What happened

Overstock (BYON 1.47%) investors trailed a declining market this week. Shares dropped 15% through Thursday trading, according to data provided by S&P Global Market Intelligence. The S&P 500 dropped 4.6% in that time.

The slump added to big declines for the e-commerce giant, which also makes aggressive bets on blockchain platforms. Overstock's shares are down over 70% so far in 2022.

This latest decline came as investors worried that the poor selling conditions which contributed to weak results in Q3 will exert an even bigger pressure on the chain's holiday season quarter.

So what

Investors became more focused on a potential recession on the horizon this week. Such a development would likely reduce demand for furniture and home furnishings while forcing prices lower in the space. These factors were huge pressures on Overstock in recent weeks, in fact.

Management said on a late-October conference call that competitors are slashing prices and taking losses in order to keep inventory moving. "This is a hard and highly promotional environment," CEO Jonathan Johnson told investors.

Slowing consumer spending would likely amplify theses challenges, and so the selling pressure on Overstock's shares increased as Wall Street became more pessimistic this week.

Now what

Investors are bracing for sales to drop by about 25% in the holiday quarter, which wouldn't mark much of an improvement over last quarter's 33% slump. Yet Overstock is operating profitably, making it a standout in the industry today.

Its earnings are still likely to be lackluster for the full 2022 year and into 2023, given the sharp sales declines in its core retailing segment. Rival Wayfair is also enduring declining order volumes and ballooning net losses. These tough conditions make this e-commerce niche less attractive to investors today, especially as results aren't likely to improve over the short term.

Once inventory supply and demand trends reach a new balance, Overstock and its peers should see a return to profitability. But there could be several more quarters of poor results ahead for this business.