Capital 19 Catch-Up

Inflation Fears Worry Wall Street But Traders Buy The Dip To Reverse Market Slide

All of the major indices underwent minor corrections in the first half of last week before a late two-day surge regained some of the lost ground. CPI numbers stoked fears of inflation which sent share prices tumbling with the S&P500 and the Nasdaq down 4% and 5% respectively by the end of the Wednesday session. Technology stocks were again battered early but they managed to join up with the economic recovery sector to stage a late market fightback.

Wall Street was down in the two sessions leading into the CPI number on Wednesday as investors worried about the lack of new jobs, and indeed people to fill these jobs. The number of workers needed jumped to 597,000 last month, yet hires on Friday came in at an unexpectedly low 215,000. It suggests that businesses will need to increase wages to attract new workers, thereby increasing expenses and impacting on profits.

The CPI numbers on Wednesday didn’t help matters as they showed inflation accelerating at its fastest pace since 2008. CPI was up 4.2% from a year ago, with Wall Street expecting only a 3.6% increase. While core CPI, which excludes food and energy costs, was up 3% when the market was looking for 2.3%. The heady mix of an economy reopening from shutdowns, coupled with fiscal stimulus and low interest rates has done exactly as expected. The Federal Reserve for its part thinks this latest bout of inflation is only temporary. They plan on keeping interest rates low until they see full employment. This bodes well for the stock market in the coming months.

The market swoon didn’t last long at all with a solid comeback session on Thursday and an even bigger one on Friday. Traders ignored a rise in the producer price index which jumped 6.2% in what was its highest reading since the tracking began in 2010. Instead, punters piled back into the big tech names deciding that a dip in prices was a perfect buying opportunity to set them up going forward. Big guns such as Apple (AAPL), Facebook (FB), Amazon (AMZN), and Microsoft (MSFT) all fell 5% or more earlier in the week, with bargain hunters pushing the prices back up on Thursday and Friday.

Recovery stocks also helped with the late week boost as the Centers for Disease Control and Prevention eased guidelines surrounding masks for those that had been vaccinated. Now in a majority of settings fully vaccinated people no longer need to wear a mask indoors or outdoors, except in healthcare establishments or if a business mandates it. The airlines shot up on the news with United Air (UAL) and American Air (AA) both gaining more than 5%, while the cruise lines Carnival (CCL) and Norwegian (NCLH) both jumped more than 8%.

Overall the major indices still finished down for the week with the early falls not being entirely overcome. The Dow experienced the smallest fall with a 1.1% loss. The S&P500 was next with a 1.4% drop. While the Nasdaq again brought up the rear, losing 2.3% over the five sessions.

Tesla had a particularly hard week as CEO Elon Musk tweeted that the electric car maker would no longer be accepting Bitcoin as a form of payment for its products. Environmental concerns were highlighted as the reason for the about-turn. Mining cryptocurrency is done by energy-intensive computers and according to a recent study, energy usage for the sector is the equivalent of the entire carbon footprint of Argentina. For a company that prides itself on leading us towards a zero-emission future, it was slightly hypocritical. However, the use of bitcoin also has a significant effect on how the balance sheet looks and I suspect that is the real reason behind the move.

Tesla was lower by 15% at one stage during the week but ended the week down a little over 10%. The cryptocurrency sector also suffered from the Tesla stand, losing more than $300 billion from its coffers. Bitcoin is now down around 25% from recent highs as prices continue to be volatile. Of course, it is still up 400% over the last twelve months. Don’t forget, if you want to have a crack at predicting the next direction of Bitcoin you can now trade micro futures on our platform without having to invest in Bitcoin itself. The code is MBT if you’re interested.

In more company news, Walt Disney (DIS) smashed earnings as theme park revenue more than doubled. Profit came in at $901 million or $0.49c per share where analysts were expecting $0.26c per share. Revenue however dropped by $18 billion a year ago to $15.61 billion in the last quarter and down from the $15.86 billion expected. The share price fell on news that the streaming service Disney + had not grown as quickly as expected. Disney + now has 103.6 million subscribers, but analysts had wanted to see 109 million. Disney says they are still on track to have 230 million to 260 million subscribers by the end of fiscal 2024. Disney finished the Friday session down 2.6%

In the week ahead the retail sector will become the focus of earnings. Walmart (WMT), Target (TGT), Home Depot (HD), Lowe’s (LOW) and Macy’s (M) will all report their numbers along with Take-Two Interactive (TTWO), Cisco (CSCO), Ross Stores (ROST), Ralph Lauren (RL), Deere (DE), and Foot Locker (FL). Apple will be in court as it defends its case against Epic Games, while Ford will show off its all-new electric F-150 Lightning vehicle.

The economic data this week will focus on the FOMC minutes that come out on Wednesday. We’ll also have the Empire State manufacturing index, building permits and housing starts, the Philly Fed, and manufacturing and services PMI.

Have a great week.