Tuesday was rough for much of the overall market, but social stocks really took it on the chin, with 5% to 7% drops registered by LinkedIn (LNKD), Groupon (GRPN), Facebook (FB) and Angie’s List (ANGI), among others.
Is this a sign that the bull move has peaked? And, with its IPO coming sooner than later, should Twitter be concerned?
Well, it’s a dicey proposition to make such a call after one big bearish day. As they’ve shown several times in the past, social stocks can rebound, and quickly.
Click to Enlarge It’s also worth noting that social stocks’ wild move has come amid ramped-up volatility in the broader market, as illustrated by the action in the CBOE Volatility Index (the VIX). Since Sept. 20, the index has spiked from 13.12 to 20.34, its highest level of 2013. This is a sure indication of investor anxiety, and when this happens, the reflex response is to unload riskier stocks.
If anything, this might just be a combination of prudent pruning and investor panic. Social stocks’ gains have been off the charts in 2013, so it seems reasonable that they would be among the first to see aggressive profit taking. A quick look at some social stocks’ returns YTD:
But, could something more fundamental be at foot?
As seen with Facebook, investors now realize that it’s possible to make lots of money from mobile. And according to a report from eMarketer, the market should see plenty of growth — global spending on mobile ads is expected to jump by nearly 80% this year to $15.8 billion.
But the recent run-up in social stocks hints that Wall Street is anticipating this kind of go-go growth already, which means should projections prove too optimistic — and that’s awfully common in the wild world of tech — social stocks could see a lot more downward pressure than a one-day bump.
So while the federal government shutdown could have a dampening fact on the holiday season (and thus perhaps mobile ad spending), it appears likely that Washington’s bickering is more trigger than anything.
None of this implies that social stocks absolutely will crash into the ground, nor that the Twitter IPO will go down in flames or not even launch at all. The mobile trend will remain strong and provide some type of floor for these companies.
But we still could see a hefty correction in the teens (or a little worse), but this is a run-of-the-mill worry for most high-beta stocks — especially after such big moves to the upside.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.