October 25, 2021

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Unlimited Technology

Why Did MercadoLibre Fall Last Week?

What happened

September was a rough month for the stock market, and that’s especially true for high-potential tech stocks like MercadoLibre (NASDAQ:MELI). The last week of the month was particularly rough for the Latin American e-commerce and fintech giant, as shares ended down 11%.

So what

The good news is that MercadoLibre’s poor performance doesn’t appear to be the result of any company-specific headlines and is mainly fueled by market weakness. After all, the tech-heavy Nasdaq was by far the worst-performing of the three major indices over the past week, and many high-growth stocks in addition to MercadoLibre saw steep declines.

Young couple shopping online, using a laptop and a credit card.

Image source: Getty Images.

More specifically, the declines in tech stocks like MercadoLibre seem to be fueled by a rather sharp rise in interest rates, and the 10-year Treasury yield (the most widely used interest rate benchmark) rose as high as 1.55% this week from less than 1.40% a week ago. Without getting too deep into the relationship between Treasury rates and growth stocks, the key point is that rising rates are generally a negative catalyst for stocks that derive much of their value from expected future growth.

Now what

In fact, the only real news specific to MercadoLibre was the launch of its blank-check company, which raised $287 million in its IPO. The special-purpose acquisition company (SPAC) is going to attempt to merge with, and take public, another innovative Latin American business. If successful, this could be a major positive catalyst for MercadoLibre.

If rates continue to rise quickly, it could certainly put further pressure on MercadoLibre. But it’s important for investors to keep in mind that rate-driven moves don’t affect the long-term potential of the company’s business.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. 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.

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