Shares of online home goods retailer Wayfair (NYSE: W) fell 5.3% in the morning session after a broader market downturn as the Dow fell for the third straight day amidst surging yields. The decline was influenced by stronger-than-expected December 2023 retail sales, up 0.6% from November 2023 (versus expectations for 0.4% growth), potentially challenging expectations of aggressive Federal Reserve rate cuts in 2024. This marks a shift from the more optimistic market sentiment at the end of 2023, as more market data revealed inflation is cooling. However, recent market pullbacks indicate increased uncertainty in 2024, suggesting caution as stocks might be overbought.
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 Wayfair? Access our full analysis report here, it's free.
What is the market telling us:
Wayfair's shares are very volatile and over the last year have had 64 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 14 days ago, when the company dropped 6% after minutes from the December 2023 Fed meeting revealed that there is uncertainty regarding rate cuts in 2024. The committee added in the meeting remarks "In discussing the policy outlook, participants viewed the policy rate as likely at or near its peak for this tightening cycle, though they noted that the actual policy path will depend on how the economy evolves."
As a reminder, the Fed hinted at a more accommodative interest rate stance last month, signaling three quarter-point rate cuts in 2024 as a result of taming inflation. The minutes showed that the path forward may not be as smooth or predictable as the markets may have thought. As a rule of thumb, the market dislike uncertainty and increases in uncertainty tend to be followed by volatility.
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 are not macro prognosticators. Instead, we think there are opportunities to pick market-beating stocks in any macro backdrop. We remain steadfast in our view that it's best to own high-quality companies with margins of safety over the long term in any market.
Wayfair is down 14.4% since the beginning of the year, and at $50.31 per share it is trading 40.6% below its 52-week high of $84.67 from August 2023. Investors who bought $1,000 worth of Wayfair's shares 5 years ago would now be looking at an investment worth $521.41.
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