Shares of networking chips designer Marvell Technology (NASDAQ: MRVL) jumped 6.1% in the morning session after investors bought the dip with the technology sector, which lost 4% last week, as yields fell. The yield on the 10-year Treasury yield, meanwhile, lost nearly 4 basis points. Other than potential positioning and a bounce after a losing week, there was nothing more specific. During the week, traders will get greater clarity into the path of rate cuts from the central bank. The December 2023 consumer price index is set for release, followed by the producer price index.
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What is the market telling us:
Marvell Technology’s shares are very volatile and over the last year have had 20 moves greater than 5%. In context of that, today’s move is indicating 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 26 days ago, when the company gained 5.6% after the Federal Reserve maintained its key interest rate for the third consecutive time, holding it within the targeted range of 5.25%-5.5%. Additionally, committee members signaled a more dovish stance for 2024, anticipating at least three quarter-point rate cuts, roughly aligning with market expectations but more accommodative than Fed officials’ previous statements. The market is focusing on this change.
The Fed Chair added that “Inflation has eased from its highs, and this has come without a significant increase in unemployment.” In line with the Fed’s assessment, on December 12, 2023, the Bureau of Labor reported a slight decline in inflation, attributed to lower gasoline prices and a general easing of price pressures in the U.S. The consumer price index (CPI) for November showed a 3.1% increase from the previous year (in line with market expectations), down from 3.2% in October, indicating ongoing disinflationary pressures.
As a reminder, lower rates are good for stock valuations, especially for tech companies where the market needs to discount back cash flows further out in the future. When the math is done to discount these cash flows back to today, a lower assumed discount rate leads to higher present values.
Marvell Technology is up 10.1% since the beginning of the year, and at $64.03 per share it is trading close to its 52-week high of $65.93 from July 2023. Investors who bought $1,000 worth of Marvell Technology’s shares 5 years ago would now be looking at an investment worth $3,838.
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