What Happened?

A number of stocks jumped in the afternoon session after a key inflation report met expectations, bolstering hopes for a Federal Reserve interest rate cut, while a separate report indicated rising optimism among small businesses. The July Consumer Price Index (CPI) report showed annual inflation holding steady at 2.7%, aligning with forecasts and increasing the probability of a Federal Reserve interest rate cut to over 94%. Lower interest rates can stimulate the economy by making it cheaper for businesses to borrow and invest. 

Further boosting confidence, the National Federation of Independent Business (NFIB) Small Business Optimism Index rose to a five-month high. This is a crucial indicator for the Business Services sector, as many of its companies cater to small and medium-sized enterprises. The combined positive data fueled a broad, "risk-on" sentiment, where investors favor economically sensitive sectors, leading to gains across IT services, staffing, and manufacturing.

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:

• Specialized Technology company Napco (NASDAQ: NSSC) jumped 3.4%. Is now the time to buy Napco? Access our full analysis report here, it’s free.
• Specialized Technology company Arlo Technologies (NYSE: ARLO) jumped 5.6%. Is now the time to buy Arlo Technologies? Access our full analysis report here, it’s free.
• Electronic Components & Manufacturing company Benchmark (NYSE: BHE) jumped 4.4%. Is now the time to buy Benchmark? Access our full analysis report here, it’s free.
• Office & Commercial Furniture company Interface (NASDAQ: TILE) jumped 4.7%. Is now the time to buy Interface? Access our full analysis report here, it’s free.
• Electronic Components & Manufacturing company TTM Technologies (NASDAQ: TTMI) jumped 3.9%. Is now the time to buy TTM Technologies? Access our full analysis report here, it’s free.

Zooming In On Arlo Technologies (ARLO)

Arlo Technologies’s shares are quite volatile and have had 18 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 4 days ago when the stock gained 10.3% on the news that the company reported stronger-than-expected second-quarter financial results and provided a mostly optimistic outlook. The smart security company posted second-quarter revenue of $129.4 million, beating Wall Street's expectations, while its adjusted earnings of $0.17 per share also surpassed analyst estimates. The quarter highlighted a significant improvement in profitability, with the company's operating margin reaching 1.5%, a substantial increase from negative 9.3% in the same quarter last year. Looking ahead, Arlo projected third-quarter revenue of $138 million at the midpoint, which was above analyst forecasts, although its earnings per share guidance for the upcoming quarter missed expectations. Investors appeared to focus on the strong top-line performance and improved margins, driving the stock higher.

Arlo Technologies is up 65.4% since the beginning of the year, and at $18.14 per share, has set a new 52-week high. Investors who bought $1,000 worth of Arlo Technologies’s shares 5 years ago would now be looking at an investment worth $3,090.

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