What happened

Stocks soared for the second session in a row on hopes that the Federal Reserve and other central banks would ease back from the hawkish stances they've adopted in recent months.

That was good news for software stocks, which tend to be more sensitive to the macro-level economy than the rest of the market, and Salesforce (CRM 0.34%), HubSpot (HUBS -0.02%), and MongoDB (MDB 0.19%) all recorded strong gains on the day.

At the market close, Salesforce was up 5.3%, HubSpot finished 5% higher, and MongoDB had gained 4.8%.

So what

Much like yesterday, there was no specific news item pushing the stock market higher. Investor sentiment seems to be shifting, however, on signs that the economy is starting to cool, which would cause the Federal Reserve to be less aggressive with interest rate hikes.

The biggest news item today seemed to be that job openings in August, according to the Bureau of Labor Statistics, had fallen 10% from July to 10.1 million.  That was the lowest reading in over a year, showing that the Fed's recent rate hikes, rising mortgage rates, and the stock market sell-off may finally be impacting the labor market.

Rising interest rates are generally a headwind for growth stocks like those in the cloud sector, especially for unprofitable ones like MongoDB. When interest rates rise, so do the discount rates in financial models, which makes future profits less valuable. It's similar to the impact of inflation.

The Fed pays attention to the jobs opening data, and a weakening labor market is likely to persuade the central bank to ease off on rate hikes.

Though Salesforce is more profitable than most of the cloud software sector, the stock has still been hit hard in the market sell-off this year, down 50% from its peak last November, even as it's continued to deliver solid growth on the top and bottom line. The customer relationship management specialist also seems to have responded to the shift in market sentiment, as it said at its recent Dreamforce conference that it would pull back on sales and marketing spending to boost operating income, with a goal of reaching adjusted operating margins of 25%.  

HubSpot, another customer relationship management platform, has also seen its stock spiral over the last year, down by nearly two thirds. The company continues to put up strong growth and is profitable on an adjusted basis. However, its GAAP losses and pricey valuation have made it vulnerable to the Fed's tightening this year.

After a boom in revenue growth during the pandemic, HubSpot's sales have been decelerating as the digital transformation tailwinds fade. Though the company acknowledged macroeconomic headwinds in its recent earnings call, it also said that its platform helps small and medium-sized businesses replace fragmented point solutions, a selling point, as HubSpot can help save SMBs money.

Finally, MongoDB is the only one of these three stocks that is unprofitable, even on an adjusted basis. The maker of NoSQL database software got slammed in its most recent quarter as the company forecast wider-than-expected losses. However, MongoDB continues to experience strong growth, with revenue up 53% in the second quarter, paced by 73% growth in Atlas, its subscription-based cloud database product. Atlas made up 64% of its revenue in the second quarter.

While the lack of profitability is a challenge for MongoDB in the current market, as the cloud database leader, its long-term growth opportunity is appealing. Like HubSpot, MongoDB is down by roughly two thirds from its 52-week-high.

Now what

Where the stock market goes next, nobody knows for sure, but signs that the labor market is cooling will likely be positive for software stocks. Investors should keep an eye out for Friday's job report, as weak employment numbers for September could send stocks soaring again. Given the sharp decline in job openings in August, it wouldn't be surprising to see underwhelming September jobs numbers.

With all three of these stocks down by at least 50% over the last year, they should have significant upside potential if the market bounces back.