What Happened?
A number of stocks jumped in the morning session after a tame inflation report boosted investor hopes for an interest rate cut from the Federal Reserve. The latest Consumer Price Index data showed the annual inflation rate held steady at 2.7%, reassuring investors who had feared that tariffs could lead to a spike in consumer prices. This milder-than-expected reading gives the Federal Reserve more flexibility to consider lowering interest rates, possibly as soon as next month.
A potential rate cut could reduce borrowing costs for consumers and businesses, stimulating more spending and providing a significant boost for the retail industry. Adding to the optimism, reports of a 90-day tariff truce with China further eased concerns about future price pressures.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks.
Among others, the following stocks were impacted:
- Boat & Marine Retailer company MarineMax (NYSE: HZO) jumped 4.9%. Is now the time to buy MarineMax? Access our full analysis report here, it’s free.
- Specialty Retail company Petco (NASDAQ: WOOF) jumped 6.9%. Is now the time to buy Petco? Access our full analysis report here, it’s free.
- Beauty and Cosmetics Retailer company Sally Beauty (NYSE: SBH) jumped 3.6%. Is now the time to buy Sally Beauty? Access our full analysis report here, it’s free.
Zooming In On Petco (WOOF)
Petco’s shares are extremely volatile and have had 67 moves greater than 5% over the last year. In that context, today’s move indicates 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 8 days ago when the stock gained 3.1% on the news that markets rebounded following a sharp sell-off in the previous trading session as a weaker-than-expected July jobs report fueled investor hopes for a potential interest rate cut. The U.S. economy added only 73,000 jobs in July, falling well short of the 110,000 expected by economists. This disappointing data has led to a dramatic shift in market sentiment regarding the Federal Reserve's next move. According to the CME FedWatch Tool, the probability of a September interest rate cut has surged from around 40% to over 80%. Lower interest rates generally stimulate the economy by making borrowing cheaper for consumers. This can lead to increased spending on discretionary items, such as apparel and home goods, which directly benefits consumer retail companies. The prospect of more accommodative monetary policy is therefore boosting investor confidence in the sector's outlook.
Petco is down 16.2% since the beginning of the year, and at $3.44 per share, it is trading 40.5% below its 52-week high of $5.77 from October 2024. Investors who bought $1,000 worth of Petco’s shares at the IPO in January 2021 would now be looking at an investment worth $116.84.
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