Week of Jul 18, 2022
Markets and Macro
S&P 500:
The week started at 3,883, went down on Monday to 3,830, but recovered on Tuesday through Thursday, closing at 3,998. On Friday, July 22, 2022, the index went slightly above 4,000 but then retrieved back to 3,961.
At Jul 22, 2022 closing, the S&P500 index was down 17.5% compared with Jan 3, 2022.
Inflation & Inflation Expectations:
The market It appears that the market is coming to the realization that inflation is here to stay well into 2023. The ‘deglobalization’ narrative and the fact that it’s inflationary in nature is being repeated more often. It appears that many believe that the job market is going to cool down, specifically in light of the unemployment result that came up, placing the claims at an eight-month high.
Fear of recession:
A recurring question that is raised these days is whether or not we’re already in recession. The economic data published showed a negative growth of -1.6% in Q1-2022. The possibility of another negative quarter in Q2-2022 is high. But even if that happens, many believe that we cannot call this a recession because of strong employment and consumer spending that have remained strong (despite the fact that Consumer Sentiments Index is down).
Rate hikes:
ECD (European Central Bank) increased its benchmark by 50bps, which was a surprise to the market as many expected 25bps. The increase coincided with an announcement from Russia that they will resume the gas flow to Europe at 50% capacity. As of now, geopolitics remain the biggest threat to EU.
ECD also introduced a new bond purchase scheme (an anti-fragmentation instrument) named TPI that is intended to selectively help countries that might get into a financial trouble as a result of the rate hike (most notably, Italy). The criteria, however, appears to be strict and unlikely to happen.
ECD also decided not to provide any forward guideline given the constant changes and uncertainties. The decisions will be based on the latest available data.
In the US, the expectation that the Fed will increase the rates by 75bps in their next meeting is increasing. The September rate hike is expected to be 50bps as of this week.
PMI (Purchasing Manager’s Index)
The Institue for Supply Management (ISM) released June’s results with manufacturing PMI registering at 53%, a 3.1% decline from May. This was interpreted by the market as a sign that the economy is starting to cool off. See the complete report here.
Income reports
SNAP Inc. (NASDAQ: SNAP)
SNAP’s earnings were disappointing and short of the analysts’ estimate, resulting in 39% drop in the share price on Jul 22, 2022 (Price-per-share on Jul 21 ($16.35) and on Jul 22 ($9.96). Management attributed the disappointing results to the lingering fears of recession which has caused the corporations to think twice when it comes to spending on advertisement given that they expect the consumer spending will drop anyways so no point in incurring costs.
Twitter Inc. (NYSE: TWTR)
Twitter released its Q2-2022 earnings, showing 1% year-over-year decrease in revenue, which management attributed to “headwinds associated with the macroenvironment” as well as uncertainty relating to the acquisition of Twitter by Elon Musk.
The announcement did not impact the share price.