Carvana Stock (NYSE:CVNA)
Even though there was no news about the online used vehicle business, Carvana stock was down again today. However, investors panicked after stronger-than-expected employment data persuaded them the Federal Reserve would keep hiking interest rates.
Carvana (NYSE:CVNA), which is experiencing a severe cash flow problem and is very interest rate sensitive, was hit particularly hard. At 11:15 AM ET, a loss of 5.4% had been tallied for the day’s stock price. Concurrently, the Nasdaq lost 1.1% of its value.
What’s the Reason?
Despite the Federal Reserve’s quick increase in interest rates to curb inflation, which should harm employment creation, the Bureau of Labor Statistics reported that job growth remained solid in November.
The unemployment rate remained unchanged at 3.7% even though the economy created 263,000 jobs last month, surpassing projections of 200,000. Wage growth remained robust, as seen by a 0.6% month-over-month rise in hourly wages from October, which is more than the 0.3% gain economists had predicted. This might make it more difficult to rein back.
Stocks rose on Wednesday after Fed Chair Jerome Powell said wage increases and the labor shortage are the most significant obstacles to taming inflation. As a result, the Fed may become more hawkish and continue raising rates in response to the robust job data.
Since Carvana has billions of dollars in debt with a variable interest rate, rising interest rates are particularly worrisome since they will increase the cost of taking on more debt. Higher borrowing rates also make automobile purchases more costly, which may cause consumers to put off new purchases or settle for less expensive models.
Used vehicle values continue to fall. Carvana has already burned through more than $1 billion in free cash flow this year through the third quarter. According to some estimates, the business might exhaust its financial reserves within a year.
As a result of these factors, the already-struggling e-commerce stock will find it even more challenging to recover as interest rates rise.
Featured Image: Megapixl @ Chanevy