Why Did Shopify Stock Fall 12% This Week?

Tech stocks will lose out as a vaccine comes closer to reality. Here’s why Shopify (TSX:SHOP)(NYSE:SHOP) trailed the TSX this week.

Tech stock fans eyeing this week’s big-name losses can blame Moderna (NASDAQ:MRNA). For those who don’t know, Moderna is a U.S. biotech company big into drug discovery development, as well as vaccine technologies. Headlines this week trumpeted Moderna’s early success in COVID-19 vaccine trials. The news lifted the markets, with many sectors witnessing meaningful gains.

Not the least of these gains was the healthcare sector. Moderna stock rocketed 17% on initial suggestions that its vaccine may be effective in combating COVID-19. Industrials also got a boost, with Air Canada seeing gains in excess of 13% this week. The rally gave free rein to investors to buy up shares in names that had been impacted by the outbreak. A sense of relief permeated the markets, and bullish headlines dominated the business sections.

Not so for tech stocks, however. Quite the opposite, in fact. This week gave a glimpse of how the markets will react to further vaccine breakthroughs, and it was not all positive.

The vaccine rally was bad news for tech stocks

Tech stocks took something of a battering on the markets this week. A picture is beginning to emerge of an inverse relationship between tech stock growth and vaccine rallies. Since a quarantined world favours digital businesses, a vaccine is logically anathema to tech stocks. This logic was played out in the real world this week with several big-name TSX tech stocks in the red.

Unfortunately, these losses were compounded by Wednesday’s apparent Twitter hack. The timing could not have been worse. Twitter shed 4% on the news. The pain for tech stocks continued on Thursday, with a mixed but ultimately disappointing earnings report from Netflix. The news sent Netflix tumbling 10% out of hours. These incidents alone may seem incidental. But the pullback was much broader.

In the background, the TSX overall was up by more than 2%. This five-day victory lap saw a welcome return to March highs — and a taste of what a full-blooded recovery might feel like. It was also a rare instance of the market outperforming tech stocks. By comparison, Shopify was trading 12% lower for the week. It was quite the fall from grace for a sector that had been holding its own during the public health crisis.

Up until now, anyway. So it seems that tech investors react badly to good news these days. By extension, investors could be starting to see how an actual vaccine rollout might impact stock markets. An early pattern could be emerging that sees tech stocks weaken on broader vaccine rallies. Going forward, this essentially ties strong tech stock performance to bad news. And that’s never a sound investment strategy.

Trimming those high-cost tech stocks may therefore be a sound strategy for raising liquidity in the present financial climate. But these vaccine rallies have a broader implication – one that is potentially more dangerous than a tech stock dip.

With hope comes the danger of disappointment. A market buoyed by hope is not sustainable. At root, its emotional investing writ large.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Victoria Hetherington has no position in any of the stocks mentioned. David Gardner owns shares of Netflix. Tom Gardner owns shares of Netflix, Shopify, and Twitter. The Motley Fool owns shares of and recommends Netflix, Shopify, Shopify, and Twitter.

More on Tech Stocks

The virtual button with the letters AI in a circle hovering above a keyboard, about to be clicked by a cursor.
Tech Stocks

Is POET Technologies a Top AI Stock for Canadian Investors?

Canada has relatively few AI stocks, and the ones it has are different from American AI stocks in terms of…

Read more »

Rocket lift off through the clouds
Tech Stocks

2 Growth Stocks That Could Skyrocket in 2025 and Beyond

Wondering what types of stocks could rapidly rise in 2025? Check out these two stocks with substantial upside if they…

Read more »

up arrow on wooden blocks
Tech Stocks

The 3 Smartest Tech Stocks to Buy With $500 Right Now

Tech stocks can be seen as a bit risky, but these three have far less risk and more stability for…

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Tech Stocks

Shopify: A Must-Have Growth Stock for Your TFSA Now (and the Next 10 Years)

Shopify (TSX:SHOP) stock isn't just a top growth company, it's a titan worth owning in your decades-long TFSA fund.

Read more »

cloud computing
Tech Stocks

Best Stock to Buy Right Now: Manulife vs CIBC

Want the best stocks? These two are certainly the best options. But which is the better buy?

Read more »

profit rises over time
Tech Stocks

4 Reasons to Buy Constellation Software Stock Like There’s No Tomorrow

Constellation Software stock continued its climb upwards after recent earnings, and this only adds to its appeal.

Read more »

calculate and analyze stock
Tech Stocks

1 Stock That’s Just as Hot as Nvidia (Without All the Hype)

Nvidia stock may look like a strong option, but its valuation is through the roof. Enter this other under-the-radar stock.

Read more »

A plant grows from coins.
Tech Stocks

3 Growth Stocks Wall Street Might Be Sleeping on, But I’m Not

Don’t miss your chance to load up on these three beaten-down stocks.

Read more »