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US consumer spending & inflation – released

21st May – 27th May 2022 | Another week in the markets

S&P 500 Nasdaq VIX DJIA Russell 1000 NYSE
4,158.24 12,131.13 25.72 33,212.96 2,285.42 15,942.62
6.58% 6.84% -12.61% 6.24% 6.56% 5.71%
           
Nifty 50 Gold Silver Brent crude USD-INR EUR-INR
16,352.45 $1,850.60 $22.140 $115.32 77.65 83.36
0.53% 0.30% 1.72% 2.13% -0.22% 1.41%

Source:MarketWatch

Hello Saturday,

This week the dollar index fell from its mid-May peaks and world stocks climbed as data on US consumer spending and inflation was released, signalling that the US economy could be on track for growth in the second quarter. 

  • US stock market begins to recover after seven straight weeks of losses
  • Broadcom to acquire VMware Inc. in one of the biggest tech acquisition deals ever
  • Tech stocks in China rally after Alibaba and Baidu post quarterly results 
  • The Federal Reserve’s minutes from the May’s meeting point to further interest rate hikes 
  • Gun stocks increase after the Texas mass shooting in anticipation of an increase in sales
  • High oil prices will continue to be supported by an increase in demand while supply lags behind

Taking stock | Cashing in the chips | Hong Kong tech song | Hiking by the minutes | Trigger warning | Me-more-oil day | Invest wisely

Taking stock 

US stocks rallied this week, and all the major indices ended in green, breaking their longest losing streaks. S&P gained 6.58% and had its best week since November 2020 while the Dow and Nasdaq also gained over 6% each in a sharp reversal. 

Cashing in the chips

One of the biggest tech acquisition deals ever was announced on Thursday when chipmaker Broadcom said it is going to acquire the cloud computing company VMware Inc. It is a $61 billion cash-and-stock deal and is the second-biggest acquisition deal of the year so far. After this announcement, Broadcom and VMware’s shares both rose by 3.5% and 3.1%, respectively. By acquiring VMware, Broadcom will instantly become one of the biggest software players, and its software revenue will almost triple. 

Hong Kong tech song

Chinese tech stocks rallied on Friday after internet giants Baidu and Alibaba posted quarterly results on Thursday that beat expectations. Baidu’s revenue rose by 1% to 28.41 billion yuan ($4.22 billion), beating Wall Street’s 27.9 billion yuan estimate. The demand for the company’s cloud and Artificial Intelligence (AI) products increased as COVID-19 made a comeback. The company’s Hong Kong-listed shares rose close to 16%, while US-listed shares rose by 5% in premarket trading. Alibaba reported a 9% year-over-year revenue increase for the quarter, while its total revenue for the fiscal year grew by 19%. Alibaba’s Hong Kong-listed shares surged by over 12%, and the Hang Seng Tech Index rose by 3.9%.

Hiking by the minutes

The minutes from the Federal Reserve’s meeting earlier this month were released this Wednesday, suggesting more rate hikes this year. There could be as many as three increases of 50 basis points each in the coming months to curb the surging inflation in the US. The Fed noted that inflation could be pushed even higher owing to the lockdowns in China and the Russia-Ukraine war. It was also discussed that price hikes were broadening to core goods and services as opposed to last year when the price spikes were more focused. 

However, these minutes were from three weeks ago, and consumer spending and inflation data released this week show that the US economy may be on the right track. The personal consumption price index, a key measure of inflation, rose only by 0.2% in April, making it the smallest increase in 1.5 years, while consumer spending increased by 0.9%.

Trigger warning

This week, tragedy struck in Texas with one of the US’s worst school shootings in almost a decade. On Tuesday, a teenage gunman shot 19 elementary school children and two teachers.  On Wednesday, stocks of the major gun and ammunition companies in the US increased in value. The shares of Strum Ruger increased by more than 4%, while Smith & Wesson and Vista Outdoor increased by about 7% each. Reality is grim.

But why would the stocks go up when something so horrifying has happened? That’s because investors anticipate an increase in sales, and this tends to happen after every major event that is seen as a threat to personal security. Mass shootings like these trigger appeals for stricter gun laws. This, instead of decreasing fear as is intended, tends to increase fear in those who view guns as a necessary tool for self-protection. 

A graphical representation of the number of background checks for handguns and rifles

Source: Grid

Me-more-oil day

Oil prices rose on Friday ahead of the Memorial Day holiday weekend in the US, with the national average at about $4.599 per gallon now. Not only is this almost at the record-high of $4.60, but it is also a 40% increase so far this year. This time of the year tends to mark the peak summer demand period in the country with increased driving and travelling. With OPEC+ sticking to a modest supply increase for July and EU embargoes on Russian oil, prices are expected to increase as supply may be constrained in the face of increasing demand.

Invest wisely

While the markets may have been consistently volatile for the most part of this year, deciding to stop investing is not a smart move. That’s because inflation levels are high, domestically and globally, and the only way to prevent your money’s value from eroding is by investing. Investments hedge inflation risk by earning returns at a rate that is usually higher than the inflation rate, and this is why you shouldn’t let your money sit idle. Instead, build a portfolio that is diversified across investment products and geographies. Download the Appreciate app to add the best-performing US stocks and ETFs to your investment portfolio.

Warm regards,
Another week
in the markets

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