What Happened:

Shares of streaming TV platform Roku (NASDAQ: ROKU) jumped 5.4% in the afternoon session as stocks rallied after the Fed slashed its policy rate by 50bps (0.5%) to 4.75%-5.00%. This marks the first rate cut since 2021, when the Federal Open Market Committee, led by Fed Chair Jerome Powell, began raising rates to tackle inflation. On delivering the outsized cut, the Fed acknowledged the improved conviction that inflation is moving sustainably toward its 2% target. To round out its focus on fulfilling its mandate, the committee highlighted the commitment to supporting maximum employment amid slowing job gains.

Markets reacted with optimism following the announcement. The Russell 2000 index rose by 2%, suggesting the rebound is broader than just large tech and more pronounced in small-cap stocks. The major indices (Dow Jones, S&P 500) also touched new records, though there's been a slight pullback. This could be some combination of the markets having already priced in the rate cut and also some emerging concerns that the large cut is a sign that the Fed thinks the economy may be teetering. Overall, the announcement has provided a breath of fresh air and a clearer view of the Fed's monetary policy stance, which the market has been waiting for with bated breath. After the initial pop the shares cooled down to $77.33, up 3.5% from previous close.

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What is the market telling us:

Roku’s shares are very volatile and over the last year have had 23 moves greater than 5%. In context of that, today’s move is indicating 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 6 days ago, when the company gained 6% on the news that Wolfe Research analyst upgraded the stock from Peer Perform (Hold) to Outperform (Buy) and assigned a $93 price target. The price target implied a potential 25% upside from where shares traded before the upgrade was announced.

The analyst added that "Amid industry and Roku-specific fears about connected TV, or CTV, ad sales, management's rising focus on monetization supports acceleration and "should bury the profitability debate."

Roku is down 13.1% since the beginning of the year, and at $77.33 per share it is trading 27.6% below its 52-week high of $106.87 from November 2023. Investors who bought $1,000 worth of Roku’s shares 5 years ago would now be looking at an investment worth $594.70.

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