Even with amazing earnings from Big Tech companies like Microsoft, Apple, Tesla (more on this below). It was not enough to pull the markets out of its dull drums. Markets continued to decline all of last week. This is going down as the worst January in the history of the Stock Market (recorded history).
There were days when the markets started out POSITIVE but it seems someone had the secret Uno Reverse Card and the day would finish strongly NEGATIVE.
One of the biggest reasons for the decline is the Fed's announcement during its first FOMC meeting of 2022 (more on this below).
Regardless right now things are touch and go. It will be a bumpy year in the markets but bumpy does not necessarily mean bad (ifykyk).
YTD Results below:
Tale of the Tape
ECONOMY
The Fed had their first FOMC meeting of 2022 and for the first time fully were straightforward in discussing interest rates increases. In their words,
In words that we actually understand, "Inflation too much we need things back to normal. Expect a rate hike in March after our next meeting."
You may be wondering why this announcement by Papa Powell and the Fed is important?
Well, the Fed Funds Rate is the overnight lending rate for commercial banks. This impacts the interest rate of every single style of loan. Whether it is a business loan, a mortgage, credit card, bond issued by companies, car loans, etc. It also affects your savings. Remember in 2018, when you could open an Ally Bank account or basically any online bank account and get 2-4% on your High Yield Savings Account? Now if you get 1%, you are celebrating!! That is because of the Fed Funds Rate because remember the money being paid out to you as interest from the banks is earned by loaning out your money to businesses or investing in businesses.
Here is a quick example of how this either aids or hampers the economy:
Kels Creations LLC needs money for a business venture that will create jobs and economic growth.
Kels goes to JPMorgan to get a loan
JPMorgan does not have the money to loan, they go to Bank of America.
Bank of America loans the money to JPM at the Fed Funds Rate of 0.25%
JPM take that money and loans it out to Kels at 2%
Kels takes that money and creates the business venture that gives him a 10% return on his money
He pays back JPM at 2% meaning he makes 7%
JPM makes 1.75%
Bank of America makes 0.25%
By the Fed Funds rate being so cheap, businesses are able to borrow and invest in their business without having to think too much. Now here is the alternative:
Kels Creations needs money for a business venture that will be massive.
Kels goes to JPMorgan for a loan
They don't have it, so JPM goes to BoA, who loans them money at the Fed Funds Rate of 4%
JPM tells Kels that the interest rate on the loan will be 6%
Kels says "No Thank You" and leaves. Because the return on his investment is basically eaten away by interest on the loan.
Just like that economic growth is stifled, fewer jobs created, and most importantly no money in Kels Creations pocket (SO SAD). This is why the Fed Funds Rate is so important. It can be the difference between a company deciding:
to try out some new technology to improve the business or NOT.
To hire more people or NOT
To give raises or NOT
The Fed Fund rate sets the pace for the economy. It touches every single sector of the economy because the US is a system built on credit and debt. The Fed used its Fund Rate powers (and other things) to help the economy during the pandemic to ensure money kept flowing and businesses could continue operating. Now, they are ready to slow things down and let businesses operate under normal conditions.
But like with children when you decide to take iPhone away; They get cranky. They don't want the regular dolls and toys. They want that extremely intoxicating and addictive iPhone. They forget the regular toys are just as fun. Same way in the stock market. Historically, when the Fed raises rates the market actually does well:
FED and FEDERAL GOVERNMENT DID GOOD
It seems all that economic stimulus from the Fed and the Federal Government did wonders for the economy last year. The US economy grew at 5.7% which is the fastest growth since 1984 (it grew at 6.9% in Q4 teehee).
That is with the backdrop of the pandemic starting and stopping basically everything that was happening last year. However, we are still about 1% below the trend line pre-pandemic.
The chip shortages and supply chain snags are still holding the economy back from fully recovering. However; don't expect the explosive growth to continue.
The federal government sent out more than $93 billion to families in the second half of the year through CTCs.
EARNINGS UPDATE
Microsoft absolutely smashed all expectations.
They brought in for the first time $50 billion in a quarter which is a 20% year over year increase in revenue
Every part of their business had double-digit growth. This is practically unheard of for a business this size
They also gave strong guidance for growth to continue at the same pace for Q1 2022.
This is one of the two BEST BUSINESSES in the WORLD! You can never tell me otherwise
FIGHT ME!
Tesla, which is not the second-best business in the world, is finally hitting its stride and tempting me to buy the stock as it is down almost 30% on the year. Q4 2021 was the best quarter ever for the business.
Revenues ballooned to $17 billion for Q4 2021 but more importantly, Net income grew 760% to $2.32 billion. 😲🤯
However, not everything is golden for Tesla. Just like most businesses, the supply chain issues are hampering manufacturing.
They said, “Our own factories have been running below capacity for several quarters as supply chain became the main limiting factor, which is likely to continue through 2022.”
Because of this Tesla is not focused on releasing any new cars this year therefore no Cybertruck, no Roadstar, and no Tesla Semi.
As Elon said “We will not be introducing new vehicle models this year. We will still be parts constrained.” and “We have enough on our plate right now.”
This is not good for Tesla especially not having the Cybertruck until 2023. It is giving room for Ford, GM, and Rivian to fill that gap. And they are really filling that gap.
But overall, they are producing awesome cash flow and getting a lot of their gigafactories running. So it’s a good time to be a Tesla shareholder (NOT FINANCIAL ADVICE!)
Apple prints more money than the Federal Reserve. They literally make so much money so fast that they do not know what to do with it (they need to just find my bank account).
They brought in $123.9 billion dollars for Q4 which is an 11% growth in revenue year over year.
Understand that there are only two other businesses in the entire WORLD that does $100 billion in a quarter: Amazon and Walmart
The difference is neither company has the profit margin that Apple has on its products. For every dollar Apple makes, they keep 30cents or more which is INSANE.
While every other company complains about supply chain issues, Apple forecasts less supply chain drag moving forward. Just incredible
Apple is the second BEST BUSINESS in the WORLD!
There is no argument you can make to tell me otherwise
Looking Ahead
Big numbers are being released on the economy this week.
Namely JOBS JOBS JOBS!
On Wednesday, ADP will release its National Employment Report which is considered a preview for Labor Department’s jobs report which will be released on Friday. ADP is expected to report 208,000 private jobs added in January, which is a massive decline from the 807,000 private jobs reported in December.
We continue the earnings rundown with some big hitters stepping to the plate this week. We get Q4 Earnings from Google, Amazon, Paypal, and Meta (aka Facebook), this week.
Totally Unnecessary Man U Update
No games this weekend but what about the NFL Playoffs?
It’s been one heck of A PLAYOFF this year. One of the best I have watched in years.
We had a great game between the 49ers and the Rams with the Rams coming out on top. Then we had that BAD man that he is, Patrick Mahomes NOT do his thang against the Bengals. Bengals completely shocked the WORLD by beating the Chiefs. It was a crazy comeback, they were down 18 and came back to win the game.
The Superbowl is set but for February 13th.
But honestly, I am kinda more excited for the Superbowl Half-Time Show than the game itself. Just watch this trailer and you will understand why:
Thank you for reading
I hope you all have A WONDERFUL WEEK. I will see you back here on Wednesday for another post. In the meantime, Go subscribe to Rambling Mind Podcast for mid-week stock market updates. You can also catch me on TikTok, Instagram, and YouTube every day.
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