Rivian (NASDAQ:RIVN) stock appears to be collapsing today due to two factors: Worries about a rumored sale of a number of the company’s shares by Ford (NYSE:F) and another, unnamed entity represent one of these two negative catalysts. And of course, much of the Street now fears that the Federal Reserve, in a single-minded effort to stamp out inflation, will cause the U.S. to enter a recession.
Both of these worries, I believe, are quite overdone.
Investors Sell Stock for Many Reasons
There’s a well-known expression on Wall Street which states that investors sell stocks for many reasons, but they only buy shares because they believe that the value of the stock is going to increase.
Indeed, investors can unload stock because they have identified a more attractive asset, because they need the funds to bolster their own company or for a personal reason, such as a divorce.
In Ford’s case, the automaker may need to sell RIVN stock in order to fund its very expensive transition to electric vehicles or to make a pricey acquisition. The other, unnamed investor could have identified a battered stock that it believes is more attractive than Rivian’s shares. Or the unknown entity, like Ford, may need the funds to bankroll investments in a new business.
There are times when investors should be worried about massive share sales. For example, if a company’s CEO and/or its founder sells a tremendous amount of shares, that’s a very negative development because it suggests that someone who believed in a company tremendously no longer has as much confidence in it.
Similarly, if a company’s major customer or partner sells a massive amount of its shares, investors should worry that the company’s outlook and/or the quality of its products has greatly deteriorated. But Ford dissolved its partnership with Rivian in November before the companies had developed an EVs together, while there’s no evidence that the unnamed investor looking to unload RIVN stock is either a major partner or a customer of Rivian.
Worries About the Fed Are Overdone
Two members of the Fed’s governing Open Market Committee who have spoken recently do not at all sound like they’re prepared to stamp out inflation at all costs. Last week, Fed Chairman Jay Powell seemingly ruled out any 0.75 percentage-point hikes in the central bank’s main benchmark lending rate. Echoing Powell’s position today was Atlanta Federal Reserve Bank Chairman Raphael Bostic.
Moreover, both Powell and Bostic indicated that, at some point in the not-too-distant future, the Fed could very well move from hiking rates 0.50 percentage points at each meeting to much more conventional 0.25 percentage-point increases.
Specifically, Bostic said, “We are going to move a couple times, maybe two, maybe three times, see how the economy responds, see if inflation continues to move closer to our 2% target, then we can take a pause and see how things are going.”
If Powell and Bostic were determined, no matter what, to rapidly force inflation down to the Fed’s legal target of 2%, they could simply say that they want to do whatever it takes over, say, the next six months, to reach that level. But both men are clearly leaving standard 0.25% percentage point hikes on the table while ruling out increases larger than 0.75 percentage points.
And Bostic, with his comment about determining if inflation is going towards 2%, is basically saying that the central bank is not overly concerned about meeting its legal inflation target anytime soon.
The decline of RIVN stock is based on worries that are greatly overdone. As a result, I believe that the shares’ decline will prove to have been a great buying opportunity for long-term investors.