16th April – 22nd April 2022 | Another week in the markets
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At the beginning of the week, the markets gained momentum on account of positive first-quarter earnings reported by companies. However, the anticipation of an interest rate hike slowed this down and hit high-growth stocks.
- Netflix shares fell by 35.1% as the streaming platform lost 200,000 subscribers in three months
- Federal Reserve to raise interest rates by 50 bps in May’s policy meeting
- Apple’s data privacy updates could lead to a combined revenue loss of $16 billion for social media companies
- House sales continue to decline as mortgage rates and house prices reach record highs
- Ukraine suffers physical damage worth $60 billion so far owing to the Russian invasion
Taking stock | Netflix, no chill | Hiking hitches | Upsetting the Apple-cart | No way home | Bill of wrongs | Invest wisely
The stock market closed this week in the red with US stocks falling sharply on Friday. This week, Dow Jones fell by 2%, while the Nasdaq composite shed 480 points. S&P 500 closed 2.60% lower, marking its third losing week in a row. The fresh batch of corporate earnings posted later in the week that largely disappointed, such as Snap Inc., Gap Inc., Verizon Communications Inc, Netflix, etc., contributed to this as well as investors’ reaction to the Federal Reserve’s comments on interest rate hikes.
Netflix, no chill
On Wednesday, Netflix’s shares recorded their worst day since 2004 and fell 35.1%, and about $50 billion of the company’s market value has been wiped off. This sharp drop was triggered by the company reporting the number of lost subscribers in the first quarter of this year. The streaming platform lost 200,000 subscribers over the last quarter and expects to lose two million more global subscribers in the current quarter. Decisions such as exiting Russia, as well as increasing prices in key markets such as North America, have contributed to this.
While Netflix continues to be the leading streaming service globally with 220 million subscribers, it faces tough competition from streaming rivals such as Disney and Amazon, which have deeper pockets. Experts believe that consumers are cutting back on streaming services to save on discretionary expenses and that most don’t feel the need to have more than one or two streaming platform subscriptions. Netflix’s expansion during the pandemic was impressive, but now it may be difficult for the company to find easy ways to grow.
Federal Reserve Chair Jerome Powell explicitly stating that a half-point interest rate increase is on the table for May’s policy meeting led stocks to drop on Thursday. Powell and several other Fed officials believe that aggressive steps need to be taken to gain control as quickly as possible. The inflation rate in the US is already three times the Fed’s 2% target. These remarks reversed the momentum that stocks gained earlier from positive earnings. The fear of a high-interest rate environment impacted investor sentiment and high-growth stocks such as Amazon.com Inc. and Alphabet Inc. dropped.
Upsetting the Apple-cart
Last year Apple introduced its app tracking transparency framework that is tormenting the financials of social media platforms and ad companies. This data privacy feature requires all apps that are downloaded from the App Store to prompt users of what data will be collected and how it will be used and get their consent. This impacts internet companies in several ways but especially translates to a loss in ad revenue. It is estimated that over $16 billion will be wiped away from Snap, Meta, YouTube, and Twitter’s revenues in 2022. This already shows in Snapchat’s parent company Snap’s latest earnings. The company failed to meet its sales forecasts for the first quarter of the year, and its net losses increased by 25%, and a big reason for this is Apple’s privacy update. Meta is expected to take the biggest hit of about $12 billion in lost sales.
No way home
Mortgage rates in the US housing market are at an 11-year record high. The 30-year fixed-rate mortgage averaged 5% last week, up from 4.72% the week before. Interest rate hikes by the Federal Reserve along with higher home prices and home supply shortages, have led to a decline in home sales. The median house price in the US reached an all-time high of $375,300 last month, jumping 15% from last year, while the existing home sales fell 2.7% in March.
Bill of wrongs
The World Bank estimates Ukraine’s physical damage to be roughly $60 billion so far. While Ukraine has received about $4 billion in financial aid from the World Bank, International Monetary Fund, European Union, and more, it’s not nearly enough. Ukrainian President Volodymyr Zelensky stated that the country needs about $7 billion per month to make up for the economic losses on account of Russia’s invasion and billions of dollars later to rebuild and recover. US Export-Import Bank President Reta Jo Lewis stated that US companies could help rebuild the country with digital infrastructure, clean energy, and more.
While the market sentiment continues to be weak and shaken, the inherent tendency of the market is to always go up in the long term. Hence, you should not fall victim to panic selling and focus on hedging strategies such as diversification across geographies and investment instruments. Download the Appreciate app to add a range of US stocks and ETFs to your portfolio and diversify today!
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