What happened

It has been a wacky week for Carvana (CVNA 8.79%) as shares of the online used car dealer pulled back in spite of an analyst upgrade and initial optimism about the United Auto Workers (UAW) strike, which has affected production at some plants owned by General Motors, Ford, and Chrysler-parent Stellantis. The initial thinking was that by reducing production, the strike would lead to higher used car prices since there's less competition from new car supplies.

Instead, investors seemed to focus their attention on the updated Fed forecast calling for another rate hike this year and tempering its expectations for rates to come down next year, essentially saying they would stay higher for longer. That is likely to weigh on Carvana as used car demand is sensitive to interest rates. Most buyers finance their used car purchases, and higher rates mean higher payments, making used cars less affordable.

According to data from S&P Global Market Intelligence, Carvana stock was down 15.7% through the week as of 1:52 p.m. ET on Thursday.

So what

Carvana actually kicked off the week with some good news: an upgrade from Wedbush Securities analyst Seth Basham, who lifted the stock from underperform to neutral, saying that a previously announced debt exchange gave the company "at least two years of breathing room to execute." 

The stock briefly popped on that news but pulled back the following two days, giving up the gains it made the previous week in anticipation of the UAW strike. The reversal seemed to be something of a buy-the-rumor/sell-the-news event even as some analysts estimate that new car prices could rise as much as 10% due to higher labor costs. A strike could also make it harder for Carvana to keep inventory in stock.

On Wednesday afternoon, the stock fell again after the Federal Reserve released its rate decision. The central bank maintained the benchmark fed funds rate at 5.25% to 5.5%, but it forecast another rate hike by the end of the year and said it expected rates to fall slower than its previous forecast. Fed chair Jerome Powell again said the central bank was committed to bringing inflation back down to 2%.

Now what

Carvana stock is up more than 800% this year as the company has recovered from near-bankruptcy, but shares are still volatile, and the business is still far from stability.

The company has cut costs aggressively and reduced its inventory, but it still needs to demonstrate that it can be profitable and deliver consistent growth. With the strike ongoing, investors should expect Carvana to remain volatile, at least until we get a clearer sense of how the company is being affected.