For those keeping count…22 days until Christmas!
Weekly Summary:
Itsss December everybody and that means advent calendars! These nifty little calendars help count down the days til Christmas by giving their owner a gift in anticipation of each passing day. Unfortunately for the market, the gifts its dollar store quality advent calendar gave were Omicron and interest rate anxiety…leading to, yep, you guessed it…a bad week.
After starting the week off hot, the stock market started its backward slide Tuesday after Fed Chairman J. Powell addressed the Senate Banking Committee. During the meeting Powell took a rather odd approach to addressing a pretty straightforward question which was in essence, is the Fed is changing its stance on inflation…that is, is it still “transitory”?
It’s never good when a public official says the word “—-” has different meanings to different people..
In our case, this meant the market got interest rate anxiety leading to a 450+ point plunge in the Dow.
Adding on, by Wednesday the White House announced the first US case of covid-19 variant Omicron was discovered. With the discovery of the variant in the US there’s an open-ended question, how much if any restrictions might happen?
Taking both Omicron and interest rates together, this week was rough on the major indexes with the S&P giving up 1.25%, the Dow giving up .91%, and the Nasdaq giving up 2.62%.
All in, given the heightened level of uncertainty this week brought and that S&P 500 and Nasdaq came into December up an astonishing 20%+ YTD this was a “risk-off” profit-taking week for large investors.
*✏️Additional note for those who care, it makes sense for the Nasdaq to be hit hardest on interest rate fears as many valuations in that index rely on future earnings. As interest rates increase future earnings are discounted more and therefore less valuable today.
The Major Headlines:
? Jack Dorsey No Longer Twitter CEO
Bye-bye Jack… Jack Dorsey the controversial co-founder of Twitter returned to the CEO position in 2015 after being fired in 2008 over concerns of his hands-off approach to leadership. Since his return to leadership Twitter’s share price has struggled to gain traction appreciating 67% vs the 230% of the Nasdaq 100.
Looking Closer: There’s a pretty simple reason for sluggish stock growth -> lack of active daily users and Jack was not solving this problem. Comparing Twitter’s 211 million daily users vs Facebooks 1.9 billion, Instagram’s 500 million, or Snap’s 306 million somethings clear…A picture really is worth 1,000 words and Twitter only gives you 300-characters.
Next for Jack…Square: Jack Dorsey is also the current CEO of mobile payment processor Square. Stepping away from Twitter will allow him to focus on developing the future of that company particularly in the direction of crypto.
? Metaverse, Name Brand Companies Buying In
Drawing big names and big money…the metaverse is gaining steam.
Facebook isn’t the only one trying to figure out what the metaverse will look like. Familiar companies such as Chipotle, Verizon, Nike, Vans, Gucci, and Dior have been testing the waters with web 3.0 according to Wall Street Journal articles published this week. At this point though, everything is experimental with a monetization means unclear.
Chipotle -> Halloween -> Metaverse -> Free Burritos: While Chipotle faithful have typically needed to source ugly Halloween costumes to participate in the annual “boorito” free burrito promo. This year the company decided to move the promo to the metaverse where participates had access to less ugly costumes and traversed a virtual maze to receive a burrito promo code.
Softbank $150 million bet: Made famous for multiple high-profile investments such as Alibaba, SoftBank has recently made a $150 million investment in South Korean metaverse platform Zepeto. The niche platform is the second biggest metaverse platform in South Korea with 2 million daily users of which 70% are females between the ages of 13 – 24. Fashion brands such as Gucci, Dior, and Ralph Lauren are using Zepeto to sell virtual clothing to its audience.
? Transitory No More…
Have you ever been lost for words only to find the wrong ones at the wrong time??
Tuesday Fed Chair J. Powell found himself in just that situation while addressing the Senate Banking Committee. Having said all year that inflation is “transitory” the Fed Chair has used this stance to justify the Federal Reserve’s continued $120 billion asset purchase program and to not increase interest rates.
That all changes when Powell told congress “I think the word ‘transitory’ has different meanings to different people” when asked how long does inflation (6% currently) have to be above 2% before the Fed decides inflation isn’t transitory.
The double whammy: Not only did J. Powell probably hurt his credibility by getting funny on what transitory means he then followed that up by signaling the Fed will speed up “tapering” their asset purchases.
The stock market was not a fan ?♂️
? SpaceX Going Bankrupt??
When you Raptor engine is acting up..
While the details of what exactly is going on at SpaceX aren’t clear what is clear is that Musk isn’t happy and it has to do with not building raptor engines fast enough.
Long story short, Raptor engines are what power SpaceX’s Starship rocket. The Starship rocket is a mammoth-sized reusable rocket designed to deliver large payloads to orbit. The reason delivering large payloads to orbit is important is for efficiency which SpaceX needs, among other, things in order to make Starlink (their satellite internet service) financially viable.
Other Tidbits:
- Microsoft CEO Satya Nadella sells half of his shares..
- Buy Now Pay Later trend is picking up steam. BNPL volume 5x higher in Nov. YoY
- Nvidia Purchase of ARM blocked by FTC
- British say break it up…Order Facebook to sell Giphy
A Few Earnings From This Week
- Salesforce
Earnings Beat $1.27 vs $.92 est
New co-CEO Bret Taylor (formerly President and COO) along with current CEO Marc Benioff.
Q4 earnings guidance lower – triggered 5% after-hours selloff. Sales Cloud, the company’s core product had sales up 17% YoY. Service Cloud sales grew 20% YOY. The company closed its purchase of Slack in July…“The number of customers on Slack that spent over $100,000 is up 44% year over year.” – Bret Taylor
- Royal Bank of Canada
Earnings Miss $2.71 vs $2.81 est
Raising dividend payout. Predicts Canada’s central bank will raise interest rates by 25 basis points as early as Q3 next year. Expects mortgage growth to slow.
Reiterated concern over Liberal party’s plan to raise net tax rate on banks and insurance companies from 15% to 18%… “When you start proposing taxes right now, in this narrow way, it is kind of a real detriment to the overall investment thesis for Canada” – RBC CEO Dave McKay.
- Kroger
Earnings Beat $.78 vs $.67 est
Forecasting stronger full-year earnings as a result of food price inflation elevating in-home meal demand. Digital sales rose 103% from 2019 levels… “Kroger’s strategy to lead with fresh and accelerate with digital continues to connect with our customers” CEO Rodney McMullen
Kroger trying to enter Florida market and take on Publix without opening a single store – good article
With that, have a great weekend!