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Why Alibaba Group Stock Plunged 19.6% in May

Joe Tenebruso, The Motley Fool

What happened

Shares of Alibaba Group (NYSE: BABA) dropped nearly 20% last month, according to data from S&P Global Market Intelligence. Fears of a worsening trade war between China and the U.S. weighed on the Chinese e-commerce titan's stock price. Stock sales by a major shareholder also probably contributed to the decline.

So what

Tensions between the U.S. and China and fears that escalating tariffs could slow economic growth in both nations led investors to take a more negative view of Alibaba's stock.

In addition, Altaba (NASDAQ: AABA) -- the company created to house Yahoo!'s Alibaba stock holdings upon its sale to Verizon -- announced a plan to liquidate its assets, beginning on May 20 and ending by the fourth quarter. That announcement and the subsequent shares sales probably furthered Alibaba's stock price decline.

A keyboard button labeled sell

Altaba is selling its Alibaba holdings. Image source: Getty Images.

Now what

The pressure from Altaba's stock sales will only be temporary. And once this supply overhang abates, Alibaba could see its stock price lift.

Moreover, Alibaba's management believes investors are overreacting to the trade war. And should China and the U.S. eventually strike a trade deal, Alibaba's share price would probably rebound sharply on the news. Investors appear to be growing more optimistic in this regard; Alibaba's stock price is already up more than 7% so far in June. 

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Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool recommends Altaba and Verizon Communications. The Motley Fool has a disclosure policy.