What happened
Growth stocks have enjoyed strong bullish momentum over the last week, and The Trade Desk (TTD 2.52%), Duolingo (DUOL 0.50%), and Fastly (FSLY 21.69%) are participating in the rally. The companies' respective share prices were up 14.8%, 13.8%, and 14.8% from last week's market close prior to the market opening this Friday, according to data from S&P Global Market Intelligence.
The stocks are primarily gaining ground thanks to lower-than-expected inflation data. If inflation continues to cool off, the Federal Reserve may be able to take a light touch on interest rate hikes, which would be a welcome development for companies with growth-dependent valuations.
So what
In business-specific terms, there hasn't been much news for The Trade Desk, Duolingo, and Fastly over the last week. There hasn't been much in the way of market-shaping coverage from analysts either.
KeyBanc Capital Markets analyst Justin Patterson did publish a note on Duolingo on July 10 that outlined strong user growth trends and expectations that the company's premium Duolingo Max service will eventually translate to some strong revenue growth. However, the analyst maintained a "sector weight" rating on the stock.
NASDAQ: DUOL
Key Data Points
While the report from Patterson corresponded with some pricing gains for Duolingo stock, it appears that macroeconomic factors have been the driving force in the education-tech company's gains this week. That holds for The Trade Desk and Fastly as well.
On July 12, the Department of Labor released new monthly data for the Consumer Price Index (CPI), which tracks changes in the amount that consumers pay for a collected assortment of goods. The CPI rose 0.2% on a sequential monthly basis and 3% year over year, while economists had broadly expected a 0.3% monthly increase and annual growth of 3.1%.
The CPI data suggests that progress is being made on curbing inflation, and it helped power strong gains on Wall Street. Tech stocks in particular enjoyed a healthy rally, and the growth-heavy Nasdaq Composite index's level climbed 1.2% in the daily session.
NASDAQ: TTD
Key Data Points
The next day, the Labor Department published Producer Price Index (PPI) data for June that came in below expectations. The PPI tracks fluctuations in the amounts that businesses are paid for their goods and services.
Final demand increased 0.1% year over year in the month, with final demand services increasing 0.2% and the index for final demand goods remaining flat. The PPI final demand increase came in at its lowest level in nearly three years, presenting another welcome sign that inflation is continuing to cool.
After serving up 10 consecutive rate hikes, the Federal Reserve took a pause on increases with its June meeting. While the central bank is expected to raise rates at its next meeting, investors are hoping that moderating inflation will help avert increases beyond that point.
Now what
The Trade Desk provides programmatic digital advertising services, Duolingo operates an online platform for learning languages, and Fastly specializes in edge-computing services that speed up the rate at which information can be sent and accessed around the internet. While each of these companies operate in different corners of the software industry, they do have some things in common.
To varying degrees, The Trade Desk, Duolingo, and Fastly each have growth-dependent valuations -- and their respective stock movements have been heavily shaped by macroeconomic developments over the last year.
TTD PS Ratio (Forward) data by YCharts
The Federal Reserve will meet on July 25 and July 26 to make a determination on whether to keep interest rates at current levels or serve up another hike. Comments from the meeting could have a significant impact on short-term trading for growth stocks.
While investors and analysts still broadly expect the Fed will raise rates again at its next meeting, the latest inflation data has raised hopes that the central banking authority will have the flexibility to take a more dovish approach after that. The Fed has been raising interest rates in order to tamp down on historically high levels of inflation, with Chairman Jerome Powell stating that the goal is to get inflation levels back around 2%.
Beyond inflation tracking and interest rate updates, The Trade Desk, Duolingo, and Fastly are on track to release major business-specific updates in the near future. The market is at the start of another earnings season, and investors will soon get a closer look at how these three companies have been performing.
Fastly and Duolingo each have confirmed dates for upcoming quarterly reports. Fastly will publish its second-quarter results after the market closes on Aug. 2, and Duolingo is set to release its Q2 earnings report after the market closes on Aug. 8. The Trade Desk hasn't announced a firm date for its own Q2 report, but it's likely that the company will publish earnings next month as well.
