What Happened?
A number of stocks jumped in the afternoon session after comments from a key Federal Reserve official boosted investor optimism for a potential interest rate cut. New York Federal Reserve President John Williams, a voting member of the rate-setting committee, suggested he sees room for "further policy easing," which sent a strong signal to the markets. Following his remarks, the probability of a December rate cut, as measured by the CME FedWatch Tool, surged from 39% to 71%. Lower interest rates can stimulate the economy by making borrowing cheaper for both consumers and businesses, which often translates to increased consumer spending. This prospect is outweighing recent reports of lower consumer confidence, as investors bet that a more accommodative Fed policy will support retailers through the holiday season.
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:
- Specialty Retail company Petco (NASDAQ:WOOF) jumped 4.4%. Is now the time to buy Petco? Access our full analysis report here, it’s free for active Edge members.
- Discount Retailer company Five Below (NASDAQ:FIVE) jumped 4.3%. Is now the time to buy Five Below? Access our full analysis report here, it’s free for active Edge members.
- Electronics & Gaming Retailer company Best Buy (NYSE:BBY) jumped 4.4%. Is now the time to buy Best Buy? Access our full analysis report here, it’s free for active Edge members.
- Sports & Outdoor Equipment Retailer company Dick's (NYSE:DKS) jumped 4.3%. Is now the time to buy Dick's? Access our full analysis report here, it’s free for active Edge members.
- Beauty and Cosmetics Retailer company Ulta (NASDAQ:ULTA) jumped 4.4%. Is now the time to buy Ulta? Access our full analysis report here, it’s free for active Edge members.
Zooming In On Ulta (ULTA)
Ulta’s shares are not very volatile and have only had 9 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful, although it might not be 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 gained 12.6% on the news that the company reported impressive fourth-quarter 2024 results, which beat analysts' same-store sales, revenue, gross margin, and EPS estimates. The company recorded a modest increase in comparable sales, which was driven by a higher average ticket size despite a slight decline in transactions. Looking ahead, its full-year revenue and EPS guidance missed. However, given the recent concerns about the health of the American consumer, with companies such as DG remarking that families are just getting by these days, the results were likely a relief. Overall, this a solid quarter featuring some areas of strength in the face of a seemingly worsening macro backdrop for consumer spending.
Ulta is up 20.1% since the beginning of the year, and at $515.54 per share, it is trading close to its 52-week high of $566.91 from October 2025. Investors who bought $1,000 worth of Ulta’s shares 5 years ago would now be looking at an investment worth $1,823.
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