What happened
The share prices of Datadog (DDOG -11.47%), MongoDB (MDB -2.83%), and HubSpot (HUBS -0.28%) were tumbling this morning, likely as investors processed the news of better-than-expected jobs data and anticipated another aggressive interest rate hike from the Federal Reserve.
A strong job market could be worrying tech investors because it could encourage the Fed to continue making large interest rate hikes. HubSpot and Datadog investors may also be exiting their positions, as the two companies are set to report their third-quarter results shortly.
Datadog was down by 6.8%, HubSpot fell by 6.4%, and MongoDB dropped by 7.6% as of 11:56 a.m. ET.
Image source: Getty Images.
So what
The latest ADP payroll data showed that companies added 239,000 jobs in October, more than economists' estimate of 195,000. Wages also increased by 7.7%, which was only slightly down from the previous month.
Investors are keeping a close eye on jobs data because a strong labor market, along with increasing wages, likely means that the Federal Reserve still has its work cut out for it as it tries to tame inflation.
Tech investors may be worried this morning that if jobs are increasing and wages are climbing, the Fed may be more likely to keep up an aggressive pace of interest rate hikes. The Fed is already expected to increase the federal funds rate today by an additional 75 basis points, but what's still unclear is how large subsequent interest rate increases will be. The next Fed meeting, after the conclusion of today's meeting, will be in December.
Higher interest rates make borrowing more expensive for companies, which could make it harder for growth stocks like MongoDB, Datadog, and HubSpot to keep growing quickly. Additionally, tech investors are worried more interest rate hikes could tip the U.S. economy into a full-blown recession.
Now what
All of this news is coming at an especially bad time for HubSpot and Datadog, as the two companies are set to report their third-quarter results today and tomorrow. HubSpot will report after the closing bell today, and Datadog will release its results before the opening bell tomorrow.
Additionally, Macquarie analyst Sarah Hindlian initiated coverage of HubSpot today with an outperform rating and also initiated coverage of Datadog with a neutral rating, which could be impacting the companies' share prices as well.
Tech investors may want to prepare for some more share price volatility in the short term. Not only will the quarterly results from Datadog and HubSpot likely affect those companies' share prices over the next few days, but the latest Bureau of Labor Statistics job data will also be released in the next two days.
That jobs data could have an impact on the Fed's ultimate decision on how it chooses to handle interest rate increases in the coming months.
But investors should remember that no matter what these tech stocks do in the short term, it doesn't mean that these companies won't still be great long-term investments. Nearly every sector is experiencing tremendous volatility right now, but buying shares of great companies and holding them for five years or more is still a fantastic way to benefit from the market.
