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What the Market?
Mr. Market is strapping in for what looks to be another rough week after three consecutive week’s of decline. It seems like Mr. Market is feeling a bit blue with all the difficult news as the Fed has leaned into a more aggressive position on rate hikes, and earnings growth rates are not giving us anything to write home about. The light in Mr. Market appears to be out but the ole fella has to keep on keeping on. A new inflation reading and highly anticipated tech earnings will be in focus this week - here’s to hoping for a little good news. If nothing else, pour some Eagle Rare in your morning coffee - it could help.
What’s driving the market?
What the Market is renaming itself to This week in Inflation: Not really…but it feels like it’s all we’ve been writing about for about a year. Alas, here we are, talking about inflation again - and this time its personal, they messed with our pizza. After the Chairman of the Fed, Jerome Powell, read our What the Market updates, it appears that he took our writings to heart and decided to introduce a more aggressive, steeper and faster rate hike to combat inflation. Powell indicated on Friday that a 50bps hike was on the table for the next meeting on May 4th to the 5th. That will be the largest hike since 2000. Keep in mind that as far as market volatility goes, communication, trust, and following through are far more important than the actions themselves when dealing with inflation.
Make it go fast! But then make it go slow! But not too slow!: The Fed’s job is to slow-down the overheating economy to ease pressure on supply chain’s after stimulus-induced demand kept things going throughout the pandemic. Higher interest rates lead to higher borrowing costs for everyone. This may result in less investing activity and risk-taking, particularly as inflation continues to gnaw at our purchasing power. The Fed must act cautiously and decisively to achieve their goal without slowing down the economy so much so as to induce a recession. No pressure!
What’s an investor to do?
Portfolio Management
Have you ever sat down and made a list of the things you hate? Nazi’s, an old boss, long-honkers, mosquitos, taxes, the creators of Lost, bureaucracy, and…sorry…got lost there for a moment. Well Mr. Market’s list has two big ones at the top, uncertainty, and bad news. Well… on top of accelerating rate hikes, a slowing economic backdrop, let’s add lackluster earnings; not ideal.
The message remains the same, for those hodling some speculative and high-growth plays - make sure you’re in it for the long haul and the company will be okay after the dust settles. There is still a war in Europe, commodity prices are flying, and supply chains are getting hit yet again by a COVID outbreak in China. It’s getting messier.
This is a time for flight-to-quality investments, particularly around short duration corporate bonds, and longer-term prospects you may find at an unjustified discount (medical equipment, healthcare, grocery stores, nuclear energy). Take some time to think about where we are heading and put in some time and thought into evaluating companies and their prospects. Buying for the sake of buying is absolutely not as good of an idea as it was during the Fed-fueled pandemic bull market.
Take a deep breath in, and exhale all the FOMO. It is okay to sit on cash right now, it is okay to not be trading or investing. If you have the stomach for it and time to look into some prospects - it is also okay to make a long-term investment. Lots of companies are trading low right now, look under the hood and find a great company at a good price (learn to evaluate price: evaluation guide)! Don’t jump on a lackluster company for a great price. If you have more questions on this - shoot us a message in our slack channel.
Keep an eye on the economy
US GDP Growth Estimates: Q1 GDP growth estimates will be released on Thursday, and they ain’t looking very pretty. GDP is expected to slow down from Q4’s stellar 6.9% YoY reading to 4.3% YoY. Moreover, projections have been sharply revised due to geopolitical and inflationary pressures, with growth expected to reach 3% in 2022 and 2.3% in 2023. Real growth seems hard to achieve when inflation is still high…
See here for the full economic calendar
The Curious Investor
No deep-dive this week
Emerging Ideas: Nothing new this week
Upcoming Earnings
Coca-Cola, UPS, Google, Visa, Microsoft, Kraft, Qualcomm, Meta, Ford, Chipotle, Altria, Apple, Amazon, Intel, PayPal, Robinhood, Exxon, Chevron, Colgate, Merck, Boeing, Pepsi, General Electric.
What we’re vibing:
Why Web3 Matters by Chris Dixon (A16Z): A brief article outlining Web 3.0 for those of us unfamiliar with the subject. Dixon does a great job summarizing and explaining the intricacies of what may lie ahead. Absolutely worth a read for those looking for a starting point on the topic.
The Black Pumas on NPR: We’ve probably shared this gem before but on the way to pick up some bagels this morning, I stumbled by a fishing store that sold records (welcome to Brooklyn) and landed the Black Pumas’ debut album on vinyl. Enjoy!
Resources
A content guide to investing (books, books, books!)
Disclaimer
This writing is for informational purposes only and the author/s undertake/s no obligation to update this article even if the opinions expressed change. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. It also does not offer to provide advisory or other services in any jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. The author/s expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing. The postings on this site are our own and do not necessarily represent the postings, strategies or opinions of our employers.
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