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Why Unity (U) Stock Is Down Today By Stock Story

Why Unity (U) Stock Is Down Today By Stock Story

Why Unity (U) Stock Is Down Today

What Happened: Shares of game engine maker Unity (NYSE:U) fell 5.5% during the morning session after the market paused with no obvious reason behind the weakness widespread. Investors probably took their profits after a good end to the year. 2023 has been a great year for the market, with the S&P 500 up almost 25%. The year began with a wave of technological advancements, propelling the technology sector to new heights. Companies pioneering artificial intelligence have enjoyed a renaissance, attracting investor attention and generating substantial gains. However, not all sectors have prospered equally. Traditional industries like consumer durable goods have faced headwinds as consumers have had to incur significant spending, prompting a wave of restructuring and strategic realignment.

More recently, the market has surged over the past couple of months. Inflation has fallen below expectations, prompting the Federal Reserve to shift from a hawkish to a dovish stance: It now plans interest rate cuts in 2024, a tailwind for stocks as it lowers the discount rate applied to future cash flows. As a reminder, the value factor of a stock is the sum of its future cash flows discounted to today. With lower interest rates, investors can charge higher valuations to their stocks. It’s no wonder many investors are optimistic about 2024. At StockStory, we remain cautious, as following the crowd can lead to negative results. In times like these, it is best to own high-quality, profitable companies that can withstand the ups and downs of the market.

The stock market overreacts to news and large price declines can present good opportunities to buy high quality stocks. Is now the time to buy Unity? Find out by reading the original article on StockStory.

What the market tells us: Unity shares are very volatile and have seen 59 moves over 5% over the past year. In this context, today’s development indicates that the market considers this news significant, but not as something that would fundamentally change its perception of the company. The previous big move we talked about happened 16 days ago, when the company gained 6.5% following the news that the Federal Reserve held its benchmark interest rate for the third time in a row , keeping it within the target range of 5.25% to 5.5%.

Additionally, committee members signaled a more dovish stance for 2024, anticipating rate cuts of at least three-quarters of a point, which is roughly in line with market expectations but is more dovish than officials’ previous statements of the Fed. The market is focused on this change.

The Fed Chairman added that “inflation has declined from its peaks, and this without a significant increase in unemployment.”

Consistent 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 states. -United. The Consumer Price Index (CPI) for November showed an increase of 3.1% compared to the previous year (in line with market expectations), down from 3.2% in October, which indicates continued disinflationary pressures.

As a reminder, lower rates are beneficial for stock valuations, particularly for technology companies where the market must discount longer-term cash flows. When doing the math to discount these cash flows back to today, an assumed lower discount rate leads to higher present values.

Unity is up 50.3% year to date, but at $40.48 per share, it’s still trading 16.5% below its 52-week high of $48.50 as of July 2023. Investors who purchased $1,000 worth of Unity stock during the September 2020 IPO should now consider an investment worth $591.81.

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