Cloudflare Stock Rises as Market Optimism Grows

According to Yahoo News, shares of internet security and content delivery network Cloudflare (NYSE:NET) experienced a 5.2% increase in the morning session, as the yield on the 10-year Treasury fell below 4.3% for the first time since September 2023. This drop in yield has led to increased optimism in the market, as stabilizing inflation could result in stable or even lower interest rates. Lower rates are beneficial for stock valuations, particularly for tech companies where the market needs to discount back cash flows further out in the future. Cloudflare's shares have been volatile, with 50 moves greater than 5% over the last year. Today's move indicates that the market considers this news significant but not something that would fundamentally change its perception of the business. Fifteen days ago, the company gained 6% on the news that US consumer prices rose 3.2% in October, slightly better than the expected 3.3%. This suggests that inflation is gradually easing, which is positive news for investors and consumers. The Federal Reserve has been raising interest rates to combat inflation, and the latest data indicates that their efforts may be paying off. However, inflation is still above the Fed's target of 2%. Regardless, the lower-than-expected inflation numbers could give the Fed more room to keep rates lower. As a reminder, lower rates are a tailwind for stock valuations, especially tech companies where the market needs to discount back cash flows further out in the future. Since the beginning of the year, Cloudflare is up 83.3%. Investors who bought $1,000 worth of Cloudflare's shares at the IPO in September 2019 would now be looking at an investment worth $4,381.