What happened

Shares of the 3D content creation platform Unit Software (NYSE:U) climbed 12.9% today at market close. It was a fantastic day of market outperformance, given that the S&P500 The index rose just under 0.2% and the Nasdaq Composite rose 1.8%. https://finance.yahoo.com/quote/U/?p=U

Even after today’s jump, however, Unity stock is down 70% so far in 2022 and 82% from its all-time highs reached in late 2021.

So what

A myriad of factors contributed to Unity’s rally today. Most evident was the fall in the yield of 10-year US Treasuries, which ended the day at an annual yield of 2.8%, down from around 3.5% in mid-June. Lower interest rates increase the current value of risky assets like stocks, especially those of high-growth companies like Unity that are not yet generating a profit. Conversely, higher interest rates drive down the current value of stocks, which is one of the reasons Unity has been stuck in a tailspin this year.

Data by YCharts.

Now what

But why this sudden drop in interest rates? After all, the US Federal Reserve is expected to raise its short-term interest rate again at the end of July.

Investors have now turned their attention to the growing risk of a recession, which is why interest rates are falling (at least for now). Other sectors of the market were also under pressure today, such as the cyclical sectors of oil and energy. It looks like runaway inflation is starting to hamper consumer activity, paving the way for an eventual destruction of energy demand and possibly lower prices (perhaps lower inflation too!).

Of course, the recession is not good news, so Unity’s rise could be disconcerting. But keep in mind that it’s still a fast-growing company that provides next-gen business services (like creating digital twins to help with organizational planning). Additionally, video games are a fairly resilient consumer spending category. In fact, some people increase their consumption of home games during difficult times.

Either way, with the stock having already dipped this year, all of that negativity is likely factoring into Unity stocks at this point. So any bit of good news (like moderating interest rates) causes a big rally for this high-growth cloud software provider.

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Nicholas Rossolillo holds positions at Unity Software Inc. The Motley Fool holds positions and endorses Unity Software Inc. The Motley Fool has a Disclosure Policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.