What happened
After shares of semiconductor company Nvidia (NVDA 1.90%) dropped by 5% Tuesday, they were tumbling again Wednesday morning as investors continued to process the news that the Federal Reserve could get more aggressive in its fight against inflation. Growth stocks like Nvidia could be hurt by rising interest rates, and it appears that the market is taking this into account.
The tech stock was down by 5.3% for the session as of 11:26 a.m. ET.
So what
The broader market was down Wednesday morning following comments made by Federal Reserve Governor Lael Brainard on Tuesday. Brainard said that the Fed "will continue tightening monetary policy methodically through a series of interest rate increases and by starting to reduce the balance sheet at a rapid pace as soon as our May meeting."
Image source: Getty Images.
While investors had already been expecting numerous interest rate hikes this year beyond last month's increase, Brainard's comments indicated that the Fed is willing to act more aggressively to get a handle on inflation, which is currently at a 40-year high. The S&P 500 was down 1.3% Wednesday morning as investors grew concerned that those moves to counter inflation could slow down the economy too much.
So what does all this have to do with Nvidia specifically? Higher interest rates make it more expensive for companies to borrow money, and can reduce the relative value of those companies' future earnings. Higher rates therefore could potentially slow down some growth stocks, including Nvidia, which explains why some traders are selling their shares.
Now what
While investors shouldn't ignore sky-high inflation -- nor what the Federal Reserve is doing to tackle it -- they should also try to keep a long-term perspective on the companies in their portfolios.
Nvidia still holds a strong position in the graphics processor unit market, and the results from its fiscal fourth quarter, which ended Jan. 30, were impressive. Sales soared by 53% from the year-ago period to $7.6 billion and non-GAAP earnings popped by 69% to $1.32 per share.
All of which means that investors who have a five-year investing horizon (or longer) for Nvidia may want to ignore some of the market noise right now.
