D&D Note (5.31.2022) ~ FED Chair Powell Meets with President Biden to Discuss Inflation ~
The markets gapped down to open today in the red after last Fridays rally. Throughout the session stocks attempted to stage a rally and got back in the green briefly before falling back down in the last hour of trading.
FED Chair J. Powell met with President Biden today to discuss inflation. Over the weekend Biden’s approval rating fell to the lowest of his term. Removing tariffs on China looks to be the next thing the administration might do and of course want to know how that could potentially effect the FED. The other thing the administration is looking to do is raise taxes, however in the 60’s and 90’s that didn’t work to curb inflation and rather inflation persisted causing the FED to further raise interest rates.
25% of Americans are now delaying retirement due to inflation according to the BMO Real Financial Progress Index conducted between March 30 and April 25. The survey further found the following things Americans are doing to fight inflation; 46% are dining out less, 42% are grocery shopping, 31% are driving less, 23% are canceling/spending less on vacations, 22% are cutting subscriptions.
The housing market in the wake of rising mortgage rates is showing signs of cooling off with listing prices falling 9% last month.
The Wall Street Journal is reporting OPEC is considering suspending Russia from oil production which caused Oil to fall today immediately upon the headline coming out. This after earlier in the day the EU reached a deal to ban 90% of Russian crude by the end of 2022 which initially caused WTI to spike to $120 a barrel before then falling $5 to $115 on the OPEC news.
Top Gun Maverick becomes the highest grossing Memorial Day movie ever bringing in $156 million.
Bitcoin proved to be volatile over the weekend as D&D warned about on Friday. The volatility came in to the upside with the coin gaining to now trade at $31,716.
Stock Specific News:
Netflix and Disney shares were both higher today after both companies reported record streaming numbers for their new weekend debuts of Star Wars spinoff Obi-Wan Kenobi (on Disney) and Stranger Things 4 (on Netflix).
Apple supplier, Foxconn, has said the China lockdowns has not hurt their operations as much as was expected which is a positive sign for Apple.
In a sign of the repricing of companies, Amazon is now trading at 10 times cash flow which hasn’t been the case since their IPO 20 years ago. There is an upcoming stock split on June 6th and the stock rallied 4.33% today.
Salesforce reported a beat on earnings after the bell seeing the stock rally over 7% in the post market trading, which is a good sign for cloud related tech stocks.
Estée Lauder has been upgraded to outperform with a price target of $300 by Oppenheimer after China COVID restrictions ease.
SNAP has been downgraded to hold by Vertical Group on weaker ad spending.
Steel Dynamics has been downgraded to neutral with a price target of $92 by Goldman Sachs on relative performance to peers.
Market Knowledge Tip:
Determining wether a stock is “cheap” or “expensive” has nothing to do with its “sticker price” aka current stock price. Rather the actual determining factor is the P/E ratio of a stock meaning its price to earnings ratio. The P/E ratio is the multiple a stock is trading at compared to actual earnings (so a stock that has a P/E of 20x is trading 20 times more expensive than the companies actual earnings, keeping in mind the stock market looks into the future to price stocks today)
Stock A has a price of $3,000 and a P/E ratio of 15x
Stock B has a price of $5 and a P/E ratio of 100x
An investor would be mistaken to think just because a stock is $3,000 its expensive and just because a stock is $5 its cheap.
In reality Stock A in this example is far cheaper trading only 15 times current value whereas Stock B is very expensive trading 100 times current value.
Closing Markets (as of 1:15pm PST)
DOW down -0.67%
S&P 500 down -0.63% (4,132.15)
NASDAQ down -0.41%
VIX up 1.79% to 26.18
10 Year Note UNCH to 2.862%
Oil down -0.156% to $114.89 a barrel.
Gold down -0.999% to $1832.80 an ounce.
Bitcoin up 2.91% to $31,716.58
Ethereum up 1.29% to $1,944.16
~ Dave James / Principal Trader and Market Strategist