Why Opendoor Technologies Skyrocketed 13.9% Today
Key Points
On Friday, the President of the Federal Reserve Bank of New York indicated more rate cuts are in store.
The comments raised market expectations of a 25-basis-point cut in December.
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Shares of Opendoor Technologies (NASDAQ: OPEN) jumped on Monday, finishing the day up 13.9%. The spike comes as the S&P 500 gained 1.5% and the Nasdaq Composite rose 2.6%.
On Friday, the President of the Federal Reserve Bank of New York, a key figure at the Fed, said that there would likely be "further adjustment in the near term." Investors took this to mean that another interest rate cut is likely in December.
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The market prices in another rate cut
The New York Fed Chief is a permanent voting member of the Federal Open Market Committee (FOMC), the body that decides whether the Federal Reserve adjust interest rates and by how much. Friday's comments have raised market hopes of an impending rate cut.
While this generally boosts stocks -- lower rates make bonds less attractive to investors -- Opendoor stock is heavily influenced by the movement of interest rates. That's because its top and bottom lines are directly impacted by the cost of borrowing.
Image source: Getty Images.
Opendoor stock has upside, but too much risk
While the digital real estate disruptor targets a market ripe for innovation, its business model leaves it dangerously exposed to external headwinds, particularly interest rate fluctuations, and it continues to operate in the red.
For most investors, this stock belongs in the "too risky" category.
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Johnny Rice has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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