What happened
Shares of some cloud stocks, like Snowflake (SNOW +0.41%) and MongoDB (MDB 0.59%), were shaking off general stock market angst today and showing respectable gains. Snowflake was up 3.3% and MongoDB was up 2.3%, compared to a 0.3% drop for the Nasdaq Composite, as of 12:40 p.m. ET on Wednesday.
There were other high-growth stocks like these two that were also up on a down day after the U.S. Bureau of Labor Statistics reported a 9.1% year-over-year increase in the Consumer Price Index (CPI). Energy and food costs were the leading causes of inflation, and are starting to take their toll on households and businesses alike. What gives?
So what
A couple of reasons might be leading to growth stocks notching a positive return. The first has to do with the Federal Reserve, which has already been hiking interest rates to try to combat inflation. With the CPI still at levels not seen since the early 1980s, some investors are betting the Fed will do another aggressive rate hike when it meets in late July. Many market participants have wanted the Fed to hike rates much higher at a faster pace to get the pain over with, so the market can begin to heal.
A second reason could simply be that high-growth stocks like Snowflake and MongoDB have already taken it on the chin from mounting economic worries. Higher interest rates lower the present value of risk assets like stocks. As a result of the Fed's actions and what were sky-high valuations at the start of 2022, Snowflake stock is down 56% so far this year, and MongoDB is down 44%. After falling so far and already factoring in higher rates, perhaps most of the pain is already in the rearview mirror for these stocks.
Now what
Inflation, interest rates, and the Fed aside, cloud-computing tools like Snowflake and MongoDB are still in high demand by businesses -- and are likely to remain that way for years. Bill McDermott, CEO of fellow cloud software company ServiceNow (NOW +5.00%), took to television this week to talk about enduring growth of the cloud in spite of multiple macroeconomic headwinds.
Snowflake forecast product revenue growth of 65% to 67% for this year, and MongoDB thinks its sales will grow about 35% this year. At this juncture, investors need to decide if they want to wait out the elevated volatility as these two cloud leaders expand. If you don't mind big price swings and have years before you need the money, Snowflake and MongoDB are worth a look.
