What happened

Shares of Veeva Systems (VEEV -2.61%) were down today as the health tech company was carried away by the market selloff.

While there was no company-specific news on Veeva, rising Treasury yields today and the specter of a Fed interest rate hike tomorrow were enough to lower the title.

Shares closed the day down 2.6%, while the S&P500 lost 1.1%.

So what

The Federal Open Market Committee, which sets the federal funds rate, began its two-day meeting today and is expected to announce a 75 basis point rate hike tomorrow, taking the benchmark rate to 3%-3 .25%.

In today’s selloff, the market seems to be indicating that it expects more pessimism from Federal Reserve Chairman Jerome Powell at tomorrow’s press conference as yields on Treasuries rose and growth stocks like Veeva fell. The benchmark 10-year Treasury yield ended up 2.3% to close at 3.57%, its highest level since 2011. It’s a sign that investors are bracing for a lower rate environment. high and sustained interest.

Growth stocks like Veeva, which provides cloud software for the life sciences industry, tend to be more sensitive to rising interest rates and the potential recession they could cause.

Although Veeva is profitable, it trades at a high earnings multiple, and investors value future earnings less when interest rates rise because rising interest rates increase the discount rate of valuations.

Now what

Veeva’s most recent quarterly results were strong, in line with analysts’ expectations, with revenue up 17%. However, the third-quarter guidance came in lower than expected, and the company said it lowered its full-year guidance slightly due to a stronger dollar and macroeconomic headwinds, which are causing forecasts to lengthen. sales cycles.

This is a sign that the stock should continue to be sensitive to macro sentiment, including tomorrow’s rate decision.

The good news for Veeva investors is that healthcare is generally a recession-proof industry and the stock price is more reasonable than most of its software-as-a-service (SaaS) peers. ), trading at a P/E ratio of 40 based on this year’s expected earnings.

At this valuation, a sell-off looks like a good buying opportunity.