Shares of online marketplace Etsy (NASDAQ:ETSY) fell 6.3% in the morning session as yields soared and major indices fell (Nasdaq down -1.1%, S&P down -1.1%) after the Bureau of Labour Statistics reported that the consumer price index (CPI - the gauge of the price consumers pay for goods and services) for January 2024 showed a 3.1% increase from the previous year (above market expectations for a 2.9% increase), indicating inflation is not yet a solved problem. In addition, the data showed that inflation accelerated 0.3% month on month (vs. expectations for a 0.2% m/m increase). The hotter-than-expected inflation print was driven mainly by shelter prices (+0.6% m/m), which account for nearly a third of the CPI index.
The narrative in the last year has focused on inflation and rates. Markets soared in the second half of 2023 because of data showing that inflation was coming under control. This led to expectations of multiple rate cuts in 2024. Anything going forward that defies this narrative could dent hopes of multiple rate cuts in 2024, which would in turn hurt major indices.
As a reminder, the driver of a stock's value is the sum of its future cash flows discounted back to today. With lower interest rates, investors can apply higher valuations to their stocks. No wonder so many in the investment community are optimistic about 2024. We at StockStory remain cautious, as following the crowd can lead to adverse outcomes. During times like this, it's best to own high-quality, cash-flowing companies that can weather the ups and downs of the market.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Etsy? Access our full analysis report here, it's free.
What is the market telling us:
Etsy's shares are very volatile and over the last year have had 16 moves greater than 5%. In context of that, today's move is indicating 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 4 days ago, when the company gained 5.1% on the news that the Bureau of Labor Statistics provided a revised inflation reading for December 2023, which came in lower than expected (+0.2% m/m versus the prior reading of +0.3%). This further supports the narrative that inflation is cooling, likely giving the Fed more reasons to start cutting rates in 2024. Also, stocks continued to rally as the Nasdaq rose 1.2% and the S&P 500 gained 0.57% to end another strong week of earnings with positive results from most of the big tech stocks that reported so far this season. Notably, Meta reported strong top and bottom-line beats, hinting at a potential rebound for the advertising sector in 2024. Cloudflare also reported solid earnings with guidance for sustained growth momentum in 2024, further boosting the market's optimism toward software stocks, especially those with cloud and AI capabilities. In addition, Overall, it was also a strong week for equities, with the S&P 500 breaking past the 5,000 level for the first time as the market continued to maintain the strong momentum from the last quarter of 2023.
Etsy is down 7.4% since the beginning of the year, and at $75.10 per share it is trading 47.2% below its 52-week high of $142.26 from February 2023. Investors who bought $1,000 worth of Etsy's shares 5 years ago would now be looking at an investment worth $1,365.
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