What happened
Shares of Carvana (CVNA -0.56%), the online used-car retailer, fell hard today after the latest monthly Bureau of Labor Statistics report showed that inflation increased faster than expected in August.
Carvana investors were likely keeping a close eye on the latest inflation data as rising costs influence used-car prices and consumer spending. The company's share price had fallen 12.9% as of 2:46 p.m. ET on Tuesday, after rising by nearly 15% just the day before.
So what
The inflation report caught investors off guard today as some economists were expecting inflation to fall in August by 10 basis points. Instead, it increased by that amount and was up by 8.3% year over year.
Image source: Getty Images.
Investors across all sectors are now expecting another significant interest rate hike by the Federal Reserve at its meeting next week. The Fed will likely bump up the federal funds rate by an additional 75 basis points to try tamping down inflation.
Carvana investors are worried that rising interest rates paired with increasing inflation will put a strain on consumers and potentially drag down its sales.
These fears come just one day after the company's share price spiked after Piper Sandler analyst Alexander Potter upgraded the company's stock from a neutral rating to overweight (buy).
Potter said in an investor note, "We know that rising interest rates are a risk, and we know that bankruptcy is a real possibility." Nevertheless, he thinks the stock is still undervalued.
But investors retreated from their recent optimism for the stock following the inflation report today.
Now what
Carvana's share price is down nearly 84% year to date, and the stock's roller coaster ride over the past two days shows just how volatile it can be.
Investors looking to buy Carvana right now might want to prepare themselves for more price instability as the market processes the latest inflation data and investors prepare for a potential Fed interest rate hike next week.
