What Happened?
A number of stocks jumped in the afternoon session after optimism surged over a potential trade truce between the U.S. and China.
Reports of progress in trade negotiations ahead of a scheduled meeting between the two nations' presidents fueled investor confidence. An agreement would likely ease trade tensions and reduce or remove tariffs that have created economic uncertainty and higher costs for many multinational corporations. Also, optimism improved on expectations that the Federal Reserve will cut interest rates later in the week, especially after recent data showed inflation wasn't heating up as much as expected. Simply put, good news on trade, and the promise of lower borrowing costs created a powerful rally.
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:
- Social Networking company Pinterest (NYSE: PINS) jumped 3.9%. Is now the time to buy Pinterest? Access our full analysis report here, it’s free for active Edge members.
- Consumer Subscription company Chegg (NYSE: CHGG) jumped 5.7%. Is now the time to buy Chegg? Access our full analysis report here, it’s free for active Edge members.
- Consumer Subscription company Roku (NASDAQ: ROKU) jumped 2.9%. Is now the time to buy Roku? Access our full analysis report here, it’s free for active Edge members.
Zooming In On Chegg (CHGG)
Chegg’s shares are extremely volatile and have had 100 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 14 days ago when the stock gained 2.8% on the news that investors' concerns about US-China trade tensions were eased by President Trump's more conciliatory tone over the weekend.
Following a sharp market drop the previous trading day driven by trade conflict escalation, Wall Street's main indexes opened significantly higher. The Dow Jones Industrial Average, S&P 500, and Nasdaq all saw gains of over 1%. The rebound was attributed to comments made by the President on social media, where he stated the "China situation will all be fine" and that the U.S. "wants to help China, not hurt it!!!" This shift in rhetoric prompted a return to risk assets, as traders brushed aside the previous week's fears. The rally ahead of the upcoming earnings season suggests that the "buy-the-dip" mentality remains strong among investors whenever trade jitters subside.
Chegg is down 11.3% since the beginning of the year, and at $1.49 per share, it is trading 43.8% below its 52-week high of $2.65 from December 2024. Investors who bought $1,000 worth of Chegg’s shares 5 years ago would now be looking at an investment worth $19.32.
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