What Happened?
A number of stocks fell in the morning session after markets pulled back as a hotter-than-expected wholesale inflation report for July dampened hopes for a Federal Reserve interest rate cut. The U.S. Producer Price Index (PPI), a key measure of wholesale inflation, rose 0.9% month-over-month in July, far exceeding the 0.2% increase that economists had predicted. Annually, prices at the wholesale level jumped 3.3%, also surpassing the 2.5% forecast. This hotter-than-expected data has poured cold water on widespread expectations for an interest rate cut from the Federal Reserve next month. Persistent inflation makes it less likely for the central bank to ease monetary policy. Sectors with high-growth stocks, such as SaaS, are particularly sensitive to interest rate changes, as the prospect of higher rates for longer can diminish the present value of their future earnings, leading to a decline in stock prices.
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:
- Finance and Accounting Software company Bill.com (NYSE: BILL) fell 3.1%. Is now the time to buy Bill.com? Access our full analysis report here, it’s free.
- Video Conferencing company RingCentral (NYSE: RNG) fell 7.9%. Is now the time to buy RingCentral? Access our full analysis report here, it’s free.
- Marketing Software company Sprout Social (NASDAQ: SPT) fell 3.3%. Is now the time to buy Sprout Social? Access our full analysis report here, it’s free.
- Marketing Software company Upland (NASDAQ: UPLD) fell 3.7%. Is now the time to buy Upland? Access our full analysis report here, it’s free.
- Data Infrastructure company Elastic (NYSE: ESTC) fell 4.4%. Is now the time to buy Elastic? Access our full analysis report here, it’s free.
Zooming In On RingCentral (RNG)
RingCentral’s shares are very volatile and have had 20 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 1 day ago when the stock gained 8.4% on the news that the SaaS sector continued to rally as favorable inflation data bolstered hopes for a Federal Reserve interest rate cut. This optimism was largely driven by a benign July Consumer Price Index (CPI) report, which solidified investor expectations for a Federal Reserve interest rate cut. Following the release of the inflation data, which showed a year-over-year increase of 2.7%, the probability of a rate cut in September surged to over 96%. Lower interest rates are typically beneficial for growth-oriented technology stocks, as they can reduce borrowing costs and increase the present value of future earnings. Adding to the positive sentiment was a 90-day delay in the imposition of higher tariffs on Chinese goods, which reduced trade-related uncertainty for the technology sector.
RingCentral is down 12.4% since the beginning of the year, and at $30.51 per share, it is trading 27% below its 52-week high of $41.82 from December 2024. Investors who bought $1,000 worth of RingCentral’s shares 5 years ago would now be looking at an investment worth $107.27.
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