Oil prices fall to lowest

30th July – 5th August 2022 | Another week in the markets

S&P 500	Nasdaq	VIX	DJIA	Russell 1000	NYSE
4,145.19	12,657.55	21.15	32,803.47	2,281.68	15,273.23
0.36%	2.15%	-0.84%	-0.13%	0.64%	-0.36%
Nifty 50	Gold	Silver	Brent crude	USD-INR	EUR-INR
17,397.50	$1,792.40	$19.86	$94.66	79.65	81.11
1.39%	0.54%	-2.34%	-8.98%	0.57%	0.15%

Source: MarketWatch

Hello Saturday,

This week, the Bank of England warns of a long recession, oil prices fall to their lowest in months, and strong earnings reports help US stocks to rise. 

• Central banks of developed nations continue to increase interest rates
• Oil giants post record profits amidst soaring oil and gasoline prices 
• Several big US companies increase their capital expenditure to fuel growth 
• HBO Max and Discovery Plus to merge into one streaming platform 
• Quarterly earnings of companies like Uber, CVS Health, and Starbucks beat expectations

Taking stock | Tighter, fighter | Huge profits for Big Oil | Capex caper | Converging streams | Beating expectations | Invest wisely

Taking stock

Stocks ended lower on Friday as the July jobs report was a lot stronger than expected. The report showed that the labour market added significantly more jobs than was anticipated, and the unemployment rate fell to 3.5%. In Friday’s volatile trading session, S&P fell 0.16%, Nasdaq shed 0.50%, and Dow Jones gained 0.23%. Technology stocks slumped while bank and energy stocks rose and helped offset losses. 

Tighter, fighter

Central banks around the world continue to raise interest rates in an attempt to control soaring prices. The tightening monetary policy forces people to significantly cut their spending, which, in turn, could trigger a recession. On Thursday, the Bank of England raised its base interest rate by 50 basis points to 1.75%. This is the sixth consecutive raise this year and the biggest jump in 27 years. 

The Bank of England also said that the country would enter a recession towards the end of this year, and would most likely last till the beginning of 2024. Predictably, this led the sterling to fall. But the Bank of England is not alone. Last month, the European Central Bank ended its long era of negative rates, and the Federal Reserve has been consistently raising its rates as well. In fact, most developed economies, such as New Zealand, Canada, and Australia, have been doing the same. 

Huge profits for Big Oil

Five of the largest Western oil companies – Exxon Mobil Corp., Chevron Corp., Shell Plc, BP Plc, and TotalEnergies – reported a record $60 billion in combined profits in the second quarter of 2022. A major contributor to such earnings is the soaring energy prices. BP Plc more than tripled its quarterly profit from $2.8 billion in the second quarter last year to $8.5 billion. However, the extraordinary profits of these giants may trigger the US government to impose a windfall tax on oil and gas companies, something the UK has already announced. With fuel prices surging to record-highs for consumers, the profits of the oil giants are seen as them capitalising on a global supply crisis. 

Capex caper

Several industry giants in the US, from General Motors Co. to PepsiCo Inc. are increasing their capital expenditure on technology, equipment, and real estate to expand operations and optimise inventory. For a lot of S&P 500 companies, capital expenditure has been growing at a faster pace than stock repurchases. Capital expenditure for about two-thirds of the companies in the index has increased by 20% from a year ago to $149.8 billion, while stock repurchases have increased by 10% to $160.8 billion. Amidst rising interest rates and surging inflation, rising capital expenditure by some of the biggest companies has been an encouraging signal for the stock market in these uncertain times.

Converging streams

On Thursday, the merger between Warner Bros. Discovery’s HBO Max and Discovery Plus was announced. Combining these streaming platforms into one is an effort to cut subscriber losses by providing a wider range of content. Warner Bros. Discovery aims to hit 130 million paying subscribers by 2025 in this highly competitive streaming market. The company is also open to the idea of following Netflix’s suit and introducing an ad-supported free streaming service. 

Beating expectations

This week, several other big companies posted their second-quarter earnings. Starbucks beat Wall Street estimates despite taking a hit from the lockdowns in China, and its stock climbed nearly 2% in extended trading on Tuesday. Uber also posted its quarterly results on Tuesday and beat analysts’ estimates despite reporting a net loss of $2.6 billion. Its shares closed the day up 18.9%. Uber’s competitor Lyft posted record earnings of $79.1 million on Thursday and saw its shares surge by over 8% on Friday. CVS Health and Moderna both released their quarterly earnings on Wednesday and beat Wall Street’s expectations. CVS’s revenue stood at $80.64 billion as opposed to the expected $76.37 billion. Moderna’s sales, $4.7 billion, increased by 9% over the same period last year 

Invest wisely

If you are constantly looking at the market movements and changing your investment strategy, you may find it almost impossible to meet your financial goals. Given the global economic uncertainty, you need to be clear about your long-term goals and invest in asset classes such as equity accordingly. Whether it is buying a new house or striking off every country on your travel bucket list, set your goals and invest smartly based on Appreciate’s AI-enabled recommendations. Download the Appreciate App and seamlessly access the US stock market for higher returns and better diversification.

Warm regards,
Another week
in the markets