What happened
Shares of cloud software giant Salesforce (CRM -0.10%) were up 2.4% today as of noon ET. It's a small bit of relief after yet another brutal week for the stock market. Even after the pop higher, Salesforce is down over 4% on the week following the Federal Reserve's decision to increase its short-term interest rate by 75 basis points, the biggest move since the 1990s.
As a reminder, the present value of risk assets decreases as interest rates increase.
Image source: Getty Images.
So what
Salesforce isn't alone on this turbulent ride. Stocks across almost all sectors of the economy have been under pressure as investors digest the Fed's actions and whether those actions will succeed in bringing down runaway inflation.
And there's a chance that aggressive Federal Reserve moves to raise rates and tighten up the amount of liquidity sloshing around the economy will induce a recession. A recession is another way to bring down inflation, though obviously not the most desirable path.
As for Salesforce, it also made a splash when it released its quarterly earnings report a few weeks ago. A side effect of the Fed raising interest rates is a stronger U.S. dollar versus other currencies. For an international corporation like Salesforce, that means revenue from overseas falls in value when it converts those sales back into dollars for financial reporting purposes.
Now what
Though pressured at the moment like everyone else, Salesforce is actually doing quite well. Demand for cloud software is strong as organizations around the globe focus on updating their operations. With inflation on the rise, money-saving "digital transformation" services like what Salesforce offers are a top priority.
Even after the currency-exchange downgrade, management expects revenue to increase about 20% this year. Even better, operating cash flow is expected to rise about 21% to 22% from last year, an upgrade to previous guidance.
Shares of Salesforce currently trade for 28 times trailing-12-month free cash flow, about the cheapest this stock has historically ever been.
