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What happened
Snowflake (NYSE: SNOW) stock enjoyed another round of big gains in Friday’s trading. The data-software specialist’s share price surged roughly 15% in Thursday’s daily trading session on better-than-anticipated inflation data, and the company’s valuation continued to climb 9.7% today as investors warmed up again to growth stocks.
While economists had anticipated the U.S. Labor Department’s consumer price index (CPI) inflation to come in at 0.6% compared to September and 7.9% compared to October 2021, actual inflation levels came in at 0.4% sequentially and 7.7% year over year. The data was enough to kick off a dramatic surge in bullish sentiment for the broader market.
So what
Spurred by the better-than-anticipated CPI data, the growth-heavy Nasdaq Composite index surged 7.35% on Thursday, one of its best-ever single-day jumps. It then gained an additional 1.6% in Friday’s trading as bullish momentum continued to shape the broader market. As gains for the growth-heavy Nasdaq Composite show, investors are pouring back into stocks with more forward-looking valuation, on signs that macroeconomic pressures may be in the early stages of easing.
If inflation moderates, the Federal Reserve may cut back on interest-rate hikes, so investors are buying Snowflake and other growth stocks in hopes that this is the case. The Fed’s rapid moves to raise interest rates in order to counteract high levels of inflation have led to huge sell-offs for stocks this year, and it’s possible that a shift to more dovish policy on rates could lead to a sustained rebound for the broader market.
Now what
With Snowflake making big gains over the last two days of trading, you may be wondering if the stock is still a worthwhile investment at current prices. At current prices, I think the stock still has the potential to deliver strong returns for long-term investors, but it’s worth keeping the potential for more near-term volatility in mind.
Snowflake stock trades at roughly 25 times this year’s expected sales, a forward-looking valuation that leaves the door open for continued downside risk if the market’s appetite for growth-dependent tech stocks once again begins to wane. While the October CPI data is encouraging, there are still macroeconomic and geopolitical risk factors that could shake investor confidence in the near term. It’s possible that inflation has not actually peaked, that the Fed will continue to raise interest rates, and that other macroeconomic risk factors will further dampen market enthusiasm for growth-dependent tech stocks.
Snowflake is a great company that looks poised to benefit from multiple data and technology trends. But the market has been nothing if not volatile this year, and bullish investors may want to take a dollar-cost-averaging approach to the stock rather than buying all at once.
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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Snowflake. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Image and article originally from www.nasdaq.com. Read the original article here.