Friday, June 17th, 2022 – Volume 2 – Issue 244

Dow Jones: 29,888 (-0.13%)

S&P 500: 3,674 (+0.22%)

Nasdaq: 10,798 (+1.43%)

Russell 2000: 1,665 (+0.96%)

Bitcoin: $20,564 (-1.82%)

Ethereum: $1,088 (-1.77%)

The S&P’s worst week since 2020… Ouch. It was a rough one.

Stocks were volatile today as many investors felt nervous about holding on through the weekend while others looked to scoop up shares at a discount.

For the Week: The Nasdaq fell 4.78%, the S&P 500 lost 5.79%, and the Dow slipped 4.79%. The small-cap Russell 2000 index took a 7.42% hit.

Quadruple Witching: Stocks were likely more volatile than usual today as stock index futures, single-stock futures, stock options, and index options all expired today. This “quadruple witching” event occurs once per quarter.

Crypto: No multi-bagger relief rally here yet… BTC is down 29% over the past 7 days. ETH is down 35%.

Now, for the top news stories of the day…

Source: Heat Map & Sector Performance — Finviz.com

60% of CEOs Say This Will Happen Next

A new survey of 750 CEOs and C-suite executives found that over 60% of CEOs globally expect a recession will occur in their primary region of operations before the end of 2023. The survey was conducted in mid-May, well before the Fed hiked interest rates by 75 basis points. 

Executives are feeling bearish:

  • 15% believe we are already in a recession, 43.3% think a recession will occur by the end of 2022, and just 19.1% said they don’t expect a recession in the next 2-3 years. 

  • 61% of executives said the war in Ukraine would impact business operations by causing volatility in energy prices over the next 12 months, and 53.6% said it would cause higher costs for inputs.

Times change. Just a few months ago, in late 2021, only 22% of CEOs surveyed believed there was a recession risk — down from 39% in 2020.

Some good news: 

  • More than a quarter of CEOs globally say their organizations are accelerating progress toward using renewable energy because of Russia’s invasion of Ukraine. 

  • Only 16% of CEOs say they are highly concerned about diminishing the global primacy of the US dollar.

  • Chicken or the egg? “I’m afraid we’re all going to talk ourselves into a recession as everybody is out there screaming about hurricanes and other stuff just scaring the consumer,” said Larry Hilsheimer, CFO of Greif Inc, to investors.“We’re just not seeing it.”

  •  

Crypto Market Fears: The Truth About Three Arrows Capital

With the broad crypto contagion growing, you may be wondering what role Three Arrows Capital is playing in the market. Well, today they confirmed some suspicions…

But first, who is Three Arrows Capital? 3AC is a big crypto fund. In fact, it was known as one of the largest holders of the Grayscale Bitcoin Trust, as well as staked ether (stETH) tokens — both of which have seen steep recent declines. Three Arrows has been one of the more vocal and active crypto funds in the market over the past few years. 

Huge LUNA Losses: Three Arrows Capital confirmed today that it suffered heavy losses in the recent market downturn. Co-founder Kyle Davies told the WSJ that 3AC invested over $200 million in LUNA tokens as a part of the Luna Foundation Guard’s $1 billion raise in February.

  • That $200 million is now essentially worthless after LUNA’s dramatic collapse. “The Terra-Luna situation caught us very much off guard,” said Davies.

As of April, Three Arrows Capital had over $3 billion worth of cryptocurrencies under management. Now, they are in much worse shape…

  • 3AC owes at least $6 million to crypto exchange BitMEX, according to a report by The Block.

  • The fund is exploring options in hopes of reaching a settlement with creditors — including asset sales and a rescue by another firm.

Zooming Out: The Three Arrows fund is said to have faced at least $400 million in liquidations, and speculation is growing about what 3AC ‘bankruptcy’ would mean for the rest of the crypto market.

Some investors are worried that this won’t be the last fund to collapse… Therefore putting the market in an even worse position than it already is — and making a rebound rally even harder to come by.

History Says Next Bull Run Will Bring S&P 500 to 6,000

Bank of America’s Michael Hartnett told clients yesterday that if the market follows history to a T, “today’s bear market would end on Oct 19, 2022 (35-year anniversary of Black Monday) with S&P 500 at 3000.” That would be 18% below yesterday’s market close.

  • This is based on calculations using averages — the average peak-to-trough decline in a bear market has been 37.3%, lasting 289 days.

Not a Forecast: Of course, Hartnett isn’t saying things will play out exactly like this… In fact, he believes investors should start buying before (if ever) we reach those levels to take advantage of the next bull run fully.

6,000 S&P 500: Bank of America notes that the average bull market lasts a much-longer 64 months, returning an average of 198%. “So next bull sees the S&P 500 at 6,000 by February 28th, 2023,” said Hartnett.

Contrarian Investing: The bank’s very own Bull & Bear Indicator is at its lowest point possible — a score of 0.0. That means the market is looking so bearish, that it may actually be one of the best times to start buying up stocks.

  • The indicator previously hit 0.0 in August 2002, July 2008, September 2011, September 2015, January 2016, and March 2020.

Nibble, Bite, Gorge: “Positioning dire, but profits/policy say nibble at [an S&P 500 level of 3,600], bite at [3,300], gorge at [3,000],” added Hartnett.

Zooming Out: $16.6 billion flowed into stocks last week. The market saw the biggest inflow to U.S. small-cap stocks since December 2021 (at $6.6 billion) and the largest flow into U.S. value stocks in 13 weeks (at $5.8 billion). $800 million flowed into tech stocks.

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America's Rivals Are Getting Closer

The relationship between America’s enemies is strengthening as Russia is further alienated from the world. Today, Chinese President Xi Jinping reiterated his country’s alliance with Russia amid western sanctions.

Flirting: “Today, our cooperation between Russia and China [is] rising,” Xi said. “Trade over the first half of this year has been [in the tens of billions of U.S. dollars], and we can expect new records in upcoming months, which is a testament to the great cooperation between our two nations.”

The comments come as Jinping was speaking via video at the St. Petersburg International Economic Forum’s plenary session, at which Putin also spoke. In the speech, Xi emphasized the potential of the Chinese economy and furthering the development of the Belt and Road Initiative.

The Numbers: In the first 5 months of 2022, China-Russia trade totaled $65.81 billion, up 28.9% YOY, according to China customs data. The majority of the growth was due to Chinese imports from Russia.

It was recently reported that despite sanctions, Russia’s revenue from oil exports soared to $97 billion amid the global energy crunch. Much of this was due to China, which has bought $12.6 billion worth since the war began, replacing Germany as its top exporter.

The Russian economy has been hit hard this year, with The Russian Ministry of Economic Development projecting a 7.8% decline in GDP this year, but recent forecasts from outside analysts are now suggesting that it could only contract by 5%.

This is a "Once-in-a-Lifetime Buying Opportunity"

You may never have heard of Rob Baron before, but he’s kind of a big deal on Wall Street. The founder of Baron Capital, he manages roughly $49 billion and has a net worth of $4.3 billion. The billionaire recently did an interview on CNBC, and his message is simple, this is a once-in-a-lifetime buying opportunity in the markets.

Monstrous Opportunity: During the interview, the fund boss said there would be a “Huge monstrous opportunity following June 2022 Crash!” This comes as stocks post yet another week of massive losses, adding to the devastation and more FUD.

Baron believes today’s opportunity is as big as when he started his company over 40 years ago and that growth stocks are preparing to “enjoy outsized gains.”

He says the stock market has only increased modestly over the past 20 years, while the economic expansion has been impressive due to technological innovation.

Fatherly Advice: Baron says he told his sons that “they now have the same opportunity I had when founded Baron Capital March 16, 1982, and Dow Jones was 880!  After 16 years of no progress in market averages. Especially the case now since we now have investments in incredible growth companies like Tesla and SpaceX and lots and lots and lots of others.“

Bulls

Sunrun (RUN) +12.78%: Solar stocks saw a massive boost today as oil prices plummeted amid demand fears. 

XPeng (XPEV) +9.78%: Xpeng led Chinese ADRs higher today as confidence in the group continues to grow and be upgraded by analysts. 

Moderna (MRNA) +5.74%: Moderna received FDA approval for its covid shot for kids as young as 6 months old.

Bears

ConocoPhillips (COP) –8.47%: WTI Crude crashed over 6% today as demand worries linger amid recession fears. 

Kroger (KR) -7.27%: In its most recent quarterly report, Kroger warned that rising inflation is spurring consumers to choose cheaper store brands. 

Pfizer (PFE) -2.06%: Pfizer shares fell after Moderna received FDA approval on their covid shots for kids as young as 6 months old.

American Express (AMEX): Baird upgraded American Express from neutral to outperform saying there is too much panic selling. “Relentless panic selling providing opportunity, risk/reward finally looking attractive for banks and card names. From our perspective, the recent crash in banks is providing an opportunity to add exposure to the group, and we are upgrading COF/MTB/FITB/AXP to Outperform this morning.”

Toll Brothers (TOLL): Wells Fargo downgraded Toll Brothers from overweight to equal weight saying the company is “mid-cycle play, but the current cycle is near end.” “Gross margin/ ROE sustainability will likely be a show-me for investors in a slowdown. Also, its affordable luxury product line resilience will be tested for the first time.”

Roblox (RBLX): Truist downgraded Roblox from buy to hold based on valuation. “Downgrade to Hold as screens least favorable of the group on: 1) revision trend, particularly AEBITDA as we expect the company to continue to invest aggressively; 2) valuation.”

Quote of the day: “If you set your goals ridiculously high and it’s a failure, you will fail above everyone else’s success.” -James Cameron

Fun Facts: Warren Buffet runs Berkshire Hataway, a business with a market capitalization of over $415 billion. For reference, a growing country like the Philippines only has a GDP of $375 billion.