SHOP - Why Shopify Stock Slumped 15% This Week
2023-09-22 17:10:54 ET
Growth stock summer could finally be over. Shares of well-loved e-commerce platform Shopify (NYSE: SHOP) sunk 15% this week as investors sold off growth stocks after the Federal Reserve remained hawkish on interest rates. Investors might also be getting increasingly pessimistic due to competitive pressures from e-commerce giant Amazon and its encroachment on Shopify's market. The stock is still up 49% year to date, handily beating the 13% return for the S&P 500 .
This week, the Federal Reserve remained restrictive with its interest rate policy, keeping the fed funds rate at a range of 5.25% to 5.50%. This sets interest rates for the broader economy, which is why short-term U.S. Treasury bonds now pay a 5.50% annual rate, a risk-free investment that can earn you a healthy income stream.
What does this have to do with Shopify? When interest rates remain high, investors tend to favor safer investments that offer higher yields with lower risks. Shopify is a money-losing growth stock that doesn't pay anything to investors today. As the Federal Reserve signals to investors that interest rates could remain higher for longer, traders are going to favor safer bets such as U.S. Treasury bonds over Shopify. This is a key reason its shares dipped this week along with those of many other growth stocks.
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Why Shopify Stock Slumped 15% This Week