Wednesday, June 15th, 2022 – Volume 2 – Issue 242

Dow Jones: 30,668 (+1.00%)

S&P 500: 3,789 (+1.46%)

Nasdaq: 11,099 (+2.50%)

Russell 2000: 1,736 (+1.36%)

Bitcoin: $21,573 (-1.86%)

Ethereum: $1,162 (-1.84%)

Confidence is key… And it looks like some confidence was restored in the market and the Fed as the central bank raised rates by 75 basis points — its largest rate hike in 28 years.

 

It was a volatile day, but investors eventually took the Fed’s decision to raise rates by 75 basis points as a positive for the market and economy. Stocks closely linked to economic growth surged in a big way — Boeing gained 9.5% on the day.

 

Each major sector (besides energy, which fell 2%) ended the day in the green. Consumer discretionary saw the biggest gain of 3%.

 

 

Crypto: Bitcoin and Ethereum continue to struggle today as fears of contagion risks spread throughout the market. Crypto fund Three Arrows Capital, one of the most vocal market participants over the past few years, is facing insolvency after nearly $400 million in liquidations.

 

Now, for the top news stories of the day…

 

Source: Heat Map & Sector Performance — Finviz.com

Netflix is Trying to One-Up Mr. Beast with Squid Game IRL

It’s no secret that Netflix has been hurting. After all, the company’s stock is down a whopping 69% so far in 2022. And the streaming giant is feeling a lot of pressure to get things back on the right track with content.

 

Naturally, they want a ‘for sure’ thing to attract viewers… So why not produce something that’s already market tested?

 

Netflix just announced that it would be bringing back the iconic Squid Game show as a reality TV series. Called “Squid Game: The Challenge,” 456 contestants will compete in a series of Squid Game-inspired events for the chance to win a $4,560,000 prize — the largest cash prize in reality TV history.

 

But Mr. Beast did it first… One of the most popular YouTubers in the world, Mr. Beast, released his own Squid Game challenge as a YouTube video in November 2021 — getting 258 million views, his biggest video to date.

 

Big Shoes to Fill: Netflix already knows that there’s an audience for this type of reality show, but the execution is going to be extremely important.

 

  • If done correctly, the show can be extremely lucrative and successful. But if viewers end up thinking that Mr. Beast did it better… well, that would be very bad for the streaming giant.

 

“Squid Game: The Challenge” will be a 10-part series. Netflix is also working on a second season of the original show as they try to flesh out more Squid Game content and build on its 1.65 billion hours of original watch time.

 

  • Upon the announcement, NFLX stock surged 7.5% today. Is this exactly what the stock needs to start a full-fledged rebound?

Bill Gates Says Crypto is 100% Based on This...

Bill Gates… Hate him or love him, he’s rich and successful. It is what it is. Crypto… Hate it or love it, it’s made people rich and successful. But Bill Gates isn’t a fan.

Greater Fool Theory: At a TechCrunch talk yesterday, Gates described the crypto and NFT market run as something that’s “100% based on greater fool theory.” This is referring to the idea that overvalued assets will continue to surge in value when there are enough investors willing to pay for them.

Old School: “I’m used to asset classes … like a farm where they have output, or like a company where they make products,” Gates said. When talking about crypto, Gates said, “I’m not involved in that. I’m not long or short any of those things.”

Sketchy Business: Gates also pointed to the illicit use of crypto, such as tax invasion and ransom fees, as another red flag about the industry. It’s worth nothing Gates has also voiced displeasure about the asset class in the past due to its negative impacts on the environment.

Bill Got the Jokes: Bill joked that “expensive digital images of monkeys” would “improve the world immensely,” taking shots at the Bored Ape Yacht Club NFT collection.

2021 Comments: “I do think people get bought into these manias who may not have as much money to spare. So I’m not bullish on Bitcoin,” he said at the time. “My general thought would be that if you have less money than Elon [Musk], you should probably watch out.”

China's Economy Just Shocked Wall Street

China’s economy is under the microscope right now. As the global economy slows, all eyes are on the big two, the United States and China, to monitor just how bad the situation may get. China released some key economic numbers late last night that surprised many analysts.
 
  • Industrial production rose 0.7% in May YOY, vs an expected drop of 0.7%.
  • The month prior, this number dropped 2.9% YOY.
  • Retail sales fell less than expected, down 6.7% in May YOY, vs an expected drop of 7.1%.
  • The month prior, this number fell by 11.1% YOY.
  • Fixed asset investment surged 6.2% YOY, vs an expected rise of 6%.
In a statement released on the economy, China’s National Bureau of Statistics said the economy “showed a good momentum of recovery” and that the country was slowly overcoming Covid complications, but the international environment was still complicated and the domestic economy still faced problems.
 
GDP: Both imports and exports increased in the month of May, with exports surging 16.9% YOY and imports rising 4.1%.
 
Covid lockdowns in the country are easing, as the two largest cities of Shanghai and Beijing began to fully reopen on June 1st. Unemployment in the country is still high, as in April the rate hit 6.7%. Analysts are expecting a recovery in the Chinese economy in the latter half of this year.

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Mortgage Demand is Down 50%

Rising interest rates, sky-high home prices, and a shortage of houses for sale are hitting prospective buyers hard. Mortgage demand is at its lowest level in 22 years — now less than half of what it was during the same week one year ago.

