What Happened?
A number of stocks fell in the afternoon session after the Federal Reserve held its benchmark rate at 3.5%–3.75%, unchanged since the central bank cut by three-quarters of a point in late 2025, and then delivered a dot plot that told investors the easing cycle underpinning the sector's re-rating might be over.
The median year-end rate estimate moved from 3.4% to 3.8%, removing any remaining expectation of a 2026 cut and introducing the possibility of a hike. Software companies are priced on earnings five to ten years into the future, and every basis point increase in the risk-free rate reduces the present value of those cash flows. The 2-year Treasury yield rose 11 basis points to 4.161% in the session. The late-2025 cuts had given software valuations room to expand; the FOMC outcome constricted that room.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks.
Among others, the following stocks were impacted:
- Sales Software company Freshworks (NASDAQ: FRSH) fell 5%. Is now the time to buy Freshworks? Access our full analysis report here, it’s free.
- Advertising Software company AppLovin (NASDAQ: APP) fell 5%. Is now the time to buy AppLovin? Access our full analysis report here, it’s free.
- Healthcare And Life Sciences Software company Veeva Systems (NYSE: VEEV) fell 4.7%. Is now the time to buy Veeva Systems? Access our full analysis report here, it’s free.
Zooming In On AppLovin (APP)
AppLovin’s shares are extremely volatile and have had 55 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 2 days ago when the stock gained 6.2% on the news that yields fell as the Trump administration announced a new peace deal that would lead to the reopening of the Strait of Hormuz.
Software companies are among the most sensitive to long-term interest rates because their valuations depend on earnings projected years ahead. The discount rate applied to those forward cash flows is derived from the risk-free rate, in practice, the 10-year Treasury yield. When that yield drops to 4.41%, its lowest since mid-May, valuations across the sector improve without a single new contract being signed. Beyond the rate mechanics, the macro improvement matters for enterprise software specifically: customers who had deferred purchasing and renewal decisions during the period of geopolitical uncertainty now face a more settled planning environment.
AppLovin is down 21.2% since the beginning of the year, and at $487.42 per share, it is trading 33.6% below its 52-week high of $733.60 from December 2025. Despite the year-to-date decline, investors who bought $1,000 worth of AppLovin’s shares 5 years ago would now be looking at an investment worth $5,525.
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