The market sold off speculative stocks in a big way on Monday as the U.S. economy appeared to be heading toward more turbulence driven by tariffs. The U.S. dollar dropped, yields are up, and business confidence is in freefall.
Tech stocks were some of the hardest hit, but it wasn't all tech that was impacted today. Companies with cash flow and great balance sheets are still well positioned. But the more speculative companies were down more than the 3% market drop. Digital Turbine (APPS +2.39%) fell as much as 10.9% on Monday, Quantum Computing (QUBT +5.37%) was off 10.1%, and CoreWeave (CRWV +7.66%) plunged 14.2% at its low. The stocks ended the day down 6.4%, 8.4%, and 9.6%, respectively.
The stock market's decline
The market overall was down over 3% today, and the reasons had a lot to do with macro factors. Tariffs are clearly having a big impact on investors beyond just the stock market.
Today, the dollar index fell 1% and is now down about 10% for the year, giving U.S. consumers less buying power around the world. This is on top of tariffs that will make all goods more expensive.
Yields in the U.S. are also up, making it more expensive for companies and the government to borrow money. Higher yields are an economic headwind, but they may be necessary to fight the inflation brought by tariffs.
Add all of this up, and investors are selling risky assets like equities today.
Why these tech stocks dropped big
The big decline in Digital Turbine, Quantum Computing, and CoreWeave was driven by two major factors. First, the stocks are high beta, which is a measure of volatility. When the market falls, they generally magnify the market's move.
On top of volatile trading, none of these three companies are profitable. If the economy goes south or the market declines, it could lead to higher losses and a tougher market for raising funds.
APPS Net Income (TTM) data by YCharts
Investors don't like uncertainty, and the future is especially uncertain for companies that aren't on solid financial footing right now.
Where do stocks go from here?
The market is trying to figure out what the future looks like for the economy and technology companies. The economy looks like it's in for a rough summer as tariffs will cramp consumer spending, and higher borrowing costs will impact companies' expansion plans.
But it's the uncertainty that the market doesn't like. Big moves in the dollar and yields indicate investors are shifting how they view safety, and that's causing big shifts in the market.
The appetite to take risks on unprofitable companies isn't what it was just a few months ago. That doesn't bode well for the future of these stocks in the market. They need to generate more revenue and start turning a profit to be sustainable in the long term.
I think investors can use a time like this to buy high-quality companies that can be aggressive with acquisitions or buybacks in a market decline. That's where I'm seeing opportunities today.
