What Happened?

A number of stocks fell in the afternoon session after new trade tensions and disappointing earnings from major tech companies weighed heavily on investor sentiment. 

A key driver was the news that the White House is considering new restrictions on Chinese exports that use U.S. software, a move that could significantly impact technology companies. This uncertainty over escalating trade tensions created a broad sense of worry in the market. Simultaneously, shares of the semiconductor giant Texas Instruments dropped 6% after its latest earnings and future revenue forecast both came in weaker than expected, which is a big concern for the health of the tech industry. This poor performance from Texas Instruments immediately dragged down the entire semiconductor sector, causing other major chipmakers like Advanced Micro Devices and Micron Technology to also see significant declines. 

Compounding the bad news, streaming service Netflix saw its stock slump 9% after it missed its earnings targets, partly blaming a tax dispute in Brazil. The combined effect of renewed trade war fears and the direct evidence of underperformance from influential companies in the technology sector was enough to push the major market indexes lower.

The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks.

Among others, the following stocks were impacted:

• Diversified Financial Services company Compass Diversified (NYSE: CODI) fell 8%. Is now the time to buy Compass Diversified? Access our full analysis report here, it’s free for active Edge members.
• Personal Loan company Dave (NASDAQ: DAVE) fell 6.9%. Is now the time to buy Dave? Access our full analysis report here, it’s free for active Edge members.
• Personal Loan company SoFi (NASDAQ: SOFI) fell 7.3%. Is now the time to buy SoFi? Access our full analysis report here, it’s free for active Edge members.
• Personal Loan company Sezzle (NASDAQ: SEZL) fell 4.9%. Is now the time to buy Sezzle? Access our full analysis report here, it’s free for active Edge members.
• Personal Loan company Affirm (NASDAQ: AFRM) fell 5.6%. Is now the time to buy Affirm? Access our full analysis report here, it’s free for active Edge members.

Zooming In On Compass Diversified (CODI)

Compass Diversified’s shares are very volatile and have had 23 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.

The previous big move we wrote about was 12 days ago when the stock gained 6.8% on the news that investor interest in its subsidiary, Arnold Magnetic Technologies (a company that specializes in rare earth materials) picked up. 

The stock's rise followed a gain of around 12% during the last trading session. This development was in focus as China announced new export controls on the critical minerals. Beijing's Commerce Ministry stated that foreign suppliers now need government approval to export products containing certain rare-earth materials. These materials are essential for producing high-tech goods, including computer chips, electric vehicles, and defense technology. Analysts view the move as a strategic assertion of China's dominance in the global rare earth supply chain, particularly amid ongoing trade tensions and ahead of an anticipated meeting between the US and Chinese presidents. The new policies are expected to tighten global supply chains, potentially causing licensing delays and cost increases for manufacturers in key strategic sectors.

Compass Diversified is down 67.6% since the beginning of the year, and at $7.37 per share, it is trading 69.6% below its 52-week high of $24.27 from December 2024. Investors who bought $1,000 worth of Compass Diversified’s shares 5 years ago would now be looking at an investment worth $409.67.

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