10th September – 16th September 2022 | Another week in the markets
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This week the US stock market suffers a massive sell-off, inflation continues to surge, and warnings of a global recession increase.
- August’s inflation data shows higher-than-expected inflation levels
- FedEx to reduce operations and cut costs as global demand declines
- US sees the highest mortgage rates since 2008
- Adobe to acquire design software firm Figma for $20 billion
- Ethereum’s Merge slashes its energy consumption by 99.9%
Taking stock | Inflated expectations | Ex forecast | A long way home | Why the stigma? | Ethereum | Invest wisely
Wall Street ended the week in red, and all three major indexes fell to two-month lows. This week S&P slid 4.77%, Nasdaq dropped 5.48%, and the Dow shed 4.13%. US stocks saw a turbulent week in response to inflation data and FedEx’s warning of an upcoming global slowdown.
This week, August’s inflation report alarmed the stock market as consumer prices climbed 0.1% instead of declining as was expected. Compared to the same period last year, the inflation rate increased by 8.3%, while the core Consumer Price Index (CPI) stood at 6.3%. This triggered a sell-off, and all major indexes snapped out of their four-day winning streaks. The new inflation data is a strong signal that the Federal Reserve won’t be backing down from its fight against inflation, and aggressive rate hikes will continue.
On Thursday, FedEx Corp withdrew the financial forecast it had issued three months ago, saying that a slowdown in global demand began around August and is only going to worsen. The company announced the closure of 90 offices and significant cost-cutting measures. Shares of FedEx were down more than 20% on Friday morning and wiped about $11 billion of the company’s market cap. This is the company’s biggest stock drop since 1980.
This came alongside the company’s fiscal first-quarter results that failed to meet Wall Street’s expectations. The company reported a revenue of $23.2 billion as opposed to the expected $23.59 billion. FedEx’s declining volume further heightened recession fears and an economic slowdown.
A long way home
Mortgage rates in the US have been on the rise since the beginning of this year and have now jumped above 6% for the first time since 2008. While mortgage rates do not directly track the Federal Reserve’s key interest rate, they are influenced by it. With inflation soaring and the Fed hiking rates in an attempt to combat it, mortgage rates reached 6.02% this Thursday. Such high rates, along with higher home prices, are forcing many potential homebuyers to continue renting.
Adobe announced on Thursday that it will be acquiring the design software startup Figma in a $20 billion cash and stock deal. However, Adobe’s shares plunged 17% after this announcement. Wall Street likely saw this deal as too expensive – almost twice as much as Figma’s recent valuation.
Figma’s cloud-based design software allows creative professionals to collaborate in real time. The company, founded in 2012, has revolutionised how designers work as its software allows for multi-designer collaboration. Described by some creative professionals as Google Docs for designers, Figma has allowed design teams to increase their productivity and work significantly faster. Therefore, this acquisition is quite strategic for Adobe as it gives the company access to the kind of market it has been struggling to win over in recent years, such as small businesses.
On Thursday, Ethereum underwent a massive software upgrade that will allow the blockchain to create new coins and carry out transactions using a lot less energy. Called “The Merge”, the new system slashes Etherium’s energy consumption by as much as 99.9% by merging the original Ethereum Mainnet with a separate proof-of-stake blockchain called Beacon Chain. Many view The Merge as a massive milestone in the crypto industry that will give Ethereum an edge over its rivals like bitcoin, which use extremely energy-intensive proof-of-work blockchains.
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