What Happened?
A number of stocks fell in the afternoon session after Federal Reserve Chair Jerome Powell delivered cautious remarks on the economy, spooking investors and pulling indexes back from record highs.
Speaking for the first time since the central bank's recent interest rate cut, Powell described the current economic landscape as a "challenging situation." He highlighted the difficult task of balancing a weakening labor market against persistent inflation risks. Powell also commented that equity prices appeared "fairly highly valued," adding to investor concerns and prompting profit-taking. The cautious tone from the Fed chair drove declines across major indexes, including the S&P 500 and the tech-heavy Nasdaq, as the market reassessed the path forward for monetary policy.
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:
- Office & Commercial Furniture company MillerKnoll (NASDAQ: MLKN) fell 3.3%. Is now the time to buy MillerKnoll? Access our full analysis report here, it’s free.
- IT Services & Consulting company DXC (NYSE: DXC) fell 3.4%. Is now the time to buy DXC? Access our full analysis report here, it’s free.
- Professional Staffing & HR Solutions company First Advantage (NASDAQ: FA) fell 4.2%. Is now the time to buy First Advantage? Access our full analysis report here, it’s free.
- Advertising & Marketing Services company QuinStreet (NASDAQ: QNST) fell 3.5%. Is now the time to buy QuinStreet? Access our full analysis report here, it’s free.
- Digital Media & Content Platforms company WEBTOON (NASDAQ: WBTN) fell 3.2%. Is now the time to buy WEBTOON? Access our full analysis report here, it’s free.
Zooming In On First Advantage (FA)
First Advantage’s shares are somewhat volatile and have had 14 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 12 days ago when the stock gained 3.5% on the news that the Consumer Price Index (CPI) report bolstered expectations for a Federal Reserve interest rate cut despite showing persistent inflation.
The August CPI data, a key measure of inflation, showed prices rose 2.9% annually, slightly more than economists expected. While inflation remains above the Federal Reserve's 2% target, investors were focusing on other signs of a cooling economy, particularly a weakening labor market.
As a result, the market widely anticipated that the Fed would cut interest rates at its September meeting to support the economy. Investors priced in multiple rate cuts by year-end, which boosted market sentiment and sent Treasury yields lower.
First Advantage is down 20.2% since the beginning of the year, and at $14.70 per share, it is trading 27.6% below its 52-week high of $20.30 from October 2024. Investors who bought $1,000 worth of First Advantage’s shares at the IPO in June 2021 would now be looking at an investment worth $746.19.
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