Shares of IT project management software company, Atlassian (NASDAQ:TEAM) fell 5.47% in the morning session after the ADP payrolls report showed that the private sector added 497k jobs in June 2023, more than double the Consensus estimate for 220k. This suggested that wage inflation in the labour market is still strong and triggered concerns that more rate hikes are still needed to tame inflation in the economy. As a reminder, higher rates have a negative impact on equity valuations, as today's stock price is the present value of future cash flows discounted at a discount rate. The higher the prevailing interest rate environment, the higher that discount rate. In addition, higher rates particularly hurt higher-growth stocks such as tech names since investors must discount financials further out in the future back to the present. In June 2023, the Fed paused the planned rate hike "to evaluate additional information and the impact on monetary policy." The ADP report came a day ahead of June's non-farm payrolls report. The non-farm payrolls report is often regarded as a more reliable and less volatile inflation measure, with economists anticipating 240k new jobs in June 2023, down from 339k added in the previous month.
What is the market telling us:
Atlassian's shares are very volatile and over the last year have had 51 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 was two months ago, when the company dropped 5.28% as the markets positioned ahead of key earnings, with companies reporting thus far quite mixed. There was much uncertainty, which the market disliked. In addition to positioning ahead of earnings, a negative for stocks was First Republic Bank, which posted disappointing Q1 earnings, as it saw net deposit withdrawals of more than $70B in the quarter. This was more than expected. It also disclosed plans to slash its workforce by 20%-25%. This raised new concerns that banks are less healthy than feared and will cause widespread economic slowdown as the sector pulls back on lending, which could negatively impact all sectors from tech to consumer to industrials alike.
Atlassian is up 29.9% since the beginning of the year, but at $164.42 per share it is still trading 43.2% below its 52-week high of $289.36 from August 2022. Investors who bought $1,000 worth of Atlassian's shares 5 years ago would now be looking at an investment worth $2,520.
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