6th August – 12th August 2022 | Another week in the markets
| S&P 500 | Nasdaq | VIX | DJIA | Russell 1000 | NYSE |
| 4,280.15 | 13,047.19 | 19.53 | 33,761.05 | 2,357.89 | 15,804.39 |
| 3.26% | 3.08% | 7.66% | 2.92% | 3.34% | 3.48% |
| Nifty 50 | Gold | Silver | Brent crude | USD-INR | EUR-INR |
| 17,698.15 | $1818.90 | $20.84 | $98.01 | 79.63 | 81.69 |
| 1.73% | 1.48% | 4.91% | 3.54% | -0.02% | 0.71% |
Source: MarketWatch
Hello Saturday,
This week things begin to look optimistic for the US stock market again as stocks continue to soar, inflation slows, and bullish sentiment reaches its highest level since March.
- Inflation slows as the consumer price index remains flat for July
- The US House passes the Inflation Reduction Act
- July jobs report reveals better-than-anticipated employment data
- Rivian reports a net loss of $1.7 billion in the second quarter
- Five Chinese companies threaten to voluntarily delist from NYSE
Taking stock | Flattening flatulence | Containing act | Jobs well done | Supply ball and chain | Chexit? | Invest wisely
Taking stock
Wall Street rose sharply on Friday, with S&P 500 and Nasdaq posting their fourth consecutive week of gains. This is likely due to early signs that inflation in the US may be slowing and that a bull market could be close. With S&P 500 crossing the level of 4,231 points, it has recouped 50% of its losses since it fell from its all-time high in January. This week, S&P rose 3.26%, Nasdaq added 3.08%, and the Dow gained 2.92%.
Flattening flatulence
The Consumer Price Index (CPI) rose 8.5% in July from a year ago, which is below what was expected by economists. This slowing pacing is primarily due to a drop in gasoline prices. When seen on a monthly basis, CPI in July remained unchanged. While gasoline prices fell 7.7%, food prices were up 1.1%. Charting a steep rise over the past year, food prices have risen by 10.9%, the highest since 1979.
Containing act
On Friday, the House of Representatives passed the $430 billion Inflation Reduction Act that is designed to lower inflation, reduce the budget deficit, fight climate change, and lower healthcare costs for Americans.
The bill includes a $369 billion investment in energy security and climate change. This includes clean-energy tax credits worth $260 billion for firms producing renewable energy as well as manufacturing parts central to renewable projects such as solar panels, $1.5 billion in rewards to oil and gas companies for cutting down their methane emissions, $20 billion in agricultural subsidies to support farmers in reducing emissions, and more. Hence, investments in clean energy companies over the next decade can be beneficial.
The second major investment is $64 billion for extending the Affordable Care Act for three years, through 2025. It also aims to reduce healthcare costs by allowing Medicare to negotiate prescription prices directly with the drug manufacturers. The goal is to cap out-of-pocket costs at a maximum of $2,000 annually for prescriptions.
This bill’s primary revenue source for these investments is a minimum corporate tax of 15% on all companies with profits of more than $1 billion a year. This is in an attempt to stop huge companies that are profitable from finding ways to evade paying taxes to the Internal Revenue Service (IRS). The bill also includes billions of dollars of funding for the IRS to dramatically scale up the tax agency’s activity to close the tax gap.
Jobs well done
The July jobs report revealed that hiring in the US has been far better than anticipated. Non-farm payrolls increased by 528,000, topping the Dow Jones estimate of 258,000, and the unemployment rate stood at 3.5% as opposed to the estimate of 3.6%. This takes the unemployment rate back to the pre-pandemic level. Leisure and hospitality added 96,000 jobs, health care added 70,000, construction 32,000, and retail 22,000. The average hourly earnings in the country rose 5.2% from last year.
Monthly jobs gains and losses from January 2020 to July 2022:
Supply ball and chain
Rivian Automotive Inc., reported a net loss of $1.7 billion in the second quarter and said it was facing supply-chain issues, making it difficult to ramp up its production. Since the beginning of 2022, the electric vehicle manufacturer has lost about three-quarters of its value. This has also been dragging down other companies, such as Amazon, which owns about 17.7% of the company.
Amazon’s stake in Rivian was worth about $27 billion shortly after its IPO in November 2021. But in 2022, with investors selling off high-priced IPOs that they had invested in last year to hedge risk, Amazon has taken paper losses of about $11.5 billion on its investment. Rivian, however, is positive that it will be able to scale and produce at least 25,000 vehicles by the end of this year.
Chexit?
On Friday, five Chinese companies said they would voluntarily delist from the New York Stock Exchange (NYSE) over audit and disclosure differences. These companies include China Life Insurance, PetroChina, China Petroleum & Chemical, Sinopec Shanghai Petrochemical, and Aluminium Corp. of China.
For years China and the US have had disagreements over the different audit standards. Foreign inspection of audit documents is barred by Beijing owing to national security concerns. Currently, Beijing and Washington are in talks to resolve this long-running audit dispute because it could lead to all Chinese companies being banned from US stock exchanges if they fail to provide access to their books. There are about 200 Chinese companies with a market value of about $2 trillion listed in the US as of 2021.
Invest wisely
While the stock market has rebounded in recent weeks, and some investors believe that major indices are close to exiting the bear market, you should continue to tread carefully. That’s because, despite the recent gains, the stock market may not be entirely out of the woods. Continue carefully monitoring your asset allocation between equity and debt to align with your risk appetite and focus on diversifying across asset classes. You can do this by downloading the Appreciate App today and gaining access to a wide variety of US-based investment products.
Warm regards,
Another week
in the markets
