The AP on the Street 44th Week of 2022
The AP on the Street 44th Week of 2022
05/11/2022
It was, again, a tough week not only for the technology sector but also for the whole market. As anticipated in the last article, the last week was precisely a correction week, particularly after the FED Chairman Powell’s speech that crushed hopes for a policy pivot. It could be disappointing for traders; however, as also the Chairman explained, it is necessary to tame inflation.
Technology companies get the most prominent hit because they mostly rely on cheap money, and most of them operate by razor-thin margins. So when the interest rates go up (i.e., the money is becoming more expensive), the technology sector will have some problems; this pattern also occurred during the famous dotcom bubble burst in 2001.
By the way, this week, we have noteworthy policy-determiner data; CPI and Core CPI. There were two decisions last week that affected our model, so let’s take a look at what happened the last week:
- Chinese PMI came out worse than expected.
- Eurozone CPI YoY rate jumped to 10.7% in October –50 basis points more than expected.
- Eurozone Core CPI YoY rate jumped to 5.0% in October –20 basis points more than expected.
- Meta stock went down over 5% on Monday ($93.16), the lowest value since 2015.
- Amazon stock tumbled over 5% on Tuesday ($96.79), the lowest value since 2020.
- Alphabet stock plunged over 3% on Tuesday ($86.97), the lowest since 2021.
- The Federal Reserve hiked the interest rate by 75 basis points as expected, making it 4%.
- Chairman Powell: “It is very premature to think about pausing interest rate hikes. Pausing is not something we are thinking about. It is hard to see a soft landing considering the rates are rising,” crushing the hopes for a policy pivot.
- ECB President Lagarde said, “a recession would not be sufficient enough to bring inflation down.”
- Unemployment rate in the United States rose to 3.7%, ten basis points higher than expected.
Overall Market Indexes & Commodities Moves
DOW -1.4%
S&P 500 -3.4%
NASDAQ -5.7%
RUSSELL 2000 -2.6%
Gold 2.6%
Silver 7.8%
Oil 7.5%
Our Two Most Performing Stocks:
Our Two Least Performing Stock, And the Reason Why They Tanked:
PayPal stock tumbled after the reported earnings. Despite beating the market expectations, the management provided really ambiguous guidance for the next quarter. That one, and also the slower user growth (mainly due to the controversial decision to fine its users $2500 for spreading misinformation) was the main reason behind this drop.
After a good return in October, Adobe Stock went down unexpectedly because of an Antitrust probe from the Department of Justice concerning the 20 billion dollar Adobe-Figma deal. Regulatory surprises are impossible to predict, as every investor would agree.
TIL: What is Core CPI (Consumer Price Index)?
Core inflation, which excludes costs from the food and energy sectors, is the change in prices for products and services. These items aren’t included in this inflation metric since their costs fluctuate a lot more.
Next Week’s Important Macroeconomic Data to Be Released Are:
The CPI and the Core CPI data on the 10th of November.
We believe next week will be pretty unpredictable.
The CPI and the Core CPI data will be key indicators for the FED to consider a pivot. As expressed early by FOMC members, they mostly care about the Core CPI number. Currently, analyst consensus predicts the Core CPI number to go down ten basis points and become 6.5%. If it goes with the expected number, this will create hope for a policy pivot since it could be interpreted as peak inflation. However, things could go south quickly if there is a surprising number.
Additionally, we have the CPI number, as mentioned. Although the FED says they mainly care about the Core CPI, the normal CPI number will also be an issue for investors this week. We have mid-term elections this Tuesday, and the voters do care about the CPI number before voting. The voters could see that as not a big deal if it comes as expected. Nonetheless, a worse-than-expected number can change the voters’ behavior. Potential Republican control of both the House and the Senate, as a possible result of the voters’ anger, could hurt the markets by creating political uncertainty, and by preventing potential budget deficits to stimulate the economy.
We will see how the markets will behave on the 10th of October. Until then, stay tuned for next week.
DISCLAIMER: THIS TEXT CONTAINS NO INVESTMENT ADVICE.