What happened
Shares of Lumen Technologies (LUMN +0.65%), a cloud connectivity and security solutions company, were falling today, just one day after the company lost its spot on the S&P 500 index and after Federal Reserve Chairman Jerome Powell said there's still a need to continue raising interest rates.
The tech stock is down by 5.6% as of 11:40 a.m. ET.
So what
Yesterday, the S&P Dow Jones Indexes announced that it's replacing Lumen in the S&P 500 with the credit score company Fair Isaac, effective March 20. The move is part of the index's quarterly rebalancing. With Lumen's valuation plummeting as the company's shares have fallen 70% over the past year, the stock will now be part of the S&P SmallCap 600.
NYSE: LUMN
Key Data Points
Investors typically don't like to see a company losing its spot on the S&P 500, but investors, oddly, reacted positively to the news yesterday. They quickly reversed that sentiment today as they processed the news.
Additionally, Lumen investors may be reacting to Federal Reserve Chairman Jerome Powell's comments today in which he said that the central bank may continue to raise interest rates.
"The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated," Powell said today.
He added that if the data continues to show that faster rate hikes are needed, the pace of rate hikes will increase.
That's definitely not what technology investors want to hear right now. Rising interest rates have raised borrowing costs for companies and caused many companies to worry about an economic slowdown if rates continue to climb.
Now what
Lumen investors may not have much to look forward to right now, as the company recently issued full-year guidance saying that adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) are expected to fall about 30% next year to $4.7 billion, at the midpoint of guidance.
With the company's adjusted earnings expected to fall, Lumen losing its spot on the S&P 500, and investors worried about rising interest rates, it's no surprise to see the company's shares falling today.
