30th April – 6th May 2022 | Another week in the markets
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This week the US stock market booked both its best and worst days since 2020 in succession and treasury yields also saw a dramatic reversal.
- The Federal Reserve raises the benchmark interest rate by 50 basis points
- The Biden administration to revamp lending rules in favour of lower-income groups
- Uber’s first-quarter earnings show a net loss despite increased revenue
- OPEC+ agrees to only modestly increase its oil output for June
- Berkshire Hathaway invests $51 billion in the stock market in the first quarter
Taking stock | Inflation, take a hike | Opening credits | Upward mobility | Oil OPECity | Warren’s buffet | Invest wisely
Wall Street’s major indices fell again on Friday as investors continue to be nervous about the future of the global economy. Both the S&P 500 and Nasdaq posted their fifth straight weekly loss making it their longest losing streak since 2011 and 2012 respectively. After slumping more than 1,000 points on Thursday, the Dow closed Friday down 0.3%.
Inflation, take a hike
As anticipated, the Federal Reserve raised its benchmark interest rate by 50 basis points in an attempt to curb record-high inflation in the country. Despite this, however, stocks rallied on Wednesday, and Wall Street saw its best day since 2020. This came as a result of the Federal Reserve Chair Jerome H. Powell calming investors’ concerns about additional large interest rate hikes. After Powell stated that the Federal Reserve is not actively considering a 75 basis point hike, the S&P 500 rose almost 3%, while the benchmark 10-year Treasury yield dipped eight basis points. However, the next day, the optimistic market sentiment evaporated, and stocks fell sharply. The S&P 500 plunged 3.6%, booking its second-worst day for the year, while the Dow and the Nasdaq Composite saw their worst single-day drops since 2020.
On Thursday, the top three US regulators announced their proposal to update the 1977 Community Reinvestment Act (CRA) rules, which may be finalised by the end of this year. The purpose of this is to make credit more accessible to lower-income individuals and small businesses and to ensure that banks’ lending is more evenly distributed. The CRA was designed to put an end to the discriminatory practice of redlining, where banks would avoid lending to lower-income communities and minorities. However, there has been no major revamp to this act in over two decades. This proposal is in line with the Biden administration’s pledge to reduce income and wealth disparities and make financial services more accessible across communities.
Typically, banks are assessed for their CRA efforts and compliance every three years. The CRA grade matters for banks because a bad grade can restrict mergers. As per the current CRA rules, banks are examined based on their lending activities to lower-income communities around their physical branches only. Given that much of the financial activity today is online, the existing rules are outdated. If the proposed CRA revamp is finalised, it could present several opportunities for banks. Not only would it make the rules more transparent, making it easier for banks to meet the regulatory requirements, but it would also help spread banks’ online activity across the country.
On Wednesday, Uber posted its first-quarter earnings revealing surging revenue. Uber’s mobility revenue that was hit by the pandemic has recovered and has finally surpassed its delivery revenue. While the revenue beat estimates, the company reported a net loss of $5.9 billion owing to the revaluation of equity investments. Its stock closed down by almost 5% on Wednesday as concerns regarding driver shortage and rising oil prices persist.
While the West has repeatedly asked OPEC+ to increase its oil output, OPEC+ maintains a modest increase, and prices continue to rally. This week OPEC+ agreed to another modest monthly increase – an additional 432,000 barrels per day from June. OPEC+ claims that they don’t have the spare capacity to replace Russia’s seven million barrels per day, while the US believes that OPEC+ refuses to view this as a fundamental global supply chain issue.
After years of not making any investments and complaining that the stock market isn’t presenting attractive buying opportunities, Warren Buffett’s Berkshire Hathaway went on a buying spree in the equity markets in the first quarter of 2022. The company’s earnings report revealed that it invested $51 billion in stocks and repurchased $3.2 billion of its own shares. This has brought down the cash reserve of the company from $147 billion at the beginning of the year to $106 billion.
With stocks rallying one day and sharply pulling back the next, timing the market is an especially bad idea now. Instead, look at adopting the dollar-cost averaging strategy that allows you to invest regularly and meet your financial goals irrespective of the market price. To do so, you need to invest through a Systematic Investment Plan (SIP) which you can by downloading the Appreciate App. Investing through SIPs allows you to invest in the stock market in a staggered manner and reduce the impact of volatility.
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