What Happened?

A number of stocks jumped in the afternoon session after comments from a key Federal Reserve official hinted at potential interest rate cuts in the near future. New York Federal Reserve President John Williams stated he sees "room for a further adjustment in the near term" to U.S. monetary policy, signaling to investors that a rate cut could be forthcoming. Speaking at a conference, Williams noted that policy is currently "modestly restrictive" and could be moved closer to a neutral stance. The market reacted swiftly to the news, as lower interest rates have been a primary driver of stock market gains. Following the remarks, the probability of a 25-basis-point rate cut rose significantly, according to CME's FedWatch tool. For financial companies, lower rates can increase the value of their large bond portfolios and stimulate broader economic activity.

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:

• Property & Casualty Insurance company Stewart Information Services (NYSE: STC) jumped 4.2%. Is now the time to buy Stewart Information Services? Access our full analysis report here, it’s free for active Edge members.
• Property & Casualty Insurance company Bowhead Specialty (NYSE: BOW) jumped 4%. Is now the time to buy Bowhead Specialty? Access our full analysis report here, it’s free for active Edge members.

Zooming In On Stewart Information Services (STC)

Stewart Information Services’s shares are not very volatile and have only had 4 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful, although it might not be something that would fundamentally change its perception of the business.

The previous big move we wrote about was 29 days ago when the stock dropped 4.1% on the news that the company reported third-quarter results that beat analyst expectations, as investors appeared to look past the headline numbers and focus on weaker long-term trends. 

The insurance provider posted revenue of $776.5 million, up 16.3% year-on-year and significantly ahead of Wall Street's estimates. Its earnings per share also increased to $1.55 from $1.07 in the same quarter last year. However, despite the strong quarter, the company's longer-term performance likely gave investors pause. Over the last five years, Stewart's revenue growth has been described as mediocre, and its earnings per share have declined annually during that period. Furthermore, the company's book value per share growth, a key metric for insurers, has decelerated in the last two years. This suggests the solid quarterly performance was not enough to outweigh concerns about the underlying health and long-term trajectory of the business, prompting a sell-off.

Stewart Information Services is up 13.2% since the beginning of the year, and at $74.54 per share, it is trading close to its 52-week high of $77.18 from December 2024. Investors who bought $1,000 worth of Stewart Information Services’s shares 5 years ago would now be looking at an investment worth $1,673.

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