D&D Note (6.27.2022) ~ Stocks Slip Slightly to Start the Week ~
All major US Indexes finished the day in the red slightly down. Pending home sales had a surprise increase of 0.7% in May due to a brief mortgage rate pullback. The good news in home sales is what sent stocks down today.
Investors want to see an economic slowdown to curb inflation which will help the FED to ease interest rate hikes. Investors don’t want too much of a slowdown though to put us into recession, threading the needle.
When we get a bit of good economic news that keeps the FED hawkish which the puts pressure on the stock market.
Past Bear Markets show an investor not to get sucked into any relief rally. If you need to trim or sell use these bear market bounces to sell selectively. Keep powder dry to then deploy when we hit bottoms keeping in mind you can’t call The Bottom so spread your buys to take advantage of each bottoming period.
An interesting but not useful tidbit is the last large bear market bottomed at 666 on the S&P 500 and this recent bottom was 3000 points higher at 3666.
Wall Street layoffs are likely after headcount had expanded over last two years. The IPO and SPAC booms are over and mortgage dealers are less needed.
Russia defaults on its debt due to sanctions imposed because of the country’s war against Ukraine. This was the countries first time to default since 1918.
Stock Specific News:
UiPath cuts 5% of workforce, the company provides software for office task automation.
Spirit Airlines fell today after an advisory for existing shareholders to vote for the proposed merger with Frontier Airlines.
Robinhood shares surged 14% after report that Crypto Exchange FTX is looking at buying the company. FTX CEO Sam Bankman-Fried already owns a 7.6% stake in HOOD.
Coinbase dropped today after Goldman Sachs downgrades it to sell citing crypto prices and the need to reduce companies cash burn.
Digital World Acquisition Corp, the company tied to former President Donald Trump’s social media platform, had its shares fall over 9% after its board of directors got subpoenas from a federal grand jury.
AutoZone rose today after getting upgraded to buy at Goldman Sachs citing the company is defensively positioned to handle current economic environment.
Etsy dropped today after being downgraded to hold at Needham citing inflationary pressures.
Amazon is to have 2 prime days this year announcing they will now also have a “Prime Fall deal event” in the fourth quarter.
Nike reported earnings after the bell and gained in the after-hours with a beat on revenues & EPS.
Devin Energy was D&D’s largest gainer today. Its important to remember that Devin Energy profits are based on $70 oil, so even if we see oil fall below $100 the company will remain profitable and maintain dividend.
Market Knowledge Tip:
Dividends are the amount of money per share a company pays you as the investor to hold the stock. Dividends can be paid yearly, quarterly, or on special occasions.
The percentage that dividend amount gives you per share is the dividend yield.
As we go into a rising rate economic environment dividend yielding stocks above 3% are attractive compared to bond yields.
If we go into a stagflation environment where interest rates rise and inflation remains (like we had in the 1970’s) then dividend yield stocks near the inflation level are most attractive. So if we have 5% inflation for the next 3 years then a stock yielding over 5% provides you inflation protection on your investment.
Today D&D’s gainers were for the most part our dividend yielding stocks and the down stocks where all non dividend paying companies.
Closing Markets (as of 1:15pm PST)
DOW down -0.2%
S&P 500 down -0.3% (3,900.11)
NASDAQ down -0.79%
VIX down -0.99% to 26.96
2 Year Note up 5.70bp to 3.12%
10 Year Note up 6.97bp to 3.20%
Oil up 2.026% to $109.80 a barrel.
Gold down -0.35% to $1823.90 an ounce.
Bitcoin down -1.91% to $20,903.94
Ethereum down -2.31% to $1,201.83
~ Dave James / Principal Trader and Market Strategist
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