Monday, June 13th, 2022 – Volume 2 – Issue 240
WE’RE BACKKKKK…. Welcome back Bulls, we are sorry it took so long. We appreciate your patience and continued support. Make sure to update your app to the latest version. Let’s get back to business!
Don’t look… This is just one of those days that checking your portfolio = pure pain. Stay strong, friends.
Across the board, it was a brutal day. The S&P 500 fell to a new low for the year, officially closing in bear market territory (now down 21% from its January record).
The Lows: The averages hit their lowest point following a WSJ report suggesting that the Fed is considering a 0.75% rate hike on Wednesday… more on that later.
Crypto: If you thought stocks were bad today… OUCH. The crypto market fell below $1 trillion for the first time since early 2021 as broader market fears and the looming Celsius situation weigh on investor sentiment. Big story towards the end of the newsletter…
Now, for the top stories of the day… (and make sure you update the Hungry Bull app to the latest version!)
Source: Heat Map & Sector Performance — Finviz.com
Now is the Time to Deploy Cash: Jeremy Siegel
Are you a high-risk/high-reward type of person?
Well, if you are, chances are your cash reserves are pretty low right now. But, if you somehow happen to still have ammunition left in the clip, Wharton professor Jeremy Siegel says buy now, and you “won’t be sorry” a year from now.
Just Hold On, We’re Going Home: “Hold in there. If you got cash, begin to employ it. You won’t be sorry a year from now,” he said. Now the big thing here is “if you got cash” because I don’t know about you, but I don’t know too many people that still got cash.
Despite the recent spike in FUD, Siegel still believes that the S&P 500 will beat inflation, which it has historically done, even as inflation continues to rise. The renowned economist says the broad market index is lagging behind the consumer price index at the moment.
- “Through history, the S&P has beat the CPI by 4 to 5% a year. So really, it is way below its lag. So don’t forget in the long run, the evidence is we’re going to overcome that inflation with this stock index. It’s lagging its historical performance.”
- “There may be a downside… but let me guarantee you when this is over, the S&P will jump ahead of what the consumer price index is. That’s always the way it’s been historically.”
Apple's Gravy Train Isn't Slowing Down
It’s no surprise that Apple’s new iPhones are always a big hit, no matter how different (or similar…) they are to the previous models. But beyond the iPhone, JP Morgan analysts see massive growth in the company’s gaming and music offerings.
Growing By a Third: JP Morgan said on Monday that revenue from the iPhone maker’s gaming and music businesses should jump 36% to $8.2 billion by 2025.
The two services are expected to have a combined subscriber base of 180 million by that year — 110 million for music and 70 million for gaming.
Revving the Engine: Apple doesn’t give sales breakdowns for its gaming and music services, but the overall business segment (which includes App Store, Apple TV+, Arcade, and Apple Music) hit $19.82 billion in the March quarter alone.
This part of the business is seen as Apple’s ‘growth engine’ because the iPhone-maker can leverage preexisting users and customers to pull in additional recurring revenue. The key, of course, is marketing and incentivizing brand loyalty.
Apple Music: Launched in 2015, Apple Music is the second-biggest music streaming service (behind Spotify). As of January, Apple Insider reported that Apple has a 15% market share in the music streaming space, compared to Spotify’s 31%.
Apple Arcade: It’s no secret that gaming has been booming more than ever, and companies are investing heavily into the space (just remember that $69 billion deal for Activision). Apple hopes to capitalize on that market growth with the Arcade gaming subscription service.
Arcade is expected to pull in $1.2 billion by 2025.
Room to grow… JP Morgan analyst Samik Chatterjee expects the gaming-market size to hit $360 billion by 2028. As for the music streaming space, he sees the market hitting $55 billion by 2025.
Be Prepared for the Worst
With Friday’s inflation report coming in much hotter than expected, the market decided it would completely lose its s**t and crash. Since the report’s release, the S&P is down nearly 5%.
Why? Investors are now preparing for even more aggressive action from the Fed as they attempt to rein in the highest inflation since the early 1980s. Some economists are now predicting a 75 bp rate hike at this week’s Fed policy meeting, while others believe tightening will ramp up in coming meetings.
The Risk: Substantially increasing rate hikes would increase the risk of recession, as raising rates might slow inflation, but would come at the cost of higher unemployment and economic growth. Oh, and of course, the stock market will pay a heavy price as well.
New Expectations: Traders are now pricing in a 99.6% chance the Fed’s target funds rate will hit 2% by September’s meeting, with the current rate being 0.75% to 1%. This is well ahead of early year expectations, as its clear to see the Fed has been caught off guard and is now in scramble mode to control the situation.
Stay Tuned: The Fed’s next interest rate hike is on Wednesday. This will be followed by a JPowell press conference with investors clinching their buttocks at every Q and A. While this rate hike may be another half percentage point, the worry now is on the future rate of hikes and other fiscal policies.
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Cathie's ARKK Continues Being a Big Hit
Innovation is under attack — at least that’s what Cathie Wood’s innovation ETF ARKK may have you thinking. ARKK plunged over 9% today as pressure on many of Wood’s favorite picks continues to persist.
