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Why Wolfspeed Stock Is Plummeting Today
Wolfspeed (NYSE: WOLF) stock is seeing big sell-offs in Friday's trading. The silicon carbide specialist's share price was down 12.8% as of noon ET. Meanwhile, the S&P 500 index was down 1.8%, and the Nasdaq Composite index was down 2.1%.
Wolfspeed stock is getting hit hard following the latest jobs report from the Bureau of Labor Statistics (BLS). The report for December showed that 256,000 jobs were added in the month, far exceeding the 155,000 job additions that economists had forecast. The data could make it less likely that the Federal Reserve will cut interest rates.
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Wolfspeed stock is sinking as interest rate hopes fade
Higher-than-expected jobs growth might seem like a bullish indicator, but the trend has to be viewed through the lens of inflation. Interest rates have been kept relatively high in order to tamp down on inflationary pressures, and the hope that rates will continue to brought lower this year has been a key factor in recent bullish momentum for the stock market. Today's jobs report suggests that the U.S. economy may still be running hot and suggests that the Federal Reserve could be hesitant to cut interest rates.
At its last meeting, the Fed indicated that it would likely deliver two rate cuts of 25 basis points each this year. That was already down from the four rate reductions that had previously been forecast. December's jobs numbers don't necessarily mean that the central banking authority won't cut rates this year, but the data is causing investors to become significantly more risk averse when it comes to stocks. That's creating strong bearish valuation pressures for Wolfspeed stock.
What's next for Wolfspeed?
Speculative, high-risk stocks tend to perform better in low interest rate environments because the cost to borrow money is lower and the potential returns tend to be higher. High interest rates are also particularly challenging for companies with high levels of debt or those that are planning to borrow cash in order to finance their operations.
Wolfspeed carries high levels of debt and is trying to restructure its business and set a comeback path toward profitability. In addition to valuation pressures caused by investors becoming more risk-averse in response to macroeconomic pressures, rates staying higher for longer could mean that the business will have less favorable refinancing opportunities and face larger interest expenses.
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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Wolfspeed. The Motley Fool has a disclosure policy.
