Friday, July 15th, 2022 – Volume 2 – Issue 264
It’s a Friday miracle!
Stocks popped today as results from the bank stocks came in. Wells Fargo surged 6.2% (even as quarterly profits fell 48%) and Citigroup soared 13.2% after beating estimates.
These results were far better than the reports we saw from JP Morgan and Morgan Stanley just yesterday, and the respective stocks all moved to reflect that.
Tech: Beaten down tech names blew up today, with Netflix rising a wild 8.2%. Meta jumped 4.2%, Salesforce rose 3.9%, and Amazon gained 2.6%.
Crypto: Bitcoin surged, approaching the $21k level and giving up its losses from earlier this week. DeFi tokens have been stealing the show, though. SOL, AAVE, and many others were up double digits today.
Now, for the top stories of the day…
Source: Heat Map & Sector Performance — Finviz.com
Celsius Owes $4.7 Billion... But There's Good News, Too
Did you know that Celsius owes almost $4.7 billion to customers? Wowza… and it gets worse. Celsius also has a $1.2 billion ‘hole’ in its balance sheet, with $5.5B in liabilities and only $4.3b in assets.
But, there is some good news — at least for the broader crypto space. Bitcoin is on its way to $21,000 as it gives up its losses for the week, and DeFi tokens are making a big comeback as the total crypto market capitalization makes its way back to $1 trillion (currently $943 billion).
DeFi tokens are outperforming as Celsius pays down millions worth of debt to a number of protocols ($223 million to Maker, $235 million to Aave, and $258 million to Compound).
At the time of writing, SOL is up 12%, AAVE is up 16.5%, and QNT is up 20%.
The Bad News: Liquidity is still a big problem in the crypto space right now, and the only thing that’s certain is that uncertainty is very high. So institutional investment into the space is pulling back hard.
Crypto VC investments dropped 26% in the first half of 2022. Investments fell from a record high of $12.5 billion to $9.3 billion (first half of the year).
However, deal flow actually increased year-over-year from 456 deals to 534.
A New Way to Lever Up Your Trades
So here’s something interesting. The SEC just approved single-stock ETF products, giving investors and traders an easier way to make leveraged bets on a particular stock without using options or other complex investment vehicles.
As a side note, the SEC has still not approved a spot Bitcoin ETF, which would simply track Bitcoin. Hmm.
Anyway, AXS Investments launched 8 new funds this week that investors can use to bet on or against a stock. Many of these are designed to deliver a multiple of the return of the underlying stock. Here are some examples.
(TSLQ): AXS TSLA Bear Daily ETF
(PYPT): AXS 1.5X PYPL Bull Daily ETF
(NVDS): AXS 1.25X NVDA Bear Daily ETF
Popular stocks like Tesla, Nvidia, PayPal, and Nike are among the first wave of stocks on which these particular funds focus… but expect more of these to pop up if they pick up some traction in the trading community.
Be careful, though. Investment products like these could be dangerous, especially if you’re not sure exactly what you are getting yourself into. Before clicking ‘Buy’ on any single-stock ETF (or anything for that matter), make sure you understand the risks involved.
These ETFs, in particular, are leveraged and not meant to provide returns over a long period of time (best for short-term trades).
The funds also carry an expense ratio of 1.15%, which is considered a bit expensive when compared to other leveraged and inverse funds.
China's Economy Just Missed the Mark
China, the world’s 2nd largest economy, missed on its second-quarter GDP growth estimates, posting 0.4% growth, compared to expectations of 1% growth by analysts polled by Reuters.
- Industrial production missed expectations: 3.9% vs expected 4.1%
- Retail sales 3.1% in June beating expectations of no growth YOY
- Online sales of physical goods grew 8.3% YOY in June, but slower than May’s growth of 14%
- Fixed asset investment beat expectations: 6.1% vs expected 6%
- Unemployment in China’s 31 largest cities fell from pre-pandemic highs to 5.8% in June
China’s statistics bureau called the latest results “hard-earned achievements” but warned of “lingering” covid complications and “shrinking demand.”China was hit hard by covid lockdowns as the nation faced its worst outbreak since the height of the pandemic in 2020. Shanghai was on lockdown for almost 2 months. Conditions have eased and improved since.The complications have caused investment banks to cut China’s 2022 GDP targets, as the median forecast as of late June is 3.4%, according to CNBC’s tracking. For reference, the GDP projection in March was “around 5.5%.”
Jamie Dimon Has Some Choice Words for the Economy...
JPMorgan Chase CEO Jamie Dimon shared some choice words about the economy and the Fed yesterday — neither of which sound too optimistic.
The good news: On one hand, Dimon says that the U.S. “economy continues to grow and both the job market and consumer spending, and their ability to spend, remain healthy.”
JP Morgan said they still do not see any signs that the U.S. economy is entering a recession.
The bad news: Unfortunately, the good news ends there, with Dimon also rattling off several warnings: “But geopolitical tension, high inflation, waning consumer confidence, the uncertainty about how high rates have to go and the never-before-seen quantitative tightening and their effects on global liquidity, combined with the war in Ukraine and its harmful effect on global energy and food prices are very likely to have negative consequences on the global economy sometime down the road.”
