Putin holds an annexation ceremony

24th September – 30th September 2022 | Another week in the markets

S&P 500	Nasdaq	VIX	DJIA	Russell 1000	NYSE
3,585.62	10,575.62	31.62	28,725.51	1,972.29	13,472.18
-2.91%	-2.69%	5.68%	-2.92%	-2.74%	-2.35%
Nifty 50	Gold	Silver	Brent crude	USD-INR	EUR-INR
17,094.35	$1,668.30	$19.02	$85.57	81.56	79.97
-1.34%	-0.66%	-3.28%	-5.27%	0.38%	1.55%

Source: MarketWatch

Hello Saturday,

This week, Putin holds an annexation ceremony to annex four Ukrainian regions, the bond markets see a major sell-off, and global currencies continue to fall against the dollar. 

• All indicators of the global economy point towards a recession 
• The dollar index reaches a new two-decade high
• More US states plan on adopting California’s electric vehicle mandate
• Porsche goes public in Europe’s biggest IPO this year 
• Netflix shifts the production cost burden on comedians in new deals 

Taking stock | The show must go on | Dollar store pickpockets | The carbon-neutral auto race | Porsche IPO | Ha ha ha | Invest wisely

Taking stock

Wall Street dipped lower on Friday to close a historically bad month and quarter. While September has never been a good month for the stock market, this September was the worst since 2008. The Dow Jones closed 22% below its January peak, and the S&P 500 declined for three straight quarters for the first time since 2009. With S&P and Nasdaq being down 25% and 33% year-to-date, the US stock market is on track for one of its worst years. Since 2008, none of the three indices have ended the year down more than 10%.

The show must go on 

The way the global economy and markets are right now is edging on apocalyptic. All three major US indexes are in the bear market, having fallen over 20% from their recent highs. Inflation in developed and developing economies is the highest it has ever been. Central banks around the world are hiking rates. The Russia-Ukraine war is only escalating. Add to that a major sell-off in the bonds market, record-high mortgage rates, increasing layoffs, and a reverse gold rush – you get the recipe for an unavoidable global recession predicting a string of financial crises. It will probably get worse before it gets better, but the show must go on. 

Dollar store pickpockets

The dollar index, which measures the value of the US dollar against a basket of six influential currencies, reached a new record high this week. This means that the world’s major currencies continue to fall against the dollar, including the Canadian dollar, the British pound, and the euro. Year-to-date, the dollar index is up 17.02%, with a 7.2% gain in the current quarter. But according to the Institute of International Finance, this is not the end of how much the currencies can or will fall against the dollar. It estimates that the pound is still 18% above while the euro is 11.6% above its fair value. 

The carbon-neutral auto race  

In August, California’s electric car mandate was approved, which phases out the sale of gas cars and requires all new vehicles sold by 2035 to be electric or plug-in hybrid electric. This week New York’s governor Kathy Hochul said that the state of New York is planning to adopt the same rules. A public hearing with the proposed rules will be held before they are finalised. According to the rules approved in California, automakers are required to have electric vehicles and plug-ins as 68% of their sales by 2030. And by 2035, they can’t have plug-ins be more than 20% of their sales. 

While the biggest automakers around the world are promising to sell electric vehicles exclusively by 2030, Toyota, the largest automaker in the world, is not all in yet. Rivals such as General Motors and Volkswagen have been investing billions of dollars in the last few years to manufacture electric vehicles, but Toyota has been lagging behind. The company, which became the preferred automaker of environmentalists about two decades ago with its Prius hybrid, has been falling out of favour lately. It has only recently started to make the required investments to focus on all-electric vehicles but will it be able to catch up? What’s more, the company still does not believe that all-electric vehicles are the only solution to becoming carbon-neutral.

Porsche IPO

On Thursday, Porsche made its market debut on the Frankfurt Stock Exchange at €84, 2% above its IPO price. The stock rose almost 5% before closing flat at €82.50, returning to its issue price. This is the biggest IPO that Europe has seen in 2022 and the second-biggest that Germany has ever seen. However, companies around the globe have been holding off on going public this year, given the market weakness and volatility. So far this year, the US has only seen 32 Initial Public Offerings (IPOs), an 88% plunge since last year. Despite this, Porsche has definitely boosted the IPO sentiment. Many believe companies like Porsche will lead the market out of its current IPO deficiency.

Ha ha ha

Netflix is shifting the burden of production costs onto comedians and artists in new deals by entering into licensing deals instead of making costly outright purchases. This year, the streaming platform has begun entering into two-year licensing deals for new comedy specials for about $200,000 instead of paying them a lump sum of as much as $1 million, as was previously the case. This shift is just one of the many moves to cut costs that the company is taking as it faces the challenges of losing subscribers and a slowing growth pace. Netflix expects to keep its content spending around the current $17 billion range in the coming years. To compete with its rival platforms and rapidly create new content without increasing spending would likely mean artists and writers will have to take the hit, as can already be seen. 

Invest wisely 

The last thing you should do in the current environment is to stop investing. This will only erode the value of your money, given the surging inflation levels. It will also deter you from meeting your long-term financial goals. Instead, you should continue investing but avoid stocks of companies that are unproven, high-risk, or cyclical. You should also not adopt any new investing strategies, given the current instability. Focus on investing in companies with strong financial fundamentals with a long-term investment horizon, and continue to diversify. You can do this with US investments adding a solid layer of diversification by downloading the Appreciate app.

Warm regards,
Another week
in the markets