Key numbers:

  • Last week, the total mortgage application volume was 52.7% lower than the same week in 2021, according to the Mortgage Bankers Association.
  • Purchase mortgage demand (excluding refinance demand) was 21% lower than the same week last year.
  • Adjustable-rate mortgages, typically popular during high-interest periods, were down and only accounted for 8% of all mortgage applications.

“Mortgage rates increased for all loan types, with the 30-year fixed rate last week jumping 25 basis points to 5.65% — the highest level since 2008,” said MBA Associate Vice President of Forecasting Joel Kan.

A rebound coming? According to Kan, overall application activity rebounded slightly following the Memorial Day holiday but “remained 0.29% below pre-holiday levels.”

Real Estate CEOs weigh in. Redfin CEO Glenn Kelman said, “We could be facing years, not months, of fewer home sales, and Redfin still plans to thrive. If falling from $97 per share to $8 doesn’t put a company through heck, I don’t know what does.”

Stocks Just Did the Unthinkable — Fed Goes Heavy

So, you’ve probably heard the news… The Fed ended up going with what the market was expecting and raised interest rates by 75 basis points — it’s most aggressive rate hike since 1994.

“Clearly, today’s 75 basis point increase is an unusually large one, and I do not expect movies of this size to be common,” Powell said. He did add that he expects July’s meeting also to see an increase of 50 or 75 basis points, though. In Powell’s words, decisions will continue to be made “meeting by meeting.”

  • Markets React: Despite the “unusually large hike,” stocks surged today, giving investors a sign of life. This relief rally could mean that investors are becoming more confident in Powell’s ability to tame inflation and get things back under control.

The Dot Plot: This is where things get interesting. Fed Committee members now believe, on average, that the Fed’s benchmark rate will end the year at 3.4%. Members then see the rate rising to 3.8% in 2023 — a full percentage point higher than what they expected back in March.

Cutting Growth: Fed officials cut their 2022 economic growth outlook as well, now anticipating just a 1.7% gain in GDP (down from the 2.8% estimate from March).

Inflation Projections: Personal consumption expenditures projections rose to 5.2% this year (from 4.3%). Core inflation projections, though, increased just 0.2 percentage points to 4.3%. With Core inflation hitting 4.9% in April, this means the Fed is expecting an easing of price pressures in the coming months.

Powell’s Comments

    • A “soft landing” is still possible.
    • “If you were to get inflation on its way down to 2%, and unemployment up to 4.1%, that’s still a historically low level. … 3.6% is historically low in the last century,” Powell said. “So a 4.1% unemployment rate, with inflation well on its way to 2%, I think that would be a successful outcome.”
    • Front-end Loading: “The committee is moving rates up expeditiously to more normal levels, and we came to the view that we’d like to do a little more front-end loading on that.”
    • “We’re not trying to induce a recession now. Let’s be clear about that,” he said. “We’re trying to achieve 2% inflation with a strong labor market — that’s what we’re trying to do,” Powell added.

Bulls

Boeing (BA): +9.46% – Shares of Boeing jumped today after reports that airline China Southern was conducting test flights with Boeing’s 737 Max jet. 

MicroStrategy (MSTR): +9.22% – CEO Michael Saylor defended the company’s Bitcoin investing strategy and said he is considering buying more at current levels.

Snowflake (SNOW): +7.61% – Snowflake stock jumped today following an upgrade to buy from Canaccord Genuity, saying the stock looks cheap.

Bears

Marathon Petroleum (MPC): -3.67% – Marathon led oil plays lower today as crude oil retreats from near all-time highs. 

Robinhood (HOOD): -2.49% – Robinhood was hit with a downgraded today from Atlantic Equities from overweight to neutral weight. 

Spirit Airline (SAVE): -1.41% – Spirit Airline stock continues to be under pressure amid uncertainty around its acquisition deal continue to linger.

Snowflake (SNOW) – Canaccord upgraded Snowflake from hold to buy becoming more bullish after the company’s analyst day. Snowflake’s Analyst Day was held in conjunction with a customer conference that management characterized as its most significant event from an innovation standpoint in several years.”

Spotify (SPOT) – Wells Fargo upgraded Spotify from underweight to equal weight saying it’s a “show me” story. SPOT’s recent investor day laid out a more profitable company than we have modeled historically. Should we believe them? Given the strength in user and revenue growth we’re willing to concede some margin expansion opportunity, and give management time to execute.”

Robinhood (HOOD) – Atlantic Equities downgraded Robinhood from overweight to neutral over concerns about declining users and revenue. “We are increasingly concerned about the deteriorating revenue trends facing Robinhood and downgrade to Underweight. Robinhood’s MAUs (monthly active user’s) have been declining rapidly since 2Q21 and ARPU has fallen 62% from its peak in 1Q21.”

Quote of the day: “The key to growth is the introduction of higher dimensions of consciousness into our awareness.” – Lao Tzu

Fun Fact: After being used on a regular basis, bills wear out and are taken out of circulation. The $1 bill gets the most use and typically only lasts about 5.8 years. The $10 bill surprisingly only lasts about 4.5 years. The $5 bill also has a shorter lifespan than the $1 bill, coming in at 5.5 years, whereas the $20 and $50 bills start to trend upward at 7.9 years and 8.5 years, respectively. The longest lifespan belongs to the $100 bill, which lasts an average of 15 years.