What happened
Shares of the digital document signing company DocuSign (DOCU -0.28%) were jumping this week on several bits of news. Some investors hoped that trouble in the banking industry would cause the Federal Reserve to slow its pace of interest rate hikes. Additionally, some positive comments about the stock from a wealth management firm may have given DocuSign's shares a boost.
The tech stock was up by 18.1% this week, according to data provided by S&P Global Market Intelligence.
So what
Some technology stocks received a boost this week as investors quickly moved back into the sector following some turmoil in the banking industry. Over the past week the failure of Silicon Valley Bank, the closing of Signature Bank, and the recent $30 billion injection of deposits for First Republic Bank has led investors to hope that banking troubles will force the Federal Reserve to slow down its interest rate increases.
Higher interest rates have weighed on tech stocks over the past year as they make it more expensive for growth companies to borrow money. Investors have also worried that the rising rates could slow the economy down too much and put additional pressure on tech companies, which have already laid off more than 100,000 workers year to date.
But if the Fed thinks that raising interest rates right now would hurt banks further, it may back off of its rate increases. Goldman Sachs even suggested this week that the Federal Reserve may pause its rate increases at its next meeting, which is scheduled for next week.
Any pullback on monetary tightening is generally viewed as a good thing for high-growth tech stocks, which is part of the reason why DocuSign shares are climbing higher this week. They may also be making some gains after Josh Brown of Ritholtz Wealth Management said this week that he thinks "the stock is fine" and that he doesn't know why it fell so hard after the company reported its recent quarterly earnings.
Now what
While DocuSign's shares are riding high this week investors may not want to get too attached to these recent gains. The Federal Reserve will meet next week to decide whether to raise interest rates again and by how much. If it decides that high inflation is worse than any banking industry problems, then another rate hike could send tech stocks sliding again.
All of this means that investors may want to temper some of their enthusiasm for DocuSign right now, instead of getting caught up in the hype cycle.
