Discover more from Banking on the Market
The Weekend Edition # 45
The bears are growling; Global Macro; CPI and Fed Meeting; Stay away from growth stocks
Welcome to another issue of the Weekend Edition!
Thank you to all who’ve read and subscribed to the newsletter this week!
I’m launching my Premium Tier later this month so be sure to check out the “free content” during June as a preview of what’s to come. The payment portal will be open later this month since I’m still trying to figure a few things out with the portal.
Reminder: The Weekend Edition remains free!
Here’s what we cover this week:
Market Recap - The Bears are Growling
Macro - CPI Numbers and the Upcoming Fed Meeting
Earnings of Week - Key Metrics
The Week Ahead - Economic & Earnings Calendar
Closing Thoughts - An eventful week ahead
Let’s dive in ⬇️
Market Recap - 06 Jun to 10 Jun, 2022
Another choppy market this week, ending on a tough note with hot CPI numbers. The market has been unforgiving and it doesn’t help that companies are progressively coming out with bad news of reducing staff, holding back on investments and just lowering guidance. Target came out earlier in the week with downward revisions to their margins and Revlon filed for Chapter 11 Bankruptcy.
The market is reeling and there’s probably more to come. Crypto isn’t so hot this weekend either and if you put aside the “irrational exuberance” for a minute, it just makes sense. With inflation staying high, and earnings power not changing (or even decreasing), people have to dip into their savings or liquidate “unnecessary” investments.
Crypto is not an investment for the majority and I should think that people would rather sell their crypto than their stocks. It certainly doesn’t help either that stock prices have tanked and many are still left holding the bag.
The bears are growling and I think we still need to see how QT and rate hikes play out before we can start calling a market bottom.
Macro Factors are affecting the market across the board. June has been a terrible month for most markets, globally. China is the only one that made it to green. Australia has been particularly hard hit with their monetary policies - some of the actions being unexpected.
Scotiabank posted this excellent chart earlier today showing the different stances around the globe with rate hikes.
In other news around the market, the FANG stocks don’t seem to be able to catch their breath.
It was quite the eventful week though:
Amazon had their stock split
Facebook officially changed to META - cutting down investments on AR glasses and smart watches
Apple had their software launch day - announcing a Buy-Now-Pay-Later program for their products and the new M2 chip
Tesla filed for a 3-1 stock split on Friday
Macro - CPI and the Upcoming Fed Meeting
Yes, the CPI numbers came in “hot”. So no, inflation hasn’t peaked. Like everyone else, I did expect the numbers to be rolling over ever so slightly. But, looks like it took us all by surprise.
While Energy tops the list for the CPI numbers, Foodflation continues, and looks terrible. If you remember the chart I posted last week, “Food at Home” i.e., groceries have now increased to 11.9% YoY vs. 10.8% YoY last month.
According to the Fed, the CPI numbers are not what figure into their decision making. But, the market started pricing in higher rate hikes for the June meeting right away. This has now normalized somewhat. The market is pricing in a 100% probability of a rate hike on Wednesday, while the quantum is still 50bps (0.50%) as of now.
While I understand the Fed’s argument of looking at the PCE numbers, I find it hard to believe they are not taking note of every metric out there. In either case, the market sure is, and this just reinforces the idea that the Fed will do everything in its power to curb inflation.
Earnings of the Week
Earnings Scorecard from Factset:
The defensive names are still in the game - Campbell Soup & JM Smucker but, tech continues to get destroyed, like Docusign. I actually liked Docusign as a company. I still do but this is not the time for them. I think their concept of trying to digitize the workplace is great and they had good products to do it.
But as with every other digital company coming out of the pandemic, the market has lost faith in the stock and the company. I can understand that the growth trajectory doesn’t remain the same with the lack of liquidity, and that the pressing need to digitize is gone but, that doesn’t necessarily mean the company is junk. But what it does mean, is that caution is warranted when buying stocks like these.
We keep thinking how much lower can they go? Well, silly response, but stocks can go to zero.
The Week Ahead
Economic Calendar (time in ET)
We have the Fed Vice Chair Brainard speaking at 2pm ET on Monday. But, most importantly we have the Fed meeting next week and not to mention OpEx for the month. We should have a fun week.
Earnings Calendar - Quiet Week
Closing Thoughts - Tough week ahead
This past week wasn’t exactly the best week in the markets. There were some signs of a bear market rally but, that faded quite quickly. We’re grinding lower and people need to stop looking for a market bottom. I doubt we find one as long as inflation remains high and is a concern for the Fed.
We have an eventful week ahead of us with the Fed meeting, OpEx, QT possibly showing signs of impact and Vix Expiration. Let’s stay sharp.
Here’s wishing you a happy weekend, and safe investing.
Ayesha Tariq, CFA
There’s always a story behind the numbers
Sign up for a free trial to Barchart Premier with my affiliate link - Barchart Affiliate Link
None of the above is Investment Advice. I may or may not have positions in any of the stocks mentioned. I have no positions in any tickers mentioned as of the date of publication of this newsletter. I have no affiliation with any of the companies other than that mentioned here.