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Wall Street Thinks Consumers Are Screwed

Wall Street Thinks Consumers Are Screwed

Wall Street shows where the market is headed as they short the retail sector… hard

Is the American shopper on the verge of tapping out?

Some Wall Street investors tend to believe that buyers are burnt out and have nothing left to spend.

According to a research released this week by S&P Global Market Intelligence, short selling in consumer stocks — effectively betting on the sector’s share prices falling — has reached a new high since January 2021.

“As of mid-February, the consumer discretionary sector remained the most-shorted sector, as short sellers continued to wager that skyrocketing inflation would eat into demand for nonessential products,” the S&P analysts wrote in the report.

This year, retailers Big 5 (BGFV) and Citi Trends (CTRN), electric vehicle charging company EVgo, plant-based food provider Beyond Meat (BYND), and dental braces producer SmileDirectClub have all been aggressively shorted (SDC).

The market is plainly concerned about whether consumers can endure future increases in oil and other commodity costs, as well as the Federal Reserve’s projected interest rate hikes.

The SPDR S&P Retail (XRT) and Consumer Discretionary Select Sector SPDR (XLY) exchange-traded funds have both lost almost 15% this year – falling way more than the rest of the market.

Inflation took a toll on Christmas shopping, resulting in a drop in consumer spending in December.

“The month of December was not especially favorable for retail,” said Phil Orlando, Federated Hermes’ chief equities market analyst. “And I’m being generous. It was a disaster.”

Although spending increased in January, Orlando claims that a large portion of the increase was attributable to the usage of Christmas gift cards, which are reported as retail sales when redeemed.

And now that energy prices are soaring, consumer spending may suffer much more.

With that in mind, Orlando believes consumer stocks will continue to suffer, particularly as increasing gasoline and gas prices, along with the likelihood of higher interest rates, are weighing on consumer confidence.

Furthermore, the pandemic’s stimulus checks have run out.

As a result, consumers would have to either take on additional debt or dip into their savings to maintain their current spending habits.

Orlando figures that the average consumer doesn’t have much buying ammunition left – if any at all.

The result? Retail stocks could crash & burn if consumer spending slows.

“Stocks are not going to recover in a couple of months,” said Phillip Toews, CEO of Toews Asset Management.

“The bear case was that, because to high inflation and increasing interest rates, we would be headed for a bear market before the [Russian] invasion,” Toews said. “Energy prices are now skyrocketing. Consumer equities may be part of a larger sell-off.”

Simply put: Consumer spending is what keeps the economy afloat.

If that’s cut off because of inflation and rising interest rates, the party could very well stop… plunging the economy into a full-blow recession.

Wall Street Thinks Consumers Are Screwed

 

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Wall Street Applauds Powell’s Interest Rate Plan

Wall Street Applauds Powell’s Interest Rate Plan

Powell Suggests a Tiny Interest Rate Increase,
Wall Street’s Ecstasy Pushes The Market Higher

Investors stopped worrying about Russia after Jerome Powell’s remarks on an interest rate hike.

And in the absence of their fear, the party resumed with The Street signaling their high praise of Jerome Powell’s as index prices shot higher.

 

Stocks surged on Wednesday after Federal Reserve Chair Jerome Powell told the House Financial Services Committee that the Fed will likely hike interest rates by a quarter-point next month.

He stated, “I’m inclined to recommend and support a 25 basis point rate rise.”

In late morning trade, the Dow was up roughly 550 points, or 1.6 percent. The S&P 500 climbed 1.5 percent, while the Nasdaq gained nearly 1%.

Investors were concerned that the Fed was going to hike rates more aggressively in response to inflation fears, particularly since oil prices have risen as a result of Russia’s invasion of Ukraine.

Powell, on the other hand, calmed the nerves of his favorite market on Wednesday with his low interest rate increase prediction.

Wall Street couldn’t have received any better news.

Of course, a quarter point bump in interest rates is unlikely to do anything to help curb runaway inflation.

It’s likely Powell’s choosing this route to show he’s still interested in combating inflation but without shutting down the markets full stop with a big interest rate bump.

 

Wall Street Applauds Powell's Interest Rate Plan

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Russian Invasion of Ukraine Intensifies, S&P and DOW Spike Higher

Russian Invasion of Ukraine Intensifies, S&P and DOW Spike Higher

Russia’s war on Ukraine becomes worse.
S&P 500 and DOW Jones: “Meh, let’s get back to what’s really important – chasing all time highs!”

 

Despite a sustained rise in oil prices, stocks climbed on Wednesday, despite the escalating confrontation between Russia and Ukraine.