ARK’s largest holdings are down big.
ARKK’s ten biggest holdings are down today: Zoom, ARKK’s largest holding Zoom is down over 5%, Tesla is down 6%, Roku dropped over 10%, and Crispr plummeted 15%.
ARK Investment Management is the single largest institutional owner of Coinbase… the stock is down over 12% as the crypto market tanks.
Every fund in ARK’s lineup has dropped more than 20% this year, wiping out nearly half of ARK’s assets under management.
Investors aren’t jumping ship. Even though their central fund ARKK is down over 62% YTD, ARK’s nine funds brought in $167 million in inflows in 2022. ARK is only interested in a stock’s potential returns over five years, and ARK’s research chief Brett Witlen is as bullish as ever:
“From a commercial perspective, this is actually a great position for us to be in — innovation’s now on sale.”
So… who’s buying? “Diehard Cathie Wood loyalists, ‘disruptive tech’ bottom fishers, and ETF shares being created for short-sellers are all helping to staunch outflows,” said Nate Geraci, President of The ETF Store.
“Some of those inflows might just be investors buying the dip in hope,” said Morningstar’s Robby Greengold. “For every trader calling Cathie Wood the messiah, there could be another who lost thousands of dollars on ARKK.”
Crypto Market Chaos — This is Bad
The crypto market is officially in panic mode. $200 billion in value was wiped out overnight as Bitcoin fell over 16% in just 24 hours… Not good.
BTC is now under $24,000, and ETH is trading for approximately $1,200 following one of the first short-term crashes in recent crypto history.
The crypto market is under $1 trillion for the first time since early 2021 as Bitcoin and Ethereum hit their lowest levels since 2020.
WTF: Aside from what’s been true for a while already (40-year high inflation and a Jerome Powell that doesn’t give a **** about your risk-asset liquidity, there’s something else in the crypto market that has a ton of investors on edge.
Celsius, a crypto lending service, announced that it is pausing withdrawals and transfers for all accounts… indefinitely.
Celsius cites “extreme market conditions” as for why users can’t pull their funds out for the time being.
All the market hears, however, is ‘we screwed up.’ The market has already been on edge since the collapse of Terra and UST in mid-May, and Celsius is now adding fuel to an already-red-hot fire.
#Crypto Twitter is full of speculation, with many claiming that Celsius is just next in line to collapse following the UST debacle. The phrase “Ponzi scheme” is also being thrown around quite a bit…
How big is the problem? Celsius claims to have 1.7 million customers and advertises a yield of 18% for crypto deposits on their platform. Celsius’ own token (CEL) is already down over 50% in the last 24 hours.
Systemic Risk: “In the medium term, everyone is really bracing for more downside,” said Mikkel Morch, executive director of crypto hedge fund ARK36.
“Bear markets have a way of exposing previously hidden weaknesses and overleveraged projects, so it is possible that we see events like last month’s unwinding of the Terra ecosystem repeat.”
CME Group (CME): +1.55% – CME Group was able to escape the market carnage today.
Truist (TFC): +1.52% – Truist was the only bank stock in the green today.
McDonald’s (MCD): +0.39% – McDonald’s stock was up today somehow.
Revlon (REV): -42.93% – Cosmetics company Revlon’s stock tanked today following reports on Friday the company was preparing to file bankruptcy as early as this week.
MicroStrategy (MSTR): -25.18% – MicroStrategy led crypto-based stocks down today as the company has lost nearly $1 billion on Bitcoin and approaches margin call levels.
Astra (ASTR): -23.76% – Astra plummeted after a weekend launch carrying NASA satellites failed to reach orbit, the company’s second mission failure in three launches this year.
Tesla (TSLA) – RBC upgraded Tesla from sector perform to outperform seeing “near-term improvement and long-term positioning” for the company. “Upgrading to OP, $1,100 PT (from $1,175) given more favorable near-term set-up and belief that Tesla’s focus on supply chain and vertical integration will be a mid-term competitive advantage.”
DocuSign (DOCU) – Wolfe downgraded DocuSign from peer perform to underperform due to decelerating billing and potential single-digit revenue growth next year. “DOCU reported mixed F1Q23 results and updated its FY23 billings guidance to now grow ~half as previously expected and suggests potential for single-digit revenue growth next year.”
Micron (MU) – UBS reiterated Micron as a top pick seeing robust margins for Micron. “Amid macro concerns, we believe investors continue to overlook several key factors. First, although end market weakness in PC/smartphones is weighing somewhat on near term DRAM ASPs (average selling price), we see very strong pricing support heading into C2023 as the industry growth in bit supply is set to compress significantly.”
Quote of the Day: “The best way to measure your investing success is not by whether you’re beating the market but by whether you’ve put in place a financial plan and a behavioral discipline that are likely to get you where you want to go.” – Benjamin Graham
Fun Fact: Women first worked on the New York Stock Exchange in 1943 due to a shortage of male workers during World War II.