What to Expect in the Stock Market April 18-22
#Elon
It has been a minute since I have been behind my keyboard to write, so please excuse all the errors as I dust the cobb webs in my brain.
LET’S GET IT!
So it’s earnings season once again and as always Banks kicked things off for Q1 2022.
However, that has to take a back seat to the news that Elon Musk (who is now the largest shareholder of Twitter) wants to take over the whole company.
See the letter below:
This feels like the ultimate Ultra Rich guy move. Bezos did the exact same thing with the Washington Post back in 2013. There gets to a point where controlling your narrative is extremely important for people at that level. It is not a coincidence that shortly after Bezos made the deal, we began hearing and seeing more of him. Now Musk is a bit different, he was already loud on Twitter (he is the greatest influencer of all time just ask any dogecoin hodler). However, he still very much wants to control his narrative and the narrative of the general public (like every other ultra wealthy person). What better way than taking the very megaphone that gave you a ton of success and controlling it yourself.
The Stock, however, did not move in line with the announcement but rather declined shortly. But after Elon spoke on Ted there was a bit of a bounce after hours.
The day after the Elon’s announcement, Twitter announced the board had agreed to adopt a “Poison Pill” to ensure Elon never has enough shares to own a majority of the company. Elon on TED said he had a Plan B for Twitter if he is not able to buy the company. So the drama continues
Meanwhile the entire world is dealing with a war, food insecurity, inflation but Elon finds a way to dominate all the headlines. Year to date results for stocks:
Tale of the Tape
ECONOMY
Inflation is still running hot, hitting 8.5% in the month of March. This is being dubbed a “Once-In-A-Generation” inflation. Because this is the highest level of inflation we have seen in over 40 years. I'm not gonna beat this horse anymore because we've killed the horse 10 times over. We literally have these kinds of headlines every month.
However, one key thing to note about the inflation we are seeing is Oil/Energy costs are up nearly 50% and are half the reason inflation is so high. Remember everything in our society is based on transportation. So when oil goes up there are downstream effects for everything.
The good news is inflation seems to be peaking. Used car prices are finally falling after rising over 35% over the last year. But on the other hand service costs like airfare are rising to replace those costs.
My Takeaway: I believe inflation will not be over 5% for the rest of the year. Not because things are going to stop getting expensive. But because the year over year comps are going to be much higher. In March of 2021 inflation was 2% as we recovered from the effects of the pandemic in 2020. By April 2021, it was 4% as all the money and supply strain kicked into high gear.
Headline numbers are important because of the viceral reaction they elicit from people. If there are fewer of those 40-year inflation headlines, people will feel less pessimistic about the economy. I like to say money is way more than numbers, it is a feeling. This is why I love the Consumer Sentiment Index which is at rock bottom right now.
My Takeaway: Inflation is hitting people and it shows in the consumer retail sales. The overall growth of retail sales for March was 0.5% with gas accounting for most of it. When you strip out gas and adjust for inflation, retail sales actually declined 0.3%. As Neil Irwin of Axios said
The latest retail numbers are more a "so-far-so-good" story than an "all-clear" story as we assess how consumers are grappling with the energy price surge that accelerated with the Ukraine war.
STOCKS
Banks are getting destroyed.
Almost all big banks hit a 52-week low this week.
You would think, banks would be making more money as interest rates go up but increased rates have some adverse effects on bank’s non-loan sources of income:
Less companies are going public because it's not a favorable environment as stocks keep falling. Banks make a good amount of money by helping companies go public through IPOs.
Companies going public are down 51% from last year
Banks advise companies on Mergers and Acquisitions (like Elon buying Twitter, Goldman Sachs is advising Twitter on what to do)
Banks help companies raise money by selling bonds.
Help securitize pools of consumer loans like mortgages and car loans to sell as investments. (One man’s debt is another man’s asset)
When rates go up it slows down every one of these things because the costs involved become more apparent to businesses.
Looking Ahead
EARNINGS
Banks of America reports on Monday and will provide us with more insight into consumer spending trends. We will get a complete picture of the ailings within the Financial sectors as profits are declining, with JPMorgan Chase and Wells Fargo recording quarterly profit declines of 42% and 20.8%, respectively.
Tesla reports on Wednesday. With Elon making all kinds of noise about Twitter, it is easy to forget how world-beating Tesla has been so far this year with the number of cars they have delivered. I expect their report to be really good. Plus with the opening of the new manufacturing facilities in Texas and Germany, Tesla seems to be running laps around other car manufacturers.
THE REST:
Totally Unnecessary Man U Update
Nope
I will not allow this trash team to mess up my return
Thank you for Rocking With ME
It’s good to be back. Newsletters are back on the regular schedule of Monday (General Market News) and Wednesday (Money Mentality/Personal Finance) releases.
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Remember GENEROSITY > greed
God bless Each and Everyone of y’all
✌🏾