The Dow Jones Industrial Average increased by 233 points, or 0.7%. The S&P 500 rose 0.5 percent, but the Nasdaq Composite, which is heavily weighted in technology, dipped marginally.

The adjustments came as oil prices continued to rise, building on a big surge from the day before.

Both U.S. oil futures and international benchmark Brent crude futures climbed by roughly 6% apiece. Brent was trading at $112.02 and West Texas Intermediate was at $110.06.

Wall Street wants to take a departure from the defensive playbook and avoid stocks in utilities, healthcare, and consumer staples. In a message to clients, Oanda senior market analyst Edward Moya wrote, “With oil prices and Treasury rates climbing so much today, it’s no wonder energy and financials are leading the open higher.”

The stock market rose as a result of positive corporate news. Ford’s stock rose 4.6 percent after the company said it will divide its electric car and legacy manufacturing divisions into two distinct firms. Salesforce climbed 1.7 percent after reporting fourth-quarter earnings that exceeded expectations on both the top and bottom lines.

On Wednesday, Fed Chair Jerome Powell will give his semiannual monetary policy brief to Congress. Despite the “very unpredictable” impact of the crisis in Ukraine, the Fed’s chairman indicated that rate rises are expected to begin this month, and that the Fed will make headway but not complete a plan to decrease its balance sheet.

“The ultimate conclusion is that we will proceed,” Powell said,”but we will go cautiously as we learn more about the economic repercussions of the Ukraine war.”

Oil’s rise looked to benefit energy companies, with Exxon and Chevron both up nearly 2% in early trade.

However, rising energy costs have heightened fears of inflation and a potential slowdown in the economy. The index’s gains on Wednesday morning pared losses from the previous session, which included a significant increase in oil prices.

“Yesterday’s price action, which saw Fed tightening expectations pushed out, global yields plummet, the US dollar and gold strengthen, and equity markets (ex-Energy) selloff sharply, strongly suggests that investors are increasingly pricing in a potential sharp slowdown,” said Chris Senyek of Wolfe Research in a note to clients.

Government bond yields rose on Wednesday as well. After dipping below 1.7 percent the day before, the benchmark 10-year note recently yielded close to 1.8 percent. Bank stocks looked to benefit from the reversal, with Wells Fargo jumping 2.4 percent.

Investors were on edge Wednesday after news that Russian military had infiltrated Kherson and encircled Mariupol, two crucial cities in the country’s south.

In prolonged trade, earnings lifted numerous other equities. Nordstrom’s stock soared more than 30% after reporting solid results, while SoFi’s stock increased by about 10%.

On the negative, First Solar’s stock dropped more than 15% after the business missed revenue projections and provided poor outlook. After disclosing new financial targets, Citi fell 3.5 percent.

Investors are also anticipating Friday’s release of a critical jobs report. According to ADP, private enterprises in the United States gained 475,000 jobs in February. Dow Jones polled economists, who predicted 400,000. The company also raised its January figures.

The Dow Jones Industrial Average plummeted 597 points, or 1.76 percent, in Tuesday’s trade. The S&P 500 index fell 1.55 percent, while the Nasdaq Composite dropped 1.59 percent. All are rebounding today.

Several IT businesses are slated to report earnings on Wednesday, continuing the earnings season. After the market closes, Okta, Pure Storage, and C3 AI will report. After the bell, ChargePoint is also expected to report.

While the Ukraine battles for its freedom, the financial markets seem indifferent as they continue to lift on any hope of positive news.

 

Russian Invasion of Ukraine Intensifies SP and DOW Spike Higher

 

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Goldman Sachs: Inflation’s Gonna Be Worse Than You Think

Goldman Sachs: Inflation’s Gonna Be Worse Than You Think

Goldman Sachs: Inflation will be worse than originally thought.

In a recent statement, Goldman Sachs warns that high inflation in the United States may not drop off later on in the year – as had been previously forecasted.

“The inflation situation has deteriorated this winter, as we originally thought, and the extent to which it will rebound later this year is now in doubt,” Goldman Sachs analysts said in a client note published late Sunday.

In light of this uncertainty, Goldman Sachs has raised its inflation forecast. Core PCE inflation (the Fed’s preferred pricing index) is expected to slow to 3.7 percent by the end of the year, according to the report.

That’s up from Goldman’s earlier projection of 3.1 percent, and nearly double the Federal Reserve’s target of 2%.

Consumer prices, which climbed to a near-40-year high of 7.5 percent on an annualized basis in January, are now expected to fall to 4.6 percent by the end of this year and 2.9 percent by the end of next year, according to Goldman.

The Wall Street bank expressed “growing anxiety” about two primary inflation risks: inflation expectations and the extremely robust labor market.

The rise and peak of inflation may have lasted long enough to further increase inflation expectations in a way that feeds back to wage and price setting, the firm reported.

And, according to Goldman, if the Russian invasion of Ukraine causes energy costs to skyrocket or affects supply chain in any way, inflation might skyrocket past the already “extremely high levels.”

Economists keep a careful eye on inflation expectations because if firms and consumers believe prices will continue to rise, their behavior will alter, creating a self-fulfilling prophesy.

(Behavior: Essentially they’re speaking of the idea that “the consumer” might sober up and quit spending money like a drunken sailor on shore leave.. And if consumers stop spending, well, the economy shuts down. Party’s over, amigo.)

Simultaneously, the job market is rising, with Goldman Sachs reporting the largest difference between available positions and employees in postwar US history.

High inflation expectations combined with a robust labor market “threaten to spark a mild wage-price spiral.”

This is in stark contrast to what they said not too long ago: that a wage-price spiral was unlikely to happen.

Given the updated inflationary environment, Goldman Sachs believes that the Fed will be easily able to justify rate hikes at each of the remaining 7 meetings they have this year.

Goldman Sachs also feels that there will be an additional rate hike to start the new year in 2023.

[sarcasm] Well that’s something to look forward to, isn’t it? [/sarcasm]

 

Making More Money Helps Ease The Bite of Inflation

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Goldman Sachs Inflations Gonna Be Worse Than You Think

 

Historically “Heavy Handed Fed” May Tank The Stock Market – Here’s How…

Historically “Heavy Handed Fed” May Tank The Stock Market – Here’s How…

With the Federal Reserve prepared to begin raising interest rates from near-zero levels, investors should brace themselves for a bumpy ride this year.

The ones who will be hardest hit are those who have been passively investing their money without any form of active management or exinsight beyond putting their money blindly in a fund.

“I believe that in 2022, we will witness greater volatility than we have seen in the previous year, and even during the previous decade. Volatility began to rise in 2021, and I believe it will continue to rise in 2022.” Erin Browne, portfolio manager at Pimco, stated on Yahoo Finance Live.

Stocks have a mixed track record during Fed rate hike cycles in the past.

According to new analysis from Goldman Sachs’ senior U.S. equities strategist David Kostin, the S&P 500 has declined 6% on average in the three months after the first rate hike in recent cycles. Stock market weakness has been brief, but returns have been significantly less juicy than investors have come to anticipate.

According to Kostin, the S&P 500 has returned 5% in the six months after a cycle’s first rate rise.

“When we get to these kinds of transition points in the market — and the key changeover is going to be the Fed starting to boost rates — that usually indicates greater corrections,” Browne noted. “I believe there will be more significant adjustments along the way.”

Browne is positive on semiconductors, citing the industry’s continued financial success as a result of the pandemic-driven chip scarcity.

To Browne’s point, markets are already acting strangely – particularly in areas with high valuations (ummmmm, like tech stocks maybe?).

The Nasdaq Composite fell 2.6 percent in Tuesday’s session, pushing it to its lowest level since October. On Wednesday, the Nasdaq entered correction territory, which is defined as a 10% drop from a recent high.

According to Yahoo Finance Plus statistics, all five components of the high-growth, widely held FAANG complex (Facebook/Meta, Apple, Amazon, Netflix, and Google) have lost more than 4% year to far. Netflix has dropped 14% ahead of its earnings on Wednesday evening, leading losses in the FAANG sector.

“There is no such thing as a market that goes in a straight line. We believe that a severe correction in the stock market is quite possible in the coming weeks and months, given the substantial and significant change in Fed policy that has begun to be implemented and the fact that the stock market is extraordinarily overpriced. However, there’s little doubt that several short-term relief rallies will take place along the route” said Miller Tabak’s chief markets strategist, Matt Maley, as he issued a warning.

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Investing in Options: A Beginner’s Guide

Investing in Options: A Beginner’s Guide

What direction, how much, and when will the stock price change? These are all questions you need to know in order to successfully trade stock options.

Of course, you could skip all that and just follow the trade alerts (up to 95.918% trade win rate!) that The Empirical Collective sends out.

Stock options trading is more complicated than stock trading. Your broker will fulfill your order at the current market price or a price you select as long as you specify the number of contracts you desire. To create a trading account for options trading, you’ll need to have some knowledge of tactics that are a little more sophisticated than trading stocks.

A step-by-step guide to options trading

Open a trading account for options

Trading options require a certain level of expertise, and because of this there are a few extra requirements before you can get started. Creating an options trading account is more expensive than opening a brokerage account for stock trading. When it comes to options trading, brokers want a little more information about the person they’re dealing with before they permit them to open an account.

To analyze the expertