Shares of advertising software maker The Trade Desk (NASDAQ:TTD) fell 5.1% in the morning session as stocks pulled back, and yields rose (leading to a bond selloff) after the S&P 500 reached a new high for the year in the final week of November 2023. Throughout 2023, major indices demonstrated robust performances, with the Nasdaq surging over 45% and the S&P 500 gaining 20% with a month remaining in the year. Investors may be asking if the market is getting ahead of itself. The Federal Reserve has been raising interest rates to combat inflation, and the latest data showed that their efforts may be paying off. As a result, there seems to be increased optimism in the market that because inflation is stabilizing, interest rates could stabilize or even move lower. The bullish sentiment could be shifting in the other direction, even if just for a short period. As a reminder, lower rates are good for stock valuations, especially for tech companies where the market needs to discount back cash flows further out in the future. When the math is done to discount these cash flows back to today, a lower assumed discount rate leads to higher present values.
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 The Trade Desk? Access our full analysis report here, it's free.
What is the market telling us:
The Trade Desk's shares are very volatile and over the last year have had 21 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 25 days ago, when the stock dropped 29.1% on the news that the company reported third quarter results and provided revenue and adjusted EBITDA guidance below expectations. Management added that "we have seen more macroeconomic uncertainty at the start of Q4." The markets have been skittish about the macro, and The Trade Desk is a company heavily tied to macro-sensitive advertising, so the weak outlook may cause alarm. On the other hand, its revenue narrowly topped analysts' expectations this quarter. While it was objectively a mixed quarter for The Trade Desk since results were fine, the guidance was weak, and the market seems spooked about the future.
The Trade Desk is up 55.9% since the beginning of the year, but at $68.62 per share it is still trading 24.8% below its 52-week high of $91.26 from July 2023. Investors who bought $1,000 worth of The Trade Desk's shares 5 years ago would now be looking at an investment worth $4,898.
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