What Happened?
A number of stocks jumped in the afternoon session after comments from a key Federal Reserve official bolstered hopes for an interest rate cut.
The positive sentiment followed comments from New York Federal Reserve President John Williams, a voting member of the rate-setting Federal Open Market Committee (FOMC), who indicated he sees room for further policy easing. Following his remarks, the probability of a December rate cut surged from 39% to 71%, according to the CME FedWatch Tool, causing Treasury yields to fall. Lower interest rates can be particularly beneficial for growth-oriented sectors like software, as they increase the present value of future earnings. This renewed hope provided a boost to the sector, which had recently faced pressure from concerns over high valuations in artificial intelligence.
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:
- Advertising Software company Zeta Global (NYSE:ZETA) jumped 6%. Is now the time to buy Zeta Global? Access our full analysis report here, it’s free for active Edge members.
- Data Infrastructure company C3.ai (NYSE:AI) jumped 6%. Is now the time to buy C3.ai? Access our full analysis report here, it’s free for active Edge members.
- Communications Platform company Bandwidth (NASDAQ:BAND) jumped 5.7%. Is now the time to buy Bandwidth? Access our full analysis report here, it’s free for active Edge members.
- Video Conferencing company Five9 (NASDAQ:FIVN) jumped 5.5%. Is now the time to buy Five9? Access our full analysis report here, it’s free for active Edge members.
- Marketing Software company Sprout Social (NASDAQ:SPT) jumped 6%. Is now the time to buy Sprout Social? Access our full analysis report here, it’s free for active Edge members.
Zooming In On Sprout Social (SPT)
Sprout Social’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 8 days ago when the stock dropped 3.6% on the news that investors showed signs of fatigue with the AI-led rally, rotating out of high-valuation growth names.
After a fantastic run, many of the high-flying AI and technology stocks saw investors take profits: selling shares to lock in their gains. This is often called a "market rotation." Money is moving out of the red-hot tech sector (which some worry has become too expensive) and into other parts of the market that investors may currently deem more stable or reasonably-priced. There's a secondary reason for the cautious mood: The long government shutdown came to an end. Though it's typically interpreted as good news, it also means a flood of delayed economic reports will be released. For weeks, investors were "flying blind" without key updates on the economy's health, like inflation data and the jobs report. In typical "sell the news" fashion, investors may also be taking profits and selling in anticipation that the new data would potentially give the Federal Reserve reasons to slow or even pause future rate cuts.
Sprout Social is down 68.3% since the beginning of the year, and at $9.73 per share, it is trading 73.2% below its 52-week high of $36.24 from December 2024. Investors who bought $1,000 worth of Sprout Social’s shares 5 years ago would now be looking at an investment worth $206.54.
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