Blogs/All/ Rearview Mirror (July 16, 2022)

Rearview Mirror (July 16, 2022)

8th July – 15th July 2022 | Another week in the markets

S&P 500NasdaqVIXDJIARussell 1000NYSE
3,863.1611,452.4224.2331,288.262,118.5614,449.68
0.93%-1.57%-1.66%-0.16%-1.08%-1.32%
Nifty 50GoldSilverBrent crudeUSD-INREUR-INR
16,049.20$1,706.50$18.66$101.1379.7280.41
-1.06%-1.98%-2.99%-5.62%0.49%-0.49%

Source: MarketWatch

Hello Saturday,

This week China’s worrying second-quarter economic growth data adds to fears of a global recession, US banks keep aside more funds for covering potential losses, and the Euro dips below dollar parity. 

  • US inflation surges to 9.1%, high-inflation levels persist globally 
  • Euro falls below dollar parity for the first time since 2002
  • Major US banks post disappointing second-quarter results 
  • Several emerging economies like Sri Lanka are in severe trouble 
  • Netflix partners with Microsoft for rolling out its new ad-supported plan 

Taking stock | Hot air balloon | Dollar store Euro | Banks tank | Pressure island | MS Adflix | Invest wisely

Taking stock 

Wall Street saw stocks rally on Friday as a new round of quarterly result postings from banks such as Citigroup provided some relief. This, along with data about June’s retail sales which turned out to be stronger than expected, helped major indices bounce back. Despite Friday’s gains, S&P, Nasdaq, and the Dow ended the week in the red.

Hot air balloon 

High inflation levels persist globally, and the inflation level in the US surged 9.1% this June from a year ago. This is the fastest surge in the Consumer Price Index (CPI), a measure of retail inflation, that the country has seen since November 1981.

After this data was released on Wednesday, fears of a big interest rate hike at the end of this month by the Federal Reserve increased, and stocks slumped. The Dow dropped 0.67%, S&P slipped 0.45%, and Nasdaq dipped 0.15% while government bond yields surged. Record-high inflation levels are not the current reality of the US alone. Since the pandemic, 44 of the world’s advanced economies have seen a sharp increase in the inflation level. Out of these nations, the first-quarter inflation level for 37 of them was at least twice as much as the first quarter of 2020 while for some, it was four times as high. 

Dollar store Euro

On Wednesday, the Euro fell below parity against the US dollar for the first time in 20 years. It fell to a low of $0.9998 this week and has lost more than 10% since the year began. The Euro had started this year strong. However, the Russian invasion of Ukraine has changed that. The ongoing energy crisis in Europe and fears that Russia could completely cut off supplies are increasing. This is hurting the currency and increasing the threat of a recession. The Euro is expected to tumble further, and experts believe that it could drop to as low as $0.95, especially if gas flows from Moscow are halted. 

Banks tank

JPMorgan Chase’s second-quarter results on Thursday revealed a higher-than-expected 28% drop in profits. The bank suspended share buybacks to set more money aside for bad loans in the face of a potentially sharp economic downturn. Its stock fell by 4.3% on Thursday, reaching a fresh 52-week low. But JPMorgan Chase was not the only bank to post disappointing results this week. Morgan Stanley also missed the mark with revenue and net income below estimates, and the bank’s stock fell 1.21% in pre-market trading on Thursday. On Friday, Wells Fargo said its second-quarter profit halved as it too has set aside more funds to cover potential losses owing to bad debts. Citigroup, on the other hand, posted a lower-than-expected profit drop and its shares surged more than 10% on Friday. In India, the banking sector scenario is currently different from the US. Bank stocks are relatively better placed, and despite interest rate hikes, the impact expected is minimal. In fact, experts have a very positive outlook for many of the large-cap banks, including PSU banks. 

Pressure island

Sri Lanka is in the midst of a severe economic crisis. Its inflation is running at 54.6%. Citizens suffer daily power cuts and shortages of essentials like food, fuel, and medicines. Earlier in May, the country defaulted on its foreign debt for the first time in history, and now it doesn’t have enough foreign currency to import fuel and other goods. But Sri Lanka is not the only emerging economy that is suffering. Several other emerging nations such as Pakistan, Egypt, Ghana, and El Salvador have high levels of sovereign debt that trades at distressed levels. The possibility of defaults is becoming a real threat. 

MS Adflix 

This week, Netflix announced Microsoft as its global advertising technology and sales partner to roll out its first ad-supported subscription plan. The streaming platform’s CEO had resisted the idea of an ad-supported plan for years. But earlier in 2022, after Netflix lost subscribers for the first time in a decade, the company announced plans to roll out a lower-priced plan supported by ads to provide its subscribers with more choice. 

Invest wisely

Diversification of your investment portfolio should continue to remain a priority as global markets face volatility amidst political chaos, surging inflation levels, and threats of a recession. By adding different types of investment products and investing across geographies, you spread the risk and better equip your portfolio to deal with volatility. It’s recommended to add international exposure to your portfolio, depending on your risk appetite and financial goals. You can do this by downloading the Appreciate App and investing in a range of high-performing US stocks and ETFs.

Warm regards,
Another week
in the markets

Team Appreciate

Team Appreciate