What Happened:

Shares of streaming TV platform Roku (NASDAQ: ROKU) jumped 12.9% in the afternoon session after Guggenheim Securities upgraded the stock's rating from Neutral to Buy and assigned a price target of $75, citing "potential for revenue acceleration". The price target represents a potential 12% upside from where shares traded when the upgrade was announced.

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What is the market telling us:

Roku’s shares are very volatile and over the last year have had 21 moves greater than 5%. But moves this big are very rare even for Roku and that is indicating to us that this news had a significant impact on the market’s perception of the business.

The previous big move we wrote about was 18 days ago, when the company dropped 8.2% as markets declined. Yields also retreated as worries about a US recession grew. The declines followed volatility on Friday, August 2, when the July Non-Farm Payrolls data revealed weaker job growth as the unemployment rate rose. Markets might also be concerned that the Fed is behind in cutting rates, with the Federal Open Market Committee leaving rates steady at 5.25%-5.50% during the July 2024 meeting. For example, respected economist and University of Pennsylvania professor Jeremy Siegel took an aggressive stance, calling on the Fed to make an emergency 75 basis-point cut in the federal funds rate after Friday’s disappointing jobs report.

As a reminder, the driver of a stock's value is the sum of its future cash flows discounted back to today. With lower interest rates, investors can apply higher valuations to their stocks. However, the economy matters as well. Recessions can mean broad-based declines in demand for everything from consumer goods to enterprise software. We at StockStory remain cautious, as following the crowd can lead to adverse outcomes. During times like this, it's best to own high-quality, cash-flowing companies that can weather the ups and downs of the market.

Roku is down 21.8% since the beginning of the year, and at $69.58 per share it is trading 34.9% below its 52-week high of $106.87 from November 2023. Investors who bought $1,000 worth of Roku’s shares 5 years ago would now be looking at an investment worth $505.18.

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