What Happened?
A number of stocks jumped in the afternoon session after a softer-than-expected inflation report fueled hopes for interest rate cuts by the Federal Reserve. The January Consumer Price Index (CPI), a key measure of inflation, rose by 0.2%, which was less than economists had forecast, with the annual rate cooling to 2.4%. This encouraging data increased market expectations for the Fed to begin cutting interest rates as early as June. The news prompted a rally in Treasuries as their yields fell. While the market's reaction was initially described as a "bumpy ride" due to concerns in other sectors, the favorable inflation data ultimately helped calm Wall Street. Lower inflation is a key prerequisite for the central bank to ease its monetary policy, which is generally supportive of stock valuations.
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:
- Apparel Retailer company Lululemon (NASDAQ:LULU) jumped 3.6%. Is now the time to buy Lululemon? Access our full analysis report here, it’s free.
- Discount Grocery Store company Dollar General (NYSE:DG) jumped 3.2%. Is now the time to buy Dollar General? Access our full analysis report here, it’s free.
- Apparel Retailer company Zumiez (NASDAQ:ZUMZ) jumped 3.5%. Is now the time to buy Zumiez? Access our full analysis report here, it’s free.
- Specialty Retail company Petco (NASDAQ:WOOF) jumped 3.3%. Is now the time to buy Petco? Access our full analysis report here, it’s free.
- Apparel Retailer company Urban Outfitters (NASDAQ:URBN) jumped 3%. Is now the time to buy Urban Outfitters? Access our full analysis report here, it’s free.
Zooming In On Lululemon (LULU)
Lululemon’s shares are somewhat volatile and have had 14 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 biggest move we wrote about over the last year was 8 months ago when the stock dropped 19.4% on the news that the company reported underwhelming Q1 2025 results. Its EPS guidance for next quarter missed and its full-year EPS guidance fell short of Wall Street's estimates. Sales and earnings were roughly in line with expectations, with the softness resulting from slowing growth in the Americas, where comparable sales declined, despite international markets continuing to deliver significantly better growth. Overall, this was a weaker quarter.
Lululemon is down 16.7% since the beginning of the year, and at $175.53 per share, it is trading 55.1% below its 52-week high of $390.85 from February 2025. Investors who bought $1,000 worth of Lululemon’s shares 5 years ago would now be looking at an investment worth $516.48.
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