18th February 2023 – 24th February 2023 | Another week in the markets
| S&P 500 | Nasdaq | VIX | DJIA | Russell 1000 | NYSE |
| 3,970.04 | 11,394.94 | 21.67 | 32,816.92 | 2,187.37 | 15,464.46 |
| -2.67% | -3.33% | 8.24% | -2.99% | -2.70% | -2.37% |
| Nifty 50 | Gold | Silver | Brent crude | USD-INR | EUR-INR |
| 17,465.80 | $1818.00 | $20.74 | $82.85 | 82.93 | 87.45 |
| -2.67% | -1.80% | -4.51% | -0.36% | 0.08% | -1.31% |
Source: MarketWatch
Hello Saturday,
This week, the US targets Russia with additional sanctions and tariffs as the latter’s war against Ukraine completes one year, Netflix cuts subscription prices in 30 countries, and Domino’s posts disappointing fourth-quarter results.
- The US offers additional support to Taiwan and Ukraine; your investment portfolio may benefit from defence stocks amidst rising geopolitical tensions
- Oil and gas prices drop as supply remains strong and demand decreases; the dollar grows stronger; warmer weather forecasts arrive
- Netflix cuts prices in 30 countries across Southeast Asia, Latin America, the Middle East, and sub-Saharan Africa to boost subscriptions; its stock price drops by 4.5% and analysts recommend buying the dip
- The European Commission bans employees from using TikTok on official devices and personal devices with work apps; the Chinese app might get banned in the US amidst rising US-China tensions
- Domino’s Pizza misses Q4 2022 revenue estimates and same-store sales growth; higher delivery prices impact delivery orders, which make up 60% of its business
Taking stock | Peace in pieces | Oil foiled | Netflix chills | Tick-tock for TikTok | Domino’s effect
Taking stock
All major indices fell sharply this week due to an uptick in the core Personal Consumption Expenditure (PCE) price index, which is one of the Fed’s preferred inflation gauges: the index rose 0.6% in January and 5.382% year-over-year. The S&P slid 2.67%, the Nasdaq dropped 3.33%, and the Dow fell 2.99%. This was the worst week for the US stock market since 2023 began.
Peace in pieces
US-China tensions have been on the rise ever since a US fighter jet shot down a suspected Chinese spy balloon earlier this month. The US is now planning to increase the number of troops deployed to Taiwan to train the island’s military. Currently, there are about 30 US troops in Taiwan, and the US plans to deploy between 100 and 200 more troops there in the coming months. The Pentagon expanding its training program in Taiwan might only further provoke Beijing. In addition to Taiwan, the US is also providing additional support to Ukraine.
This Friday marked the first anniversary of the Russia-Ukraine war. The US announced fresh sanctions against Russia and its allies, and announced another $2 billion in weapons for Kyiv. As of now, this does not include the F-16 fighter jets that Ukraine has requested, but does include various types of drones, such as Switchblades and the CyberLux K8, as well as more ammunition for the High Mobility Artillery Rocket System (HIMARS). Such equipment is manufactured by major US defence contractors like Lockheed Martin and Raytheon. These companies have benefited over the past year from the war in Ukraine — shares of Lockheed Martin, the manufacturer of HIMARS and F-16 fighter jets, have risen about 23% since the invasion.
The Israel-Palestine conflict is also worsening. This week, Israeli troops first raided the city of Nablus and then launched airstrikes against weapon manufacturing and storage sites in Gaza. Given the current geopolitical atmosphere, the defence spending of the US and the Eurozone countries are expected to rise, with defence contractors benefiting from the turmoil.
Oil foiled
Oil and gas prices have fallen in February, with natural gas being hit especially hard — natural gas futures fell below $2 per MMBtu for the first time since late 2020. There are several reasons behind this.
First, winter is coming to a close, and milder weather means lower heating demand. Second, the supply remains strong — the US’s crude oil inventories stand at 417.4 million barrels, their highest level since June 2021. The US government announced that it would release more crude oil from its reserves. Third, worries about the Fed’s aggressive interest rate hikes and a stronger dollar have reduced demand from other countries, impacting US oil exports and keeping storage supplies high.
Netflix chills
This week, Netflix’s stock fell as the streaming platform cut prices in over 30 countries, including Malaysia, Thailand, Indonesia, Kenya, and Iran. In some of these countries, subscription prices have been slashed by half. Analysts, including those at JP Morgan, believe that this dip is a good time to buy Netflix stock. These price cuts don’t impact the company’s biggest markets, the US and the UK, and the stock drop of 4.5% on Thursday may have been an overreaction, according to analysts.
More importantly, the company’s stock is at a much better place since cratering in 2022 after the company reported losing subscribers for two consecutive quarters. Since then, Netflix has taken several steps that have improved its financials — from job cuts to a cheaper, ad-supported subscription plan. The company has also been rolling out anti-password-sharing features and charging an extra fee for every additional user in countries such as Canada, New Zealand, Spain, and Portugal. Netflix added about 7.66 million new subscribers in Q4 2022, and its stock is up over 7% year-to-date.
Tick-tock for TikTok
This week, the European Commission banned TikTok from all official devices over concerns about cybersecurity. The social media app, owned by China’s ByteDance, has seen a similar ban recently by the US Federal government. This essentially means that government employees cannot use the China-based app on any government-issued devices or on personal devices with any work-related apps.
TikTok is now facing the increasingly real prospect of being banned in the US and other western countries, as suspicions of the Chinese government spying on US citizens are rising after recent events. If this happens, it will greatly impact TikTok’s business, as the US is its largest user base. India banned TikTok along with about 300 other Chinese apps way back in June 2020 over national security concerns.
Source: Statista
Domino’s effect
Domino’s Pizza, the biggest pizza chain in the world, posted a disappointing Q4 2022 earnings report this Thursday, leading to its stock falling by 11%. Its revenue of $1.39 billion missed the estimate of $1.43 billion, and the growth of its US same-store sales, at 0.9%, missed the estimate of 3.7%.
Domino’s, like most other US chains, has increased its delivery charges and menu prices to combat higher labour and commodity prices. These increases have impacted its online orders of pizzas and chicken wings, as consumers are trying to pull back on discretionary spending amidst surging inflation. This has significantly impacted Domino’s, as 60% of its business is through deliveries. The pizza chain also trimmed its global retail sales growth outlook from 6-10% to 4-8%.
Invest wisely
One of the golden rules of investing is to buy low and sell high. Thus, short-term stock price drops of established companies with strong financial fundamentals, like Netflix, are great windows of opportunity for investors. And you can now easily invest in Netflix and other promising US stocks through the Appreciate app. Download the app today!
Warm regards,
Another week
in the markets
