24th December 2022 – 30th December 2022 | Another week in the markets
| S&P 500 | Nasdaq | VIX | DJIA | Russell 1000 | NYSE |
| 3839.50 | 10,466.48 | 21.67 | 33,147.25 | 2,105.90 | 15,184.31 |
| -0.14% | -0.30% | 3.83% | -0.17% | -0.11% | -0.03% |
| Nifty 50 | Gold | Silver | Brent crude | USD-INR | EUR-INR |
| 18,105.30 | $1,830.10 | $24.18 | $85.99 | 82.75 | 88.56 |
| 1.68% | 1.33% | 1.09% | 1.70% | -0.05% | 0.76% |
Source: MarketWatch
Hello Saturday,
The last week of 2022, US stocks close their worst year since 2008, China lifts most COVID-19 restrictions, and investors brace for a global economic slowdown in the new year.
- China takes a major step towards reopening its borders and scraps quarantine rule for inbound travellers starting January 8th
- Southwest Airlines cancels over 15,000 flights since December 22nd owing to the snowstorm in the US, a situation exacerbated by outdated scheduling technology
- Major US ports see sharp declines in container imports from a year ago due to decreasing consumer spending; shipping and logistics industry to be heavily impacted
- Apple’s iPhone production ramps back up as China lifts COVID restrictions; Zhengzhou facility now at almost 70% capacity for iPhone production
- US yield curve inversion is at a three-decade high signalling an impending recession and slowing of inflation in 2023
Taking stock | The dragon unlocks | Going Southwest | What’s up, dock? | iCan’t wait no mo | 2023, we yield to thee | Invest wisely
Taking stock
Wall Street slipped on Friday and wrapped up its worst year since 2008 with all major indices in the red. S&P shed 0.14%, the Dow ticked down 0.17%, and Nasdaq slid 0.30%. For the year, S&P tumbled 19.4%, while the Dow fared comparatively better, down only 8.78%. Nasdaq being tech-heavy, suffered the most and plunged 33.10%. Volatile market data, aggressive rate hikes, record-high inflation, and geopolitical concerns made for a painful year. Investors are more than happy to say good riddance and move on to a hopefully more stable year.
The dragon unlocks
China continues to relax COVID-19 restrictions despite the surging cases. This week China announced that it would scrap the quarantine requirement for inbound travellers starting January 8th. In addition, Beijing has also downgraded regulations for managing COVID-19 cases to Category B from Category A. China’s zero-tolerance measures over the last three years have slowed down its economy to its lowest growth rate in nearly half a century while hampering global supply chains. This sharp U-turn in its pandemic restrictions after the significant demonstration of public discontent last month is a double-edged sword. While it may help the economy recover slowly, there could be a sharp surge in cases.
Going Southwest
The snowstorm before Christmas in the US led to several cancelled flights, and Southwest Airlines was hit the hardest. While most of its rival airlines have resumed normal service, Southwest is currently in the middle of a service meltdown. On Monday, the airline cancelled over 2,900 flights, and over 2,000 each over the next three days, leaving thousands of travellers stranded at airports. During the busiest travel days of the year, the stock price of Southwest fell over 11%, significantly more than other major US airlines.
Source: The Wall Street Journal
But according to experts, this meltdown was decades in the making owing to Southwest’s outdated processes and IT. The airline has been facing issues for over 20 months and desperately needs to modernise scheduling operations. The primary reason for this week’s meltdown is the airline’s scheduling system which hasn’t seen much change since the 1990s. According to analysts, the fourth-quarter earnings of the airline could take a hit of 3% to 5% due to this fiasco.
What’s up, dock?
US container imports are plummeting from record highs. Los Angeles and Long beach, the country’s busiest container port complex, handled only 566,522 loaded import containers in November this year, down 26% from November 2021. Port of Savannah saw a 7.6% drop in imported containers from a year ago, while import volumes at Port of Charleston plunged 21.8%. But why is this happening?
Major retailers, like Walmart and Target, are pulling back on orders owing to a sharp decline in demand for big-ticket items such as furniture and electronics. Given record-high inflation and rising interest rates, consumers are cutting back on such discretionary spending. Currently, the level of container imports is the lowest since March 2020, when world trade halted due to the pandemic outbreak. Other than signalling an economic slowdown, such a significant drop in container imports will also impact the revenue of shipping and logistics companies. The industry is also expected to make capacity adjustments and see market consolidation.
iCan’t wait no mo
Apple’s iPhone output is beginning to catch up despite China’s COVID-19 issues. Foxconn is Apple’s sole assembler of high-end iPhone models that faced significant supply chain issues in November owing to China’s COVID-19 restrictions and worker clashes. This led to longer wait times for new iPhone models. The company had enforced movement restrictions at its main manufacturing base in the Chinese city of Zhengzhou, which have now been lifted after more than 50 days. Hence, the supply of Apple’s products is improving and slowly catching up with the demand. While Foxconn is still struggling to recover to full capacity, parts of the Zhengzhou facility that produce iPhones are now operating at 70% capacity.
2023, we yield to thee
Currently, the US yield curve inversion is the steepest in three decades. What does this mean, and why does it matter?
- A yield curve graphically represents yields on bonds of similar credit quality across different maturities
- Typically, long-term yields on 10-year treasury bonds tend to be higher than short-term yields on 2-year treasury bonds.
- However, when short-term yields exceed long-term yields, it leads to yield curve inversion, and this is usually a sign of an impending recession.
- Currently, the yield on 10-year bonds is around 3.85%, while the yield on 2-year bonds is around 4.4%.
- Because investors are bracing themselves for a recession, they are looking to withdraw money from high-risk assets like stocks and invest in safer, long-term assets like 10-year bonds.
- It’s important to note that there is an inverse relationship between bond yields and bond prices. So, as the demand for long-term bonds increases, leading to an increase in price, the yield falls.
- In addition to being a signal of a pessimistic economic outlook, an inverted yield curve also signals inflation moderation through a tight monetary policy.
- Since the Fed has remained consistent in increasing short-term rates to tame inflation, investors expect inflation to cool down in 2023.
Invest wisely
No matter how many Wall Street analysts try, nobody can accurately predict what the next year holds for stocks. For 2022, Goldman Sachs had predicted that the S&P 500 would close at 5,100 points, but it ended up closing the year at 3,839.50 points. So, instead of trying to invest based on annual predictions in 2023, invest based on your risk tolerance and financial profile. To figure out the right investments for you, try Appreciate’s AI recommendations that take into account your specific portfolio needs. Download the Appreciate App today!
Warm regards,
Another week
in the markets
