Fed signals slowdown in rate hikes

19th November – 25th November 2022 | Another week in the markets

S&P 500	Nasdaq	VIX	DJIA	Russell 1000	NYSE
4,026.12	11,226.36	20.50	34,347.03	2,209.23	15,605.67
2.02%	0.73%	-14.33%	2.39%	2.00%	2.51%
Nifty 50	Gold	Silver	Brent crude	USD-INR	EUR-INR
18,512.75	$1,755.00	$21.48	$83.84	81.67	84.93
1.12%	0.17%	2.41%	-4.44%	0.18%	0.93%

Source: MarketWatch

Hello Saturday,

This week Americans celebrate Thanksgiving, analysts wait to see how Black Friday sales will set the tone for holiday shopping, and the Fed signals a slowdown in rate hikes. 

• Thanksgiving dinner costs 13.5% more to Americans as prices of key ingredients like turkey, eggs, cranberry sauce, potatoes, and more surge amidst inflation and crop diseases 
• Bob Iger returns as Walt Disney CEO 11 months after stepping down – a surprising comeback that has boosted company morale and investor confidence, much needed in a year where the company’s market value is down 30%
• Swiss bank Credit Suisse projects a $1.6 billion fourth-quarter loss amidst increasing cash outflows and a strategic business overhaul after a string of risk and compliance issues 
• Biden administration is laying the groundwork to tighten non-bank regulation and classify companies in the industry as Systemically Important Financial Institutions (SIFIs)
• Owner of News Corp and Fox Corp, the Murdoch Family Trust’s proposal to recombine the companies opposed by one of the biggest shareholders

Taking stock | Thanks, I guess? | Bob out, Bob in | Slipping Suisse | Time to DTR | Undivorced yet? | Invest wisely

Taking stock

All major indices ended this holiday-shortened trading week higher. S&P gained 2.02%, Nasdaq is up 0.73%, and the Dow climbed 2.39%. At the start of the week, US stocks were muted, but after the minutes from the Federal Reserve’s November meeting came out signalling that the Fed is likely to slow the pace of its rate hikes, the stocks got a boost. However, the increasing COVID-19 cases in China and fewer crowds outside retail stores on Black Friday kept the markets in check. 

Thanks, I guess?

This year, with surging inflation and an overall bad state of the world, the average cost of a traditional Thanksgiving meal was up an estimated 13.5%. Year-over-year, turkey prices were up 24.4% in the week ending November 6. The pathogenic avian influenza destroyed about 8 million turkeys this year. But it wasn’t just the star of the Thanksgiving dinner that saw prices surge. Key ingredients for desserts and sides like eggs and butter jumped sharply by 38.5% and 74.7%, respectively. Due to bad weather and choked supply chains, the cost of fresh potatoes was also up 19.9%. Crop disease also impacted leafy vegetables like green leaf lettuce and romaine, sending prices up 8.7%.

Bob out, Bob in 

On Sunday, Bob Iger was reappointed as CEO of Walt Disney, becoming once again one of the most influential and highest-paid executives in Hollywood. It was under Iger’s 15-year reign that Disney made several strategic acquisitions, including the Pixar animation studio, the Star Wars film franchise, and the Marvel film franchise. 

Iger stepped down in 2020 and picked Bob Chapek, who formerly ran Disney’s theme parks and consumer products divisions, as his replacement. But the company surprised everyone when they announced that Chapek would be stepping down and Iger would once again guide the company through this crucial and complex industry transformation. However, Iger’s new term is a two-year temporary one. Year-to-date, the company’s market value has plunged over 30%. Iger’s return has pleased not just the industry but investors too, and the company’s shares jumped more than 8% this week.  

Slipping Suisse 

After losing almost $11 billion in market capitalisation this year due to risk and compliance failures and persistent underperformance, Credit Suisse announced plans for a massive strategic overhaul last month. The Swiss-based bank spoke about measures such as a radical restructuring of its investment banking business, reallocating capital, and cost-cutting. 

As the bank undertakes these steps and loses several high-net-worth clients, it projected a $1.6 billion (1.5 billion Swiss franc) fourth-quarter loss this Wednesday. In the third quarter, the bank saw outflows equivalent to about 6% of the assets it managed. And the cash outflows have only increased since the beginning of the fourth quarter. 

Time to DTR

The Biden administration is tightening non-bank regulations as regulators grow concerned about the financial instability and high-impact risks posed by companies that operate outside of the tightly regulated banking system. Here’s what you need to know:

• Non-bank companies primarily include asset management companies, hedge funds, insurance companies, cryptocurrency exchanges, and mortgage companies
• The Financial Stability Oversight Council (FSOC) are currently laying the groundwork to either entirely erase or repeal Trump-era restrictions that aimed to limit the regulation of non-banks
• Regulators want to classify non-bank companies as Systemically Important Financial Institutions (SIFIs), a label currently applicable only to US’s largest banks
• This is important for financial stability as, over the last few years, the gross assets of hedge funds or private funds have grown to about $21 trillion, which is only $2 trillion less than the commercial banking sector
• The aim is to make funds, cryptocurrency, and other financial products less vulnerable to investors bolting when the markets start to decline

Fintech startups and other non-bank companies in the US could be impacted by such tightening of non-bank regulations as it could entail higher capital requirements, increase costs, and potentially reduce flexibility of operations.

Undivorced yet?

Independent Franchise Partners, which holds about 7% of News Corp’s class A shares and 6.4% of Fox Corp’s shares, is opposed to the idea of the two companies recombining. This London-based investment firm is one of the largest shareholders of these two American media companies controlled by the Murdoch family trust. In 2013, Rupert Murdoch split the companies but proposed a deal to merge the companies again last month. 

Merging the companies again would allow Murdoch to gain a competitive edge in the media industry and cut costs at a time when the audience is shrinking for print media and cable TV in the face of social media and streaming platforms. However, Independent Franchise Partners believes that not only will such a merger fail to realise the real value of News Corp but that a breakup of News Corp should instead be explored.

Invest wisely 

Bear markets usually come in three phases, and according to analysts, we are only at the beginning of the second phase. What does that mean? It means that next year, stocks are going to go lower. If your investment horizon is long and you do not have any big purchases to make in the next one to two years, you can take advantage of the dip and buy quality stocks at discounted prices. However, if you need to meet some short-term financial goals, it would be best to stay away from stocks. Instead, you can consider investing in investment-grade bonds yielding 6% and having low risk in the short term. In fact, to hedge risk even further, you can invest in the bond market through Exchange-Traded Funds (ETFs), which adds a layer of diversification. You can invest in both high-performing stocks and ETFs to meet a range of your financial goals by downloading the Appreciate App.

Warm regards,
Another week
in the markets