What Happened?
A number of stocks jumped in the afternoon session after the SaaS sector continued to rally as favorable inflation data bolstered hopes for a Federal Reserve interest rate cut. This optimism was largely driven by a benign July Consumer Price Index (CPI) report, which solidified investor expectations for a Federal Reserve interest rate cut. Following the release of the inflation data, which showed a year-over-year increase of 2.7%, the probability of a rate cut in September surged to over 96%. Lower interest rates are typically beneficial for growth-oriented technology stocks, as they can reduce borrowing costs and increase the present value of future earnings. Adding to the positive sentiment was a 90-day delay in the imposition of higher tariffs on Chinese goods, which reduced trade-related uncertainty for the technology sector.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks.
Among others, the following stocks were impacted:
- Data Storage company DigitalOcean (NYSE:DOCN) jumped 5.6%. Is now the time to buy DigitalOcean? Access our full analysis report here, it’s free.
- Healthcare And Life Sciences Software company Doximity (NYSE:DOCS) jumped 4.4%. Is now the time to buy Doximity? Access our full analysis report here, it’s free.
- Sales Software company Freshworks (NASDAQ:FRSH) jumped 4%. Is now the time to buy Freshworks? Access our full analysis report here, it’s free.
- Marketing Software company Braze (NASDAQ:BRZE) jumped 3.9%. Is now the time to buy Braze? Access our full analysis report here, it’s free.
- Data Infrastructure company Teradata (NYSE:TDC) jumped 3.9%. Is now the time to buy Teradata? Access our full analysis report here, it’s free.
Zooming In On DigitalOcean (DOCN)
DigitalOcean’s shares are extremely volatile and have had 34 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 9 days ago when the stock gained 4.3% on the news that the Software as a Service (SaaS) sector rebounded following the sell-off in the previous trading session as a weaker-than-expected U.S. jobs report increased the probability of a Federal Reserve interest rate cut. The July Nonfarm Payrolls (NFP) report showed the U.S. economy added only 73,000 jobs, significantly below the 110,000 forecast. This, combined with downward revisions for May and June, signaled a cooling labor market to investors. In response, market expectations for a September interest rate cut by the Federal Reserve surged from roughly 40% to over 80%. A potential rate cut is generally favorable for growth sectors like technology and SaaS, as lower rates can increase the present value of their future earnings, boosting stock valuations.
DigitalOcean is down 7.3% since the beginning of the year, and at $31.76 per share, it is trading 32% below its 52-week high of $46.69 from February 2025. Investors who bought $1,000 worth of DigitalOcean’s shares at the IPO in March 2021 would now be looking at an investment worth $747.29.
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