Uphill Battle | The Daily Peel | 6/29/22

Market Snapshot

Futures pointed green yesterday morning, and again both treasury yields and oil looked to move higher in the morning. However, markets did not want to keep moving higher, and a pretty hefty reversal took place, sending markets lower throughout the course of the day.

The Dow lost 1.56%, the S&P slid 2.01%, and the Nasdaq dropped 2.98%.

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Let's get into it.


Banana Bits

  • As the bear market continues, check out these important lessons from the past
  • Yes, Russia defaulted, but are sanctions working?
  • Did you complete your annual ethics training? I'm not sure these accountants did
  • We don't need no stinking gas tax holiday: these cats lower prices below $4 through the holiday
  • PE isn't for the faint of heart, but our upcoming bootcamp can teach you what you need to succeed

Banana Brain Teaser

Yesterday - I left my campsite and hiked south for 6 miles. Then I turned east and hiked for 6 miles. I then turned north and hiked for 6 miles, at which time I came upon a bear inside my tent eating my food! What kind of bear was it?

A polar bear.

Today - For today's BBT, we will slash 500 bananas from the sticker price of the PE Master Bootcamp for the first 20 correct respondents.

You see a boat filled with people. You look again, but this time you don't see a single person on the boat. Why?

Shoot us your guesses at [email protected] with the subject line "Banana Brain Teaser" or simply click here to reply!


Macro Monkey Says

Commodity Pullback - Commodity prices in recent days have dropped. You've probably been tracking the price of oil, and you've watched it move from about $122 to around $105. At the same time, wheat and copper have also slid.

Some might argue that this is a recession indicator. As an economy starts to weaken, the demand for commodities goes down as production starts to slow, and businesses and individuals no longer need as much of these commodities to answer the mail.

When I see metals losing ground, it does give me an uneasy feeling about the state of the economy. I would have thought that with China declaring victory over C19 and their economy trending more towards normalcy, the demand for these commodities should rise.

Indeed, as China reopens (again, again), I expect the price of oil to continue to rise towards a widely accepted price target of at least $130/barrel.

Goldman Sachs is actually recommending buying into this subtle commodity weakness across the board and not just into oil right now.

How can you get into an energy or a wheat trade?

Well, aside from buying oil futures, you can look to pick up energy names. Moving into a recession, I'd look to load up on companies with good balance sheets and maybe a dividend to boot.

On the wheat side, you could get into a crowded wheat ETF trade, or you could look at grocery stores. As food prices go up, so will their profits. It's similar to the energy trade, except no one is mad at Kroger for making money when they churn record profits due to inflation.

There's a lot of uncertainty out there; the only thing we know for sure is that the macro environment has been off-kilter lately. With that in mind, hopefully, you can find some alpha.


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We offer hands-on instructor interaction to ensure you absorb the fundamentals of PE and beyond while meeting your learning objectives. If you're ready to make a renewed commitment to your success, join us July 27-29.


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What's Ripe

Qualcomm ($QCOM) - Shares of the chip maker surged higher yesterday on some pretty significant news: the next round of the iPhone is expected to use $QCOM's modem in its production models.

This would be a huge boost to Qualcomm's business, and on the news, shares ripped higher by 3.48%.

Hess Corp ($HES) - With oil goes oil companies. As crude climbed higher yesterday, $HES climbed 5.57%.

Not that it's any consolation, but the average price per gallon for regular unleaded is actually down a few cents. But don't let that fool you. Energy companies still rake in profits hand over fist with oil at these levels.


What's Rotten

Etsy ($ETSY) - The online marketplace Etsy has been having a rough couple of days. After a losing day Monday, shares of $ETSY closed lower again yesterday, by 8.20%.

Investors are worried that a soft consumer means less e-commerce. Less e-commerce would mean softer revenues and, therefore, lower profits for Etsy.

Nike ($NKE) - Even after coming in above expectations after hours on Monday and ushering a fat buyback across the line, $NKE retreated 6.99% yesterday.

Nike expects its quarterly profits to weaken, and it updated its guidance to reflect this; with a closed China, it's hard to produce and sell a lot of sneakers in the PRC.


Thought Banana

Bear Market Rally - Have we bottomed? Or will we test the lows again?

Well, I think it's unlikely that we are done with the bear market, especially with a recession on the horizon.

Some experts think that the recent rally in the last week or so is nothing but a relief rally, and they advise us to be wary: don't get sucked in only to buy high and sell low. It turns out that this isn't a great strategy – short- or long-term.

Because of the nature of the macroeconomic environment, namely excessive headline inflation and persistent supply chain challenges, don't expect a switch to flip and downward pressures to exit the market.

The major central banks of the world have this massive inflation problem in common. Tightening cycles are in full swing, whether here in the States or across the pond.

Of note, the CCP has decided that rates need to remain low to stimulate growth. I'd argue that a strong dollar makes this a decent idea, given their reliance on exports to the States, but that's not really my forte, so I won't write a book about it today.

If you're really following the markets, it would appear that we entered a bear market because of interest rate and growth fears. But I will argue that here is where we shall stay with an earnings bear market coming up.

In the next few weeks, we are going to start seeing earnings for reporting periods that occurred as consumers and businesses alike started to sour on the state of affairs for the US economy. When we talk about record earnings for the S&P, I think that period is behind us. This next quarter probably won't be as great as the last.

Once we are through phase two of this puppy, I expect a third phase: the recession-induced bear market. Even if it is just for a short period of time, e.g., a few quarters, GDP is likely to contract as we tighten and consumers protect their bottom dollar.

The market's reaction to entering a recession might be purely emotional or psychological, or whatever you want to call it. However, there will likely be some weighty effects on markets if this actually happens.

Only you can decide how to react to a poor earnings season or an incoming recession. Best of luck keeping your wits about you.


Wise Investor Says

"If at the end of the day, we need to raise taxes, we should raise taxes." - Paul Volcker



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Comments (1)

Jun 29, 2022 - 6:30am
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