Fed raises its interest rates

29th October – 4th November 2022 | Another week in the markets

S&P 500	Nasdaq	VIX	DJIA	Russell 1000	NYSE
3,770.55	10,475.25	24.55	32,403.22	2,070.30	14,702.77
-3.35%	-5.65%	-4.66%	-1.40%	-3.42%	-0.63%
Nifty 50	Gold	Silver	Brent crude	USD-INR	EUR-INR
18,117.15	$1,685.70	$20.92	$98.75	82.06	81.69
1.86%	2.27%	8.93%	4.87%	-0.28%	-0.41%

Source: MarketWatch

Hello Saturday,

This week the Federal Reserve raises its interest rates for the sixth time this year, Asian markets perform well boosting global investor sentiment, and more drama at Twitter since Musk’s takeover. 

• The Federal Reserve and Bank of England hike interest rates again while layoffs across tech companies increase, making investors wonder how close we are to a recession
• Despite the global economic downturn and instability, the Indian economy is proving to be resilient with a GDP growth estimate for 2022 double the global growth projection
• Swiss Bank Credit Suisse announces major restructuring plans to pivot from failed investment ventures and to regain the image of a stable bank 
• Warner Bros. Discovery’s new streaming service to launch in spring 2023 combining its platforms HBO Max and Discovery Plus
• Within a week of Musk’s takeover of Twitter, companies like Volkswagen and Pfizer pause advertisements on the platform and mass layoffs at Twitter begin  

Taking stock | Hike pe hike | Saare jahan se accha | Pivot Suisse | Spring wedding | Clipping wings | Invest wisely

Taking stock

Stocks rallied on Friday but finished the week in red as investors tried to gauge what the latest jobs report could mean for future Fed hikes. S&P and Nasdaq fell 3.35% and 5.65%, respectively, ending their two-week winning streaks, while the Dow slipped 1.4%, snapping out of its four-week streak. October’s jobs report was mixed – the labour market added 261,000 jobs, but the unemployment rate also rose to 3.7%. Hence, some investors believed that the Fed would continue with its rate hikes, while others took this data to mean the beginning of a cooling labour market. 

Hike pe hike

The Federal Reserve raised interest rates by another 0.75 percentage points, making the federal funds rate range 3.75%-4%, the highest since 2008. This is the fourth consecutive 0.75 % hike to combat record-high inflation levels in the US. On Thursday, the Bank of England, too, raised the bank rate from 2.25% to 3%, the highest increase since 1989. The central bank also warned that the British economy may not grow for another two years, making this the longest-recorded recession the country has ever experienced. 

Meanwhile, tech giants like Amazon and Apple are pausing hiring for several departments and corporate positions. Lyft is planning to lay off 13% of its staff, and several other tech companies are following suit to rein in costs. Is this, perhaps, an indicator that we are already in a recession?

Saare jahan se accha

At a time when economies worldwide, both developed and emerging, are experiencing sharp market volatility, and slowing growth, the Indian economy is proving resilient. While most major countries around the world are nearing a recession, India’s GDP is on track to grow 6.5% or more this year, which is double the projections for global economic growth. 

India vs the world GDP growth:

Source: International Monetary Fund

Even when you look at the stock market, Indian benchmark indexes have been outperforming their global peers this year in the face of inflationary pressures and geopolitical instability. Year-to-date, Nifty 50 and BSE Sensex are up 4.03% and 4.63%, respectively, while Dow Jones is down 10.57%, S&P 500 has plunged 20.76%, and Hang Seng has plummeted 21.02%. 

Pivot Suisse

Swiss-based Credit Suisse, one of the world’s leading banks, has lost almost $11 billion in market capitalisation this year while its shares have dropped over 50%. So, how did Credit Suisse reach this point where its market cap is lower than Indian banks like HDFC Bank and ICICI bank? 

Over the last few years, the bank suffered several scandals, including exposure to funds like Archegos Capital and Greensill Capital. The bank failed to manage risk efficiently and lost billions of dollars due to exposure to such funds that collapsed. Earlier this year, details of over 30,000 of its clients were leaked, revealing the hidden wealth of clients involved in serious crimes such as torture, drug trafficking, and money laundering. This pointed to the bank’s lack of due diligence and repeated involvement with disreputable clients and illicit funds. The bank’s leadership has also changed several times over the last three years due to a string of scandals relating to different C-suite executives. 

In an attempt to pivot from failed investment ventures and gain back investor confidence, the bank recently announced significant changes in its strategy and leadership. Credit Suisse plans to restructure over the next three years by selling off a portion of its investment banking business, cutting 9,000 jobs, and raising fresh capital of $4 billion. It has already hired 20 banks to help raise the capital. 

Spring wedding

Earlier this year, Warner Bros. Discovery announced plans to merge its streaming platforms HBO Max and Discovery Plus. The new streaming service was set to launch in the summer of 2023. But this week, after announcing its third-quarter earnings that missed Wall Street’s expectations, the company announced that the new streaming platform would now be launched earlier than expected in spring 2023. 

Ever since Warner Media and Discovery merged in April this year, resulting in Warner Bros. Discovery, the company has undertaken significant cost-cutting measures, including layoffs and pulling content from HBO Max. The latter left a lot of subscribers unhappy, but the company believes such bold moves need to be made. CEO David Zaslav said on the earnings call on Thursday that the “grand experiment” of chasing subscribers at any cost is over and that the company’s focus will be to generate $1 billion from its streaming business by 2025. 

Clipping wings

With Elon Musk’s takeover of Twitter and the uncertainty regarding the platform’s future, several companies are pausing advertising on Twitter. These include Tesla’s competitors like Volkswagen as well as non-competitors such as General Mills, Pfizer, and Mondelez. On Friday morning, Musk tweeted that Twitter has seen a massive drop in revenue “due to activist groups pressuring advertisers” and “trying to destroy free speech in America”. The link between advertisers pulling out and activist groups remains unclear, and some believe it’s simply Musk’s attempt to distract from Twitter layoffs. He also cut half of Twitter’s workforce on Friday, about 3,700 employees, sending emails to employees to let them know if they have been laid off or not. While all this happens, offices have been temporarily closed to prevent staff access.

Invest wisely 

While countries around the world are increasingly tightening their monetary policy, inflation levels remain at a record high. Hence, it’s essential that you keep investing in assets that can provide inflation-beating returns, such as stocks. And when making equity investments, it’s crucial to diversify to hedge market risks. A great way to do this is by adding investments from global markets. By downloading the Appreciate App, you can access a range of high-performing stocks and ETFs and add the required diverse exposure to your portfolio.

Warm regards,
Another week
in the markets