Why Carvana Stock Is Plunging Today

What happened

Shares of online car-buying company Carvana (NYSE: CVNA) tumbled this morning just one day after the Federal Reserve hiked the federal funds rate by an additional 75 basis points.

Carvana investors are likely worried that the Fed is pushing the economy closer to a recession and worry that an economic slowdown will hurt the company's business.

As a result, Carvana's share price plunged 10.1% as of 1:14 p.m. ET.

So what

The Fed ended its much-anticipated meeting yesterday with yet another 75-basis-point increase to the federal funds rate. The increase is meant to help curb inflation, which remains at a nearly 40-year high.

Cars in a parking lot.

Image source: Getty Images.

The Fed also said it plans to continue raising rates into 2023, which removed any hope among investors that the Federal Reserve would soon slow down its aggressive approach to fighting inflation.

Carvana investors took the Fed's latest decision pretty hard today and are selling shares of the company, likely as they fear that significant interest rate hikes will tip the U.S. economy into a recession.

Car prices, for both used and new cars, have surged as supply chain shortages have hurt automakers' ability to produce vehicles. But rising interest rates will result in higher borrowing costs for potential Carvana consumers, which could hurt sales.

And if the Fed does indeed tip the U.S. economy into a recession, it could curb consumer spending even further.

Now what

It's been rough out there for all investors, but Carvana investors have experienced especially painful share price drops lately, leaving the company's share price down 91% over the past 12 months.

In its second-quarter shareholder letter, Carvana's management said, "We believe the factors currently impacting used vehicle industry sales are transitory, and at some point, the headwinds we have seen this year will turn into tailwinds."

While that may still prove to be true, Carvana investors apparently aren't waiting around to see how it all plays out.

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Chris Neiger 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.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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