What Happened?
Shares of online community and discussion platform Reddit (NYSE:RDDT) jumped 7.8% in the morning session after the major indices soared (Nasdaq +1.9%, S&P 500 +1.6%) after the Bureau of Labor Statistics reported that core CPI (Consumer Price Index - a measure of inflation which strips out volatile food and energy prices) for December 2024 came in better than expected, rising 3.2% year over year, compared to the consensus estimate for a 3.3% increase. This means that PPI and CPI both came in slightly below expectations. It is important because the results take additional rate hikes off the table, which some investors and market participants were beginning to whisper about.
As a reminder, the driver of a stock's value is the sum of its future cash flows discounted back to today. The result of lower interest rates, all else equal, is higher stock valuations. This is especially true for higher-growth stocks, such as those in the technology sector, where the current value depends more on cash flows many years out in the future.
In addition, the earnings season is off to a strong start: Banking giants like JP Morgan and Goldman Sachs posted solid quarterly results, further lifting investor sentiment. The true test will come in the coming month or so as the bulk of large publicly-traded companies report their result.
Separately, social media stocks soared after reports revealed that Chinese officials are considering several options, including selling TikTok's U.S. assets to Elon Musk, the owner of social media platform X (formerly Twitter). The U.S. Supreme Court is set to rule on TikTok's future in the country on January 19, 2025. If the court's decision forces TikTok to leave the U.S. market, rival social media platforms could seize the opportunity to capture its massive user base.
Separately, Deutsche Bank named the stock a Top Pick for 2025. The firm added "As we look forward to 2025, we think successful themes of 2024 will similarly dictate stock action and sentiment this year. In particular, we think the combination of durable topline trends and positively inflecting margins will be the minimum requirements for favorable flow of funds.".
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What The Market Is Telling Us
Reddit’s shares are extremely volatile and have had 51 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 16 days ago when the stock dropped 6.5% on the news that the major indices tumbled (Nasdaq down 1.9%, S&P 500 down 1.7%), marking a volatile ending to an otherwise good year for stocks. This marked the second straight day of broad-based declines with similar downturns (Nasdaq down 1.5%, S&P 500 down 1.1%) recorded on the previous trading day, Friday, December 27, 2024. This suggests that perhaps investors were locking in gains and positioning portfolios for 2025.
Reddit is up 4.3% since the beginning of the year, and at $173.06 per share, it is trading close to its 52-week high of $179.49 from January 2025. Investors who bought $1,000 worth of Reddit’s shares at the IPO in March 2024 would now be looking at an investment worth $3,431.
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