What happened
The share prices of Lemonade (LMND 0.06%), Upstart Holdings (UPST -2.40%), and Block (SQ -2.72%) were rising today as investors appeared to be moving back toward tech stocks, after a major sell-off in the sector earlier this month.
Shares of Lemonade were up by 9.7%, Upstart had gained 12.7%, and Block was up by 8.2% as of 11:48 a.m. ET.
So what
There wasn't any company-specific news that was driving the share prices of these tech companies higher today. Instead, some investors see the recent tech stock sell-off as an opportunity to snatch up shares of these fast-growing companies at discounted prices.
Image source: Getty Images.
For example, while Upstart's price was climbing today, its share price is still down 67% over the past three months. Meanwhile, Lemonade and Block have both slid about 50% over that period.
Tech investors have been spooked by talk that the Federal Reserve will likely raise interest rates, as early as March of this year. The interest rates could rise several times throughout the entire 2022 year, which could put a damper on growth stocks.
Higher interest rates usually mean consumers spend less money and companies will borrow less, the combination of which can inhibit a company's growth.
Additionally, the broader stock market has suffered as Treasury yields have risen. The 10-year bond rate reached a two-year high two weeks ago. It has since retreated a bit but is still at a higher rate than it was at the end of 2021.
As a result, the tech-heavy Nasdaq Composite is down nearly 11% this month.
But today's share price gains from Lemonade, Upstart, and Block show that at least some investors are becoming optimistic about the tech sector again.
That sentiment may be fueled by the strong quarterly performance reported by some companies recently. Data from Factset shows that of companies in the S&P 500 that have already reported fourth-quarter results, 77% have beaten analysts' consensus earnings estimates.
Now what
While investors should be understandably glad that the stock prices of Lemonade, Upstart, and Block are heading higher today, they may want to continue to brace for more near-term volatility.
Investors are still processing the idea of higher interest rates in 2022. Additionally, rising bond yields and persistent inflation could cause some investors to quickly abandon their recent optimism.
But despite the potential for near-term volatility, long-term investors should ride out these share price swings with little worry. Lemonade, Upstart, and Block are very solid companies and nothing has changed with their underlying businesses that is causing these share price swings.
Investors should then, at the very least, wait for each of these companies to release their latest quarterly results before making any changes to their investment thesis. Lemonade will report its fourth-quarter results likely by early March, while Upstart and Block have said they will release their results on Feb. 15 and Feb. 24, respectively.
