Why Coinbase and EPAM Systems Dragged Down Stocks on Monday

The stock market initially seemed poised to move higher again on Monday, carrying upward momentum from last week's significant rally. Yet by the end of the day, major market benchmarks were all lower, with the Dow Jones Industrial Average (^DJI -0.77%) leading the way. The Nasdaq Composite (^IXIC -1.49%) and S&P 500 (^GSPC -1.11%) also posted more modest losses.

Data source: Yahoo! Finance.

Two stocks that saw significant downward pressure on Monday were Coinbase Global (COIN -3.17%) and EPAM Systems (EPAM -1.12%). Both companies faced threats to their business that sent their shares slumping, although more bullish investors saw the pullbacks as buying opportunities.

Here's what happened to Coinbase and EPAM, along with some thoughts on whether long-term shareholders should see the moves as important.

Coinbase could face controversy

Shares of Coinbase Global were down 9% on Monday. The cryptocurrency exchange provider fell in sympathy with one of its largest rivals, as investors fear that a regulatory crackdown could end up affecting the entire industry.

The U.S. Securities and Exchange Commission filed suit against Binance and its CEO, Changpeng Zhao, alleging that the cryptocurrency exchange and its leader violated various federal securities laws. In particular, it alleged that the Binance Coin (CRYPTO: BNB) token and Binance USD (CRYPTO: BUSD) stablecoin are securities that Binance failed to register with the SEC.

Although the lawsuit targeted Binance, the SEC also alleged that many other popular cryptocurrencies are in fact securities that are subject to its regulatory jurisdiction. Indeed, just about every major digital asset smaller than Bitcoin (CRYPTO: BTC) and Ethereum (CRYPTO: ETH) was listed in the suit.

The SEC's stance against cryptocurrencies has implications for Coinbase, which has repeatedly called for responsible regulation but nevertheless argues against treating nearly every cryptocurrency as a security. It's unclear how far the SEC will go or how successful its actions will be, but the uncertainty has Coinbase investors feeling that much more nervous on Monday.

EPAM projects tougher times ahead

EPAM Systems saw its stock fall more sharply, losing 22%. The IT consulting company cut its financial outlook for the current quarter and the remainder of the year.

EPAM said that it has seen its clients get even more cautious about spending on IT since it released its first-quarter financial results several weeks ago. Not only is EPAM seeing its immediate market prospects shrink, but the sales that it has been able to win are coming more slowly than in the past.

EPAM did say that its current customer base remains loyal. In the long run, it believes that its strategy to deliver digital transformation services should support long-term growth.

Nevertheless, calls for full-year revenue of $4.65 billion to $4.8 billion suggest a decline of as much as 4% from last year's sales figures. Adjusted earnings of $9.80 to $10.20 per share would still be significant, but it would still represent a sizable pullback from what most of those following EPAM had expected to see.

Given the extent to which tech stocks have moved higher, it's not surprising to see major drops when individual companies fail to live up to high expectations. Unfortunately, that's a trend that could continue to hit certain stocks that aren't able to match their past guidance.