What happened
Shares of Carvana (CVNA -0.35%) were skyrocketing this morning as investors rekindled some of their optimism for stocks, in general, today. Comments made by a Federal Reserve official about potentially raising the federal funds rate too quickly to fight inflation may be the reason Carvana investors are pouring back into the stock. Carvana's share price was up by 5.7% as of 11:32 a.m. ET.
So what
Yesterday, Carvana's stock plunged along with the broader market as investors continued to worry that aggressive rate hikes by the Federal Reserve could end up slowing the economy down too much and potentially pushing it toward a significant recession.
Image source: Getty Images.
The Fed increased the federal funds rate by 75 basis points just last week and since then, the market has reeled -- falling for five straight trading days and pushing the S&P 500 down to a two-year low yesterday.
But investors reversed their pessimism today. The reason? Chicago Federal Reserve President Charles Evans told CNBC that he wondered if the Fed was raising rates too quickly, without waiting long enough to assess their impact.
"We have done three 75 basis-point increases in a row and there is a talk of more to get to that 4.25% to 4.5% by the end of the year, you're not leaving much time to sort of look at each monthly release," Evans said.
Carvana investors are processing Evans' comments today and hoping that it means the Fed might relax the speed and intensity of interest-rate increases.
Now what
While Carvana shareholders are no doubt excited to see the company's share price jump today, they should also temper their expectations. Evans' comments aren't a guarantee that the Fed is finished with its aggressive rate hikes. Additionally, the existing moves by the Fed to curb inflation could still end up significantly slowing down the economy, which could end up hurting Carvana's sales.
All of this means that investors should look at Carvana's underlying business and its potential in the used-car selling market when making a decision to buy or sell the stock -- instead of trading on the daily news.