Dimon rips the Fed’s stress test. JP Morgan was forced to halt its planned share buybacks and is now scrambling to generate more capital to comply with the results of the Fed’s test.
The Fed implemented the annual stress test after the 2008 financial crisis, but Dimon doesn’t think it’s necessary. “We don’t agree with the stress test,” Dimon said. “It’s inconsistent. It’s not transparent. It’s too volatile. It’s basically capricious, arbitrary.”
Under the Fed’s hypothetical scenario, JPMorgan was expected to lose around $44 billion as markets crashed, a figure Dimon says is bunk, saying that JPMorgan will continue to earn money in a downturn.
No more home loans?
Dimon said the capital rules could force some banks to recede from home loans entirely and that JPMorgan will originate mortgages and immediately offload them.
“It’s not good for the United States economy and in particular, it’s bad for lower-income mortgages,” Dimon said.
The Truth About the 1% Rate Hike
Investors are doing their best to digest this week’s stunning inflation report — and of course, eyes and ears are turning towards the Fed as the market starts to prep for the July Fed meeting on the 26th.
The market was previously anticipating a 75 basis-point hike in July, but now the fed funds futures are indicating that investors see Jerome Powell and the Fed going all out with a full 1 percentage point rate hike.
This would be very aggressive, especially since June’s 75 basis-point hike was already the largest interest rate increase the United States has seen since 1994.
But it wouldn’t be totally crazy, either… The Bank of Canada unexpectedly rose its rate by 1% (while the market expected 0.75%) in an attempt to get further ahead of sky-high inflation.
Market Pricing: The fed funds rate range is 1.5% to 1.75%. Ben Jeffery, a rate strategist at BMO, said the market was now pricing for a fed funds rate of 2.51% in July, but October futures also pointed to a bigger hike in September. The September contract was priced for fed funds at 3.23% by October.
As of yesterday, the market was pricing in a near-80% chance of a full percentage point rate hike in July.
Keeping Up with the Fedashians: The Fed is likely to be a bit quiet ahead of its July meeting, but members are still chatting around and making their appearances. So far, it seems like everyone believes that a 75 basis-point hike is the right move.
Fed Governor Christopher Waller said that he expects (and supports) another 75 basis-point rate hike, but would be open to an even larger one.
St. Louis Fed President James Bullard made similar comments in an interview earlier this week.
Atlanta Fed President Raphael Bostic claimed that “everything is in play” for the July Fed meeting, including a potential 1% rate hike.
Disclaimer: Many experts say that even though it may be on the proverbial table, the 1% rate hike is extremely unlikely to happen… but we’ll just have to wait and see.
Pinterest (PINS) +16.17%: Pinterest stock soared following reports that Elliott Management had acquired a 9% stake in the company.
DraftKings (DKNG) +14.62%: DraftKings popped of no news today as an unexpected squeeze took place.
Citigroup (C) +13.36%: Citigroup tops profit estimates as the bank benefits from rising interest rates. Citi Group is the only major bank to top revenue expectations thus far.
10x Genomics (TXG) -17.07%: 10x missed revenue expectations by $13 million and saw a decrease of 1% YOY.
Plug Power (PLUG) -12.90%: Solar stocks fell today after senator Joe Manchin said he wouldn’t support climate or tax provisions in Democrats’ economic bull.
Lucid (LCID) -2.14%: The EV maker slipped today without significant news.
Qualcomm (QCOM) – Edward Jones upgraded Qualcomm from hold to buy, seeing an attractive buying opportunity. “We are upgrading Qualcomm to a Buy from a Hold because we believe the stock does not fully reflect our growth outlook.”
Netflix (NFLX) – UBS lowered its price target on Netflix from $355 to $198 on subscriber growth concerns. “Expect 2Q sub declines in line with guide & a cautious 2H outlook.”
Microsoft (MSFT) – BMO cut its price target on Microsoft from $345 to $305 but still sees that stock having “both good offensive and defensive attributes.” “We are lowering our upcoming June quarter and FY23 estimates to reflect increasing FX headwinds, and we are introducing our FY24 forecasts.”
- Payments firm Stripe cuts internal valuation by 28% – WSJ
- Anxious Americans feel a little better about the economy, but not much, consumer sentiment shows
- Celsius Acknowledges $1.2B Hole in Balance Sheet
- These 5 real estate markets are cooling down the fastest
- Starbucks is closing down these stores over safety concerns
- Citigroup tops profit estimates as bank benefits from rising interest rates, shares surge 13%
- Over $31 billion in trade is rail-landlocked or stuck at anchor off U.S. coasts
Quote of the Day: “For the things we have to learn before we can do them, we learn by doing them.” ― Aristotle,
Fun Fact: James Howells threw out a hard drive in 2013 that contained his digital wallet. The wallet contained 7,500 Bitcoins. Howells, who lives in Wales, is trying to get the local city council to allow him to excavate the landfill in a last ditch effort to find the hard drive containing the Bitcoin.