Small interest rate changes can cause large stock volatility

Craig Moffett, longtime Wall Street analyst told CNBC’s Jim Cramer on Monday that investors can’t forget the impact of Federal Reserve policy on the stock market.

Moffett’s review of “Mad Money” comes on the eve of the US central bank’s policy-making department kicking off its final two-day meeting of the year. Wall Street awaits any potential changes to the Fed’s rate hike schedule during hot inflation months.

“When you have 95 percent of a stock’s value held at its end because interest rates are so low, don’t be surprised if small changes in interest rates create big changes,” said Moffett, founding partner. big swings in stock prices,” said Moffett, founding partner. of the research firm MoffettNathanson, which specializes in the telecommunications industry.

The final value is the estimated value of a company over a period over which future earnings can be reasonably forecast, the estimated time being three to five years. Terminal value is an important part of the discounted cash flow model, which is an important valuation tool used by analysts like Moffett when they value companies and their stocks.

The Fed’s approach to the benchmark interest rate – currently near zero as of March 2020 – “clearly affects how you think about the final value,” Moffett said.

“At the end of the day, the cost of money shapes what you’ll pay for long-term growth,” he said.

The Fed meeting ends Wednesday, and Chairman Jerome Powell is scheduled to hold a press conference at 2:30 p.m. ET. The central bank is is expected to accelerate the pace at which point it ends its bond-buying program. Wall Street also expects central bank consensus projections for rate hikes to be carried forward to next year from 2023.

Moffett’s Monday appearance on “Mad Money” follows the news earlier in the day His research shop has been acquired by the parent company of Silicon Valley Bank, SVB Financial Group. Founded in 2013, MoffettNathanson focuses on technology, media and telecommunications research.

Moffett describes the deal as a “huge leap forward” for MoffettNathanson, better positioning the company and its analysts to gain more insight into the startups that are disrupting. major players in the industry they cover.

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Emma James

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