at 5:21PM

Key Points

  • Lemonade's share price drop was part of the broader stock market's sell-off.
  • Investors are concerned about news about China, COVID-19, and the Federal Reserve.
  • Lemonade's underlying business is completely intact.

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Shares of the company slid as investors processed several bits of global news.

What happened

Shares of Lemonade (LMND -1.29%) were falling today as the broader stock market took a hit. The S&P 500 was down by more than 2% as of this writing as investors grew concerned over rising COVID-19 cases, an upcoming Federal Reserve meeting, and instability from a major China-based property developer. 

Lemonade's share price was down by 6.3% as of 2:02 p.m. EDT.

So what 

Lemonade didn't have any company-specific news that caused its share price to drop today, so let's take a quick look at the three likely reasons why it fell -- starting with China.

A person looking at a smartphone.

Image source: Getty Images.

One of China's largest property developers, Evergrande Group, is on the verge of potentially defaulting. Investors are concerned that if the Chinese government doesn't rush in to prop Evergrande up, then its collapse could have devastating effects for other companies it does business with.

This instability comes on the heels of increasing regulatory pressures that the Chinese government has put on major tech companies in the country, which has also caused some stocks to tumble recently

Additionally, investors are likely concerned that COVID-19 cases remain elevated as the delta variant of the virus spreads. Increasing cases have caused many companies to postpone reopening their offices and has left many businesses, like restaurants, scrambling to find workers to fill open positions. 

And finally, investors were also concerned today with the possibility that the Federal Reserve may be getting closer to easing some of its spending. The Fed will meet tomorrow for a two-day meeting to discuss its plans, and while it's not expected to start pulling back spending yet, it could signal that a cutback in spending is coming. 

Now what 

While it's never fun to see a stock fall so much in one day, Lemonade investors shouldn't worry too much about today's drop. Lemonade's business is still strong and today's share price slide has nothing to do with how well the company is doing. 

Lemonade's second-quarter results (reported on Aug. 5) were very good, with in-force premiums (accounts that are paid and active) increasing 91% and the company's customer count spiking 48% year over year. 

All of this means Lemonade investors should focus on the company's long-term potential and not get too concerned about the stock's short-term volatility.

Chris Neiger 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.

Stocks Mentioned

Lemonade Stock Quote
Lemonade
LMND
$17.65 (-1.29%) $0.23

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