What happened
Shares of Snap (SNAP 1.83%) were rallying for the second day in a row as hopes for a "Fed pivot" swept the market and as investors seemed to view the social media stock as oversold after it plunged last week on a disappointing earnings report.
Though there was no company-specific news out on the Snapchat parent today, those items were enough to drive the stock up 15.4% at the market close.
NYSE: SNAP
Key Data Points
So what
The latest data point to show the economy slowing came from the Case-Shiller National Home Price Index, which reported that home price growth decelerated by the fastest pace in the index's history in August. Year over year, prices rose by 13% in August, compared to a 15.6% increase in July. The index also showed that national prices are now declining after peaking in June.
The news should support a slowing of the pace of the Fed's interest rate hikes, which has come to be known as the Fed pivot. While Snap doesn't have any exposure to the real estate market, rising interest rates have been a headwind for unprofitable growth stocks like Snap, so it would be good news for the company if the Fed's hawkish stance on interest rates ended sooner rather than later. Investors also seem to believe that a Fed pivot would help save the economy from recession.
Snap has pointed to macro headwinds after disappointing revenue growth in the last two quarters, so investors may be hopeful that a Fed pivot will help the business rebound.
Now what
After a gain yesterday, the stock has now recouped most of its losses since it reported disappointing earnings last Thursday night, a sign the market may believe that the stock is oversold. Revenue growth slowed to 6% in the third quarter, but the company continued to deliver strong user growth, with daily active users up 19% to 363 million.
While the company has work to do to rein in costs and streamline the business model, the argument that macro headwinds are the main reason growth has slowed seems valid, especially after Alphabet reported similarly slow growth in its third quarter.
There's no telling when the Fed pivot will come, but Snap could get a significant bump when it happens.
