Friday, June 10th, 2022 – Volume 2 – Issue 239

Dow Jones: 31,392 -2.73%
S&P 500: 3,900 -2.91%
Nasdaq: 11,340 -3.52%
Russell 2000: 1,800 -2.73%
Bitcoin: $29,168 -3.00%
Ethereum: $1,681 -6.02%

 

Roughhhhh week… Stocks fell sharply again today after the CPI report showed a faster-than-expected rise in consumer prices. Consumer sentiment also hit a record low.

Pretty much every member of the 30-stock Dow Jones was in the red today. Stocks that fell today on the NYSE outnumbered stocks that rose by 8-to-1.

Recap: Wall Street had its worst week since January. The Dow fell 4.58%, the S&P 500 gave up 5.05%, and the Nasdaq lost 5.60% this week.

Inflation: CPI data showed an 8.6% increase in prices YOY, compared to the 8.3% expectation. Consumer sentiment is now below the levels seen during the global financial crisis of 2008. Wowza.

Crypto: Ethereum led market losses today, falling below $1,700 after yesterday’s flat trading.

On your phone? Check out the latest Hungry Bull App update! Plenty more to come in the future!

Now, for the top news stories of the day…

 

Source: Heat Map & Sector Performance — Finviz.com

Cathie Wood’s New Crossover Fund 

Cathie Wood confirmed this week that ARK Invest is creating a crossover fund that will allow you to invest in both private and public tech companies. Wood couldn’t give many details but said, “We’re [the] closest to a venture capital fund in the public equity markets, and we’re going to start a crossover fund.”
 
  • An SEC filing from earlier this year indicates it will be a closed-end fund that invests in public equities, early to late-stage startups, and venture capital funds.
Bad times ahead for startups?
Startup accelerator company Y Combinator recently told tech founders to “prepare for the worst,” stating in a letter, “Regardless of your ability to fundraise, it’s your responsibility to ensure your company will survive if you cannot raise money for the next 24 months.”
 
Wood claims there are multiple benefits to private markets:
  • Wood argues private markets are better at valuing disruption innovation.
  • The new fund will be an interval fund, meaning investors will be locked in during turbulent markets and not have immediate access to their capital… aka no panic selling.
  • Retail investors will finally be able to access the private investment market. She said, “It’s not fair that we are blocking these young people, most who don’t have the income or asset thresholds because they are not accredited, so they don’t get access to innovation.”

Why Solana is Down 85%

Solana was a big trade for many in 2021 — rising over 17,500% to its heights in November of 2021 before eventually breaking down with the rest of the market.

But SOL has notably fallen off its November highs much harder than the other top players in the space, like Bitcoin and Ethereum. Right now, it’s down about 85% from its 2021 peak of $267.

Fundamentals Wrecked: Solana’s fundamentals haven’t been looking too good, after having some of the best in the crypto market in 2021.

  • Network: As for the actual blockchain network, recent months have revealed back-to-back outages and a number of pesky slowdowns.
  • TVL: Total value locked inside Solana’s smart contracts has crashed to $3.69 billion (down 75% from its record high of $14.83 billion back in December, according to DeFi Llama)

All of the above, combined with the downdraw in the crypto market, is why SOL is trading at 10-month lows. 

But it’s not “game over” just yet… On the bright side, network usage and developer activity are on the way up in 2022. The overall ecosystem and infrastructure were able to sustain growth in Q1.

    • “New NFTs and NFT markets, diversification of TVL, improvements in UX and new applications across several sectors outside of DeFi,” all contributed to SOL’s growth in Q1, according to crypto analytics firm Messari.
    • The VC Arm: Solana is also launching a $100 million investment fund to support blockchain-based projects in South Korea — a crypto sector that was particularly hurt by the collapse of Terra.

Demand for Solana could pick up as the network tries to attract developers who are looking to migrate out of the damaged Terra ecosystem.

Robinhood’s Strategy Could Be Coming to an End

SEC chair Gary Gensler is not a big fan of payment-for-order-flow, the practice of directing customer trades to a market maker and receiving a fraction of a penny in return.

Right now, the brokerage industry is exploring alternatives to PFOF. One interesting idea came from Apex Clearing. Apex Clearing handles trades for SoFi, Webull, and other fintechs — and has been building a marketplace for ‘matching’ customer orders instead of ‘flowing’ them elsewhere.

  • This essentially allows the stock exchanges to compete directly with market makers, like Citadel and Virtu, rather than flow more orders their way.

“It creates more competition, which will translate into better prices,” Bill Capuzzi, CEO of Apex, told CNBC. “The big winner is the retail investor.”

Changing How Wall Street Handles Your Trades

Gary Gensler proposed a plan earlier this week that would require firms to compete directly to execute trades from retail investors. The proposal also requires more transparency about fees and client data.

  • The main issue is that with so much power concentrated in a select few market makers, clear conflicts of interest arise — and retail investors get screwed in the end.

Another alternative… Going back to the days of “internalization” is another possible scenario. This would mean that brokerages use their own inventory to fulfill trades — but this could hurt liquidity for investors and benefit the largest players in the industry even more.

