The Threecap
Three things to recap this past week.
1. Inflation Keeps Inflating
After a rally on the last day of trading due to a strong monthly sales report, weekly losses were minimized. However, the market took another setback this week with all three major U.S. indexes recording small losses. This makes it the 12th negative week out of the last 15, a losing streak that’s left many investors questioning when the bottom will come.
After rising to 8.6% last month, many investors hoped the CPI, a measure of inflation, would come down this month. Unfortunately, no relief came for these hopefuls as inflation soared and the CPI jumped to 9.1% for the month of June. Despite inflation, retail sales increased 1.0% in June, slightly above expectations even with consumer sentiment low. However, adjusting for inflation which was 1.3% relatively, sales were slightly negative.
With the US annual inflation rate now over 9%, the Federal Reserve is under a lot of pressure to accept a new interest-raising agreement. The higher the interest rates are raised, the more the market will be negatively affected, as investors are more and more likely to pull their money out of the market.
2. Earnings Season
As earnings season approaches rapidly, positive or negative earnings could serve as a major catalyst for the market shortly. In the last few weeks, the market has been on a rollercoaster ride, up and down at a moment’s notice. This is largely due to the frequent and often incorrect predictions made about upcoming Federal Reserve decisions on rate hikes.
On the other hand, as earnings season arrives, investors will turn their attention away from the Federal Reserve and to companies’ performance in the 2nd quarter. Though this might seem positive for investors, many analysts predict that earnings will be a letdown as supply-chain shortages and inflation cut into companies’ sales and profits.
On the flip side, expectations might be so low that if the results aren’t bad as analysts assume, the market might see some positive movement. As mortgage rates also explode, investors will be keeping a close eye on housing data as well.
3. Netflix and Ads
Netflix and ads are two words you’d never think you’d hear in the same sentence. Spoiler alert for those of you with Netflix subscriptions: Netflix is incorporating ads into their platform now. These ads will be for a lower tier of Netflix that costs less than your current subscription plans.
This decision comes after several price increases to their basic subscription plan and a first quarter that saw them lose subscribers for the first time in over a decade. To display these ads, Netflix is partnering with Microsoft, an unlikely underdog in the world of advertising when names like Google were involved in the decision. After losing 200,000 subscribers in the first quarter and likely another 2 million in this quarter, Netflix needs a new way to appeal to customers that might not be looking to dish out a pretty penny for a streaming service.
This serves as a warning to other up-and-coming streaming services as more competition is on the horizon. Netflix’s stock tanked after their negative subscriber reports, but they hope their new ad-tier of service will help boost their numbers and regain an even larger foothold in the streaming service industry.
Summary
The market took a tumble this week as inflation soared and investors speculated about the Fed Reserve making decisions about increasing rates. As earnings season rolls around the corner, a company’s performance could serve as a major catalyst for its performance as analysts expect supply-chain shortages and inflation to eat into profits. Netflix lost subscribers for the first time in over a decade last quarter; it’s bringing ads to the table now.
Featured Articles
Zuckerberg’s Metaverse: A Breakthrough in Virtual Reality as Apple Unveils its New Privacy Policy
Since the dawn of the internet in the late 1960’s, our society has been captivated by a satellite connected world. With each advancement building upon the prior, the average adolescent’s life has been filled with gadgets such as smartphones, laptops, and computers. With 63% of the world’s population actively using the internet, one might ask where the next breakthrough lies in the digital world since the introduction of the internet. Well, one billionaire in particular, believes that one lies just around the corner: he calls it the “Metaverse”.
TerraUSD and Luna Crash
In the past few weeks, the crypto market and the global money market has been shaken by the sharp decline in the values of flagship cryptocurrencies such as Bitcoin and Ethereum. While fluctuations in markets are common, the stunning fall of stable coin TerraUSD and its sister counterpart Luna from near a dollar to $0 has marked this trough in the market as particularly impactful, as billions in valuation were erased seemingly overnight.
Recent Podcast
In this episode, hosts Rohan Gupta and Alex Patel continue their conversation with Andrew Golden, Chief Investment Officer of Princeton University Investment Company (PRINCO), about university endowments. We delve into topics diversification, the rules surrounding endowments, careers at endowments, and much more!
Check out the episode to learn about university endowments in a simplified way!
Finance Tip
"The most contrarian thing of all is not to oppose the crowd but to think for yourself."— Peter Thiel