Last Week's Recap
Stocks mostly gained after April's CPI data on Wednesday which showed inflation rising 4.9% annually - just under the +5.0% expected, and slightly less from the March reading.
Over the week, the Dow Jones and the S&P 500 dropped by 1% and 0.1% respectively, whereas the Nasdaq posted a gain of 0.7%.
The Week Ahead
Next week, the US will focus on speeches by Federal Reserve officials, retail trade data, industrial production, and housing indicators. The standoff over raising the debt ceiling between members of Congress will be closely watched. The US Treasury Department has $88 billion remaining to cover government bills, amidst rising concerns over potential default and increasing national debt, which stands at $31.4 trillion.
The U.S. Congressional Budget Office (CBO) confirms Treasury Secretary Janet Yellen's warning of a significant risk of default possibly by June 1, adding to global economic worries. President Biden affirmed ongoing budget discussions to prevent a catastrophic US default, though acknowledging that the crunch point hasn't been reached.
Any failure to make a deal will result in a market selloff. We outline how we're trading this in this week's Level 2 news analysis.
The Great Tribulation
The banking sector shows vulnerability, with only $100 billion of the $17.2 trillion bank deposits insured by the FDIC, leaving 99.5% uninsured. The image above by Visual Capitalist shows the banks with the most uninsured deposits.
Over 700 US banks have reported unrealized losses exceeding half of their capital.
In the midst of these uncertainties, April's Producer Price Index (PPI) inflation fell to 2.3%, lower than the expected 2.4%, and core PPI also dropped to 3.2%, below the forecast of 3.3%.
Simultaneously, US credit card debt is escalating, with the revolving credit, mostly constituted by credit card debt, witnessing a $17.6 billion surge in March, the largest monthly increase in a year.
Consequently, total credit card debt is expected to exceed $1 trillion for the first time this year, while interest rates continue to rise at an unprecedented rate. The US appears to be using credit card debt to combat inflation.
It's worth noting that credit card debt hit an all-time-high in 2008, the last time inflation and interest rates were high in the U.S.
The dollar index strengthened to over 102.5 this week, marking an increase of over 1%: its largest weekly gain since February. The speculation that the Federal Reserve may maintain elevated interest rates for an extended period contributes to the currency's strength, following Fed Governor Michelle Bowman's remarks on the possibility of further rate increases if inflation continues.
Concurrently, US consumer sentiment fell unexpectedly to a six-month low in May, according to recent economic data. The measure is often correlated with market selloffs.
Return of Gold
Gold may be entering a sustained growth phase due to global de-dollarization trends, says Karen Karniol-Tambour, Co-CIO of Bridgewater Associates. While gold has traditionally appealed during periods of falling interest rates, Karniol-Tambour believes the precious metal's prospects are even brighter now.
As countries seek to lessen their dependence on the US dollar due to geopolitical risks, such as the freezing of Russia's foreign currency reserves amidst sanctions, alternatives like China's yuan are gaining traction. Simultaneously, central banks have been increasingly acquiring gold for their reserves - a trend that could influence investor sentiment towards gold, which is often viewed as a non-yielding asset.
With ongoing geopolitical instability and inflation remaining high globally, gold is well-positioned as a hedge against the erosion of purchasing power.
Despite a slowdown in US consumer inflation from last June's 9% high, the recent April data indicates a rate of 4.9%, significantly higher than the Federal Reserve's 2% target.
It is also worthy of noting that the Alaska House, on Thursday, passed a bill that would allow Gold and Silver to be used as legal tender (accepted currency).
Last Week's Top Events
Tesla's stock dropped by 2.4%, following the company's decision to increase the prices of its Model X and Model S cars in the US and Elon Musk's appointment of a new Twitter CEO.
Robinhood Markets ($HOOD) plans to introduce 24-hour trading for 40 stocks and some ETFs, including high-profile stocks like Tesla, Amazon, and Apple. This feature, designed to stretch trading hours beyond the traditional Wall Street schedule, will be available from 8 p.m. Eastern Time on Sundays to 8 p.m. on Fridays for 43 securities. The company is set to launch the initiative next week and expects all users to have access by June.
This move is part of a broader trend to transform the market into a 24/7 operation and to regain excitement around Robinhood following the decline in its stock since its 2021 IPO and the fallout from halting trading of Gamestop stock during the famed short squeeze.
Palantir beat revenue and earnings estimates, sending the stock up 29% in a day. The company's CEO also projected they would see its first profitable year on record following a 17% increase in year over year revenue.
Much of Palantir's revenue comes from the government and is seen as more insulated from the recession than other tech companies.
The company recently said they were seeing increased demand for their new AI tool, which integrates ChatGPT language models to summarize information faster for military intelligence units.
CASE STUDY: Teekay Tankers
Shipping company Teekay Tankers (TNK) announced it would be initiating a fixed quarterly dividend, a special dividend, and establishing a share repurchase program.
Teekay Tankers Ltd. provides marine transportation services to oil industries in Bermuda and internationally. It operates through two segments, Tanker and Ship-to-ship Transfer (STS).
LevelFields users were alerted to the event announcement at 530am, which resulted in a +12% 1D return in the share price.
- Catalent (CTLT)
- Lordstown Motors (RIDE)
- Tower Semiconductor (TSEM)
- NuBank (NU)
- Home Depot (HD)
- Tencent Music (TME)
- Tupperware (TUP)
- Baidu (BIDU)
- Cisco (CSCO)
- Boot Barn Holdings (BOOT)
- Jack in the Box (JACK)
- Target (TGT)
- Synopsys (SNPS)
- Walmart (WMT)
- Alibaba (BABA)
- Bilibili (BILI)
- Bath & Body Works (BBWI)
- DXC Technology (DXC)
- Applied Materials (AMAT)
- NIO (NIO)
- Deere (DE)
- U.S Existing Home Sales
- Jobless Claims
- Fed Chairman Powell and former Fed Chairman Bernanke on panel
Level 2 Trade Preview
This is a part of what we send to Level 2 members each week.
Energy Drink Celsius delivered a 100% earnings beat and 100% revenue growth for the quarter, sending the stock soaring. This is a long-term hold, as noted back on April 30th when we alerted members and it was trading at 95/share. The stock hit a high of 134 last week.
The media completely failed to report Hyatt's buyback authorization and dividend resumption. As a result, the stock did not move on the information. However, analysts saw it and raised their price target to 141.
Our SQM options strangle is up 30% in a few weeks on a net basis, with the calls up 66%. The prudent move is to take the gains on the calls and let the puts ride until the market pulls back.
This is not financial advice. All information represent opinions only for informational purposes.
The LevelFields Team