The Rebuttal: Robinhood’s Dan Gallagher says that “it is a really good climate for retail” right now. “To go in and muck with it right now, to me, is a little worrisome,” he said. After all, companies are already required to give customers the best price possible, although there are questions on how well that is enforced.

How will this all play out? We’ll have to wait and see… But Gensler and the SEC seem pretty dead set on eliminating any withstanding conflicts of interests left in the trading game, especially after the whole GameStop debacle last year.

4 E-Commerce Stocks That are Down Bad

Did you know digital shopping isn’t included in the consumer price index? Despite having a global market size valued at well over $10 trillion, they still don’t include it in CPI… Crazy.

Anyways, Adobe CEO Shantanu Narayen sat down with Jim Cramer after market close to talk about the health of digital commerce. Here’s what he had to say.

  • Several categories of e-commerce are seeing prices drop, which Narayen says will support the expectation that digital shopping demand will remain strong.
  • “When you look at the total expense, in addition to the macroeconomic, where there may be a little bit more concern, what’s happening is actually you’re seeing some price decreases in elements like electronics or things that are happening with games,” he said.
  • He also notes that consumer spending increased by $1 billion digitally from April to May, according to Adobe’s digital economy index.
  • “Nothing’s going to change as it relates to people saying, ’I want to do digital engagement, I want to perhaps buy digitally, pick up physically and you know, the multichannel thing,” he said.

Despite the economic slowdown, Narayen is bullish on the future of online shopping, and with many e-commerce giants at heavily discounted prices, it might be a good time to do some online shopping yourself.

  • Amazon (AMZN) -36.69% YTD
  • Shopify (SHOP) -74.77% YTD
  • eBay (EBAY) -33.33% YTD
  • Etsy (ETSY) -63.68% YTD

This is Getting Out of Control

Well, that wasn’t what we were hoping for. Expectations weren’t great, but clearly, markets weren’t expecting it to be this bad. 

  • The Consumer Price Index increased 8.6% YOY in May, the largest increase since December 1981. Dow Jones estimates called for an increase of 8.3%.

Core inflation increased by 6%, slightly higher than the 5.9% expected. This number excludes food and energy prices, two of the most volatile commodities in today’s economic climate.

  • On a month-over-month basis, CPI increased 1%, while core inflation increased 0.6%, above the 0.7% and 0.5% estimates.

The Pain

  • Oil posted a ridiculous 16.9% monthly gain and an even more outrageous 106.7% YOY gain.
  • Shelter, which accounts for roughly one-third of the CPI, increased 0.6% on the month and 5.5% YOY.
  • Food prices rose 1.2% in May, bringing YOY gains to 10.1%.
  • Energy increased 3.9% on a monthly basis, up 34.6% on the year.
  • Wages failed to increase alongside inflation, meaning real wages, when accounting for inflation, dropped 0.6% in April.

The market was not too happy with the data, as stocks sold off heavily. This new data adds fuel to recession fears. According to CNBC, many economists now believe the Fed will be more willing to risk recession by accelerating interest rate hikes to tame inflation.

Bulls

RedBox Ent (RDBX): +39.39% –  Redbox has become the latest meme stock celebrity after the short interest in its shares rocketed to 210% of its float.

Barrick Gold (GOLD): +4.68% – Gold prices rose today amid surging inflation and increased recession fears. 

Pinduoduo (PDD): +2.13% – Pinduoduo led Chinese stocks higher today as the group was able to maintain momentum amid the market slide. 

Bears

DocuSign (DOCU): -24.53% – DocuSign reported weaker than expected earnings in Q1 as investors are increasingly concerned about profitability. 

StitchFix (SFIX): -18.51% – Stitch Fix announced it expected revenue to decline in the fourth quarter alongside layoffs that could save between $40 – $60 million in 2023. 

Netflix (NFLX): -5.10% – Goldman Sachs downgraded Netflix to sell as competition heats up and a “consumer recession” looms. 

 

Roblox (RBLX) – Goldman Sachs downgraded Roblox from neutral to sell seeing “tough comps & normalization of margins.” “We have increasing concerns around the post-pandemic environment and expect a continuation of slowing growth, tough comps & normalization of margins in the near term and as such, we downgrade RBLX to Sell (from prior Neutral) reflecting a more negative risk/reward skew from current levels.”

eBay (EBAY) – Goldman Sachs downgraded eBay from neutral to sell seeing revenue growth risks. “With the global consumer environment under pressure and eCommerce growth slowing in a post-pandemic world, we see eBay’s forward GMV (gross margin value) and revenue growth at risk esp. given its overexposure to international markets and as recently launched growth initiatives not having scaled yet and require incremental investments.”

DocuSign (DOCU)Bank of America downgraded DocuSign from buy to neutral seeing decelerating billings.“We are downgrading DocuSign shares to Neutral and lowering our PO to $72 from $120 to reflect decelerating billings from near-term challenges.”

Quote of the Day: “The road to success and the road to failure are almost exactly the same.” — Colin R. Davis

Fun Fact: In 2018, the United States represented 40.01% of global market capitalization. In 2020, this figure rose to 54.5%.

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