What Happened:
Shares of database software company MongoDB (MDB) fell 5.1% in the morning session after major stock indices retreated, with the Nasdaq index recording the steepest decline compared to the S&P 500 and Dow after mixed earnings results from tech giants, including Alphabet (weak ad revenue), Microsoft (disappointing guidance), and AMD (weak guidance).
These results likely tempered the optimism that had been building since the late 2023 rally as the new earnings season kicked off. Moreover, market participants eagerly await the outcome of the Fed's first policy meeting of the year, scheduled for January 31, 2024, with the consensus expectation for rates to remain unchanged in the range of 5.25% to 5.5%.
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 MongoDB? Access our full analysis report here, it's free.
What is the market telling us:
MongoDB's shares are very volatile and over the last year have had 27 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 2 days ago, when the company gained 5.1% as yields fell after the U.S. Treasury Department lowered the borrowing estimate for the first quarter of 2024. According to a press release, the Treasury Department is expected to borrow $760 billion, $55 billion lower than the $815 billion estimate provided in October 2023, due to "projections of higher net fiscal flows and a higher beginning of quarter cash balance."
Stocks have trended higher since late 2023 as market participants anticipated that the Fed would begin to cut rates in 2024, after recent economic data showed that inflation is cooling off. The first policy decision will be announced on January 31, 2024, with the consensus expectation for rates to remain steady at 5.25%-5.5%.
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.
MongoDB is up 5.5% since the beginning of the year, and at $405.40 per share it is trading close to its 52-week high of $435.23 from November 2023. Investors who bought $1,000 worth of MongoDB's shares 5 years ago would now be looking at an investment worth $4,385.
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