Economic growth outlook remains grim

1st October – 7th October 2022 | Another week in the markets

S&P 500	Nasdaq	VIX	DJIA	Russell 1000	NYSE
3,639.66	10,652.40	31.36	29,296.79	2,004.78	13,798.26
1.51%	0.73%	-0.82%	1.99%	1.65%	2.42%
Nifty 50	Gold	Silver	Brent crude	USD-INR	EUR-INR
17,314.65	$1,701.80	$20.16	$98.45	82.83	80.68
1.29%	2.01%	6.02%	15.05%	1.56%	0.89%

Source: MarketWatch

Hello Saturday,

This week stocks continue to be volatile as they recover, plunge, and bounce back again, the energy sector gets a boost as oil prices rise, and the global economic growth outlook remains grim.

• IMF to release a new, lower global economic growth forecast for 2023 amidst surging inflation
• Twitter-Musk trial put on hold until 28th October as Musk agrees to go through with the April deal to buy the platform 
• OPEC+ cuts oil production by 2 million barrels per day leading to a rise in oil prices and boosting energy stocks 
• An internal report by TikTok’s parent company reveals that its operating losses tripled in 2021 as it pushes to fuel growth 
• President Biden pardons all prior federal offences of simple marijuana possession and asks federal regulators to review the drug’s classification 

Taking stock | Slow burn | #WaitForIt again | Oily slope | TikTok challenge | Out of the joint | Invest wisely

Taking stock

The week started out as a big comeback week for stocks, but September’s job report on Friday led to a sell-off, trimming the week’s gains. The report was stronger than expected, with the unemployment rate falling to 3.5% and the average hourly wage rate increasing. This further solidifies the possibility of another 75 basis point rate hike in November. While S&P lost 2.8%, Nasdaq slid 3.8%, and the Dow shed 2.1% on Friday, all three indices managed to end the week in the green. 

Slow burn

The International Monetary Fund (IMF) expects global economic growth to slow down and will release a report next week with a new, lower growth forecast for 2023. Its earlier estimate for next year was 2.9% but considering surging inflation leading to reduced consumer ability to spend changes that. The IMF sees the global economy expand 3.2% in 2022, a sharp plunge from 6.1% in 2021. The global economic outlook is only getting grimmer. Between now and 2026, the IMF expects a loss of $4 trillion in global economic output. 

#WaitForIt again

The ongoing Twitter-Musk saga has been full of plot twists since Musk made an offer to purchase the social media platform in April this year. Let’s break down everything that’s happened since. 

• In April, Elon Musk became Twitter’s largest shareholder with a 9.1% stake and offered to buy the company for $44 billion.
• In May, Musk put the deal on hold, demanding evidence to support Twitter’s claim that its spam accounts are less than 5% of its monetisable daily active users.
• In July, Twitter filed a lawsuit against Musk in the Delaware Court of Chancery to force him to go through with the deal. The trial is set to begin on October 17th. 

Now, two weeks before the lawsuit goes to trial, Musk says he is abandoning the legal battle and intends to go ahead with the purchase by the end of the month. He made this offer in a letter to Twitter this Tuesday. So, that’s it, then? Happy ending, right? But it’s not. Twitter does not believe the offer will come through and has not dropped the trial. The judge has put the trial on hold until October 28th allowing both parties to close their deal for $54.20 per share as agreed in April.

If this deal goes through, Twitter stock may benefit, while Tesla’s shares could see a drop, as was already seen this Tuesday. After the news came out, Twitter shares closed up more than 22%, while Tesla shares fell 6% in intraday trading. Will there be another tweest in the tale?

Oily slope

On Wednesday, OPEC+ announced that it’s going to cut its oil production by 2 million barrels per day. This is the biggest cut in oil production since the start of the pandemic and is equivalent to 2% of the global oil demand. This move threatens to push up prices, even as Europe faces an energy crisis. But it’s also a win for oil stocks. After OPEC+’s announcement, oil prices rose to three-week highs. This rise in oil helped boost energy stocks; the S&P 500 energy sector is up almost 15% for the week.

TikTok challenge

TikTok’s parent company ByteDance saw its operating losses more than triple last year to over $7 billion, as was reported by a recent report. Since it’s a privately-held, Beijing-headquartered company, the information on its financials is based on an internal report shared with its employees. The losses came in as the company focused on spending to fuel its growth. Despite being launched in 2016, TikTok is one of the most popular social media platforms across the globe that has more users than other platforms that have been around for longer, such as Twitter, Pinterest, and Reddit. 

TikTok vs other social media platform’s global active users:

Source: Business of Apps

According to the report, the company’s revenue has been rapidly increasing but its net results are impacted by unrealised market losses of over tens of billions of dollars on convertible securities. However, the company has produced an operating profit in the first quarter of 2022, as per the report.

Also, TikTok is preparing to launch live shopping in North America, allowing brands and influencers to add shopping links, which may help boost the company’s revenue. While the live shopping feature struggled in the UK, it has done quite well in other countries such as Thailand, Singapore, the Philippines, Indonesia, and Malaysia. 

Out of the joint

On Thursday, President Biden announced that all prior federal offences of simple possession of marijuana will be pardoned. He said that sending people to prison for possessing marijuana has upended too many lives and called on federal regulators to review how the drug is classified. This is a huge step towards decriminalising marijuana for adult recreational use, which remains illegal under federal law despite 19 states already having legalised it. 

Invest wisely

Market volatility, while a risk, is also an investment opportunity both in the short and long term. In the short term, if you understand the market movements well, you can benefit from stocks rising in certain sectors, as is the case with energy now. And if you’re someone with a long-term investment horizon and strategy, you can make use of market downturns to invest in stocks with solid financial fundamentals at a lower price. Whatever your investment strategy may be, diversifying is crucial as it helps to hedge market risk. Download the Appreciate App to diversify across assets and geographies by investing in a range of global stocks and ETFs.

Warm regards,
Another week
in the markets