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Technology Stocks : AUTOHOME, Inc
ATHM 23.08-2.1%Dec 29 3:59 PM EST
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To: ahhaha who wrote (11683)6/23/1999 6:37:00 PM
From: E. Davies  Read Replies (1) of 29970
 
Fed to raise interest rates 3/4 a point - forecast
I wonder if that was why people freaked yesterday. No freaking today though.
This is one of those times when trading makes no sense. Market behavior is too erratic.

I'd really like your input on why a stock like ATHM (or nets in general) seem to be so driven by interest rate fears. It does not calculate to me.

The reasons I hear from the pundits are:
1) People buy less stocks because there is more "competition" from bonds. Gimme a break! 6% returns is no competition to the kind of people willing to risk stocks like ATHM with potential 300% annual returns.

2) Rising rates mean future earnings have less present value. Ok, at least there is a little truth there. But the present value difference between 5% and 6% is trivial compared to the swings of a single day of a net stock.

3) Rising rates mean slower economy which means lower earnings. Two problems here:
a) rates are rising because the economy is hot and earnings are going up! I guess the assumption is that the FED will overshoot.
b) High growth stocks earnings can be the least sensitive to economic slowdown as the growth overpowers the issues of the economy. ATHM is a perfect example-- I dont believe that subscriber growth will be changed in any measurable way by a slowing of the economy unless it is a very drastic one.

So why does a small increase in rates translate to a meltdown of high PE stocks? Is it purely a psychological excuse to sell overvalued stocks?
Eric
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