16th July – 22nd July 2022 | Another week in the markets
|S&P 500||Nasdaq||VIX||DJIA||Russell 1000||NYSE|
|Nifty 50||Gold||Silver||Brent crude||USD-INR||EUR-INR|
This week the European Central Bank hiked interest rate for the first time since 2011, stocks of online ad giants tumbled, and demand for energy further increased.
- Slowing ad spending by brands is impacting the revenue of advertising companies like Snapchat and Twitter
- Amazon to acquire One Medical and further expand its healthcare footprint
- Natural gas prices rise as Europe and the US experience a heatwave
- Samsung to invest $200 billion in chip-manufacturing plants in Texas
- Stocks of air carriers in the US drop as they struggle with higher costs
Taking stock | Inflation ad nauseam | Medizon | Overcooked | Samsung, Texas | Up in the air | Invest wisely
US stocks fell on Friday on account of the dismal earnings of social media companies. Despite this, the stock indexes ended the week in the green – S&P gained 2.55%, the Dow rose 1.95%, and Nasdaq advanced 3.33%. The dollar index fell 1.40% this week owing to data on slowing business activity.
Inflation ad nauseam
In 2021, social media ad sales blew up as brands were ramping up their marketing budgets post-pandemic. In the US, social media ad sales grew by 36% and reached $58 billion last year. This year, however, things are quickly moving towards the opposite end of the spectrum. Given the surging inflation levels and the fear of a recession, companies are reducing their marketing and advertising budgets. This is directly impacting the revenue of social media companies that heavily rely on ad sales, and Snapchat’s parent company Snap’s second-quarter results released this week show that. Snap posted a quarterly net loss of $422 million, and its shares were down by about 30% in pre-market trading. In the past year, its shares have been down 74%.
After Snap posted its results on Thursday, other holding companies that rely on ad sales, such as Meta, Alphabet, etc., lost around a total of $80 billion in stock market value. On Friday, Twitter posted its second-quarter results, reporting a net loss of $270 million and missing the revenue estimates of analysts. The social media platform’s ad revenue increased just 2%, and its shares were down by 1.8% in pre-market trading.
Amazon, on Thursday, said that it has entered into an agreement to buy One Medical for $3.9 billion in an all-cash deal. This deal is just another foray into expanding its healthcare footprint. In 2018, Amazon acquired an online pharmacy called PillPack and later launched its own digital pharmacy in the US. In 2018, Amazon also entered into a joint venture called Haven with JPMorgan Chase and Berkshire Hathaway to provide improved healthcare at lower costs. Haven, however, shut down last year.
Countries across Europe, including the UK, France, Spain, and Germany, along with the central and southwestern US, are experiencing a historic heat wave. This has been increasing the demand for energy as people try to remain cool in record-high temperatures pushing up natural gas prices. Natural-gas futures rose 48% this month, crossing $8 per million BTU (British Thermal Units) this week. The price was already high with stressed supplies owing to the Russia-Ukraine war. An increase in the price of natural gas also tends to increase the prices of steel, cement, glass, and plastic industries. Certain electricity utility companies in the US have warned that prices this summer could be 25% higher than last year. Moreover, with travel resuming, the demand for energy is only further increasing.
South Korean tech giant, Samsung Electronics, is considering investing up to $200 billion in 11 chip-manufacturing plants in Texas over the next two decades. If executed, this would significantly boost its semiconductor capabilities in the US. Currently, Samsung globally has seven semiconductor fabrication plants, out of which two are in Austin, Texas. The company would enjoy major tax breaks offered by Texas to businesses for long-term investments that create local job opportunities.
Up in the air
Even though the demand for travel is booming, US air carriers are finding it difficult to make the most of it due to higher costs, staffing gaps, and aircraft shortages. Hence, despite it being the airline industry’s strongest earnings season in three years, stocks of the companies are dropping. Despite posting quarterly profits, shares of United Airlines and American Airlines Group fell by over 9% on Thursday. Since the industry let go of thousands of workers during the height of the pandemic, they are being forced to spend more now. For instance, Delta Air Lines is expecting to pay about $700 million in overtime and premium pay. This is 50% more than in 2019.
With a looming global recession, high inflation levels, and continuing geopolitical tensions, it’s crucial to take certain financial steps. These include strengthening your emergency fund, sticking to your long-term investment plan, and diversifying your portfolio. Traditionally, in times of uncertainty, like in a recession, gold as an investment tends to do well and is seen as a safe-haven investment. However, this time around, that’s not the case. Gold prices have fallen by over 10% in the last three months. Hence, you have to look for diversification within the stock market itself to hedge risk. This can be done through different investment products such as Exchange-Traded Funds (ETFs) and by investing beyond the domestic market. And by downloading the Appreciate App you can easily access a range of US stocks and ETFs to add to your portfolio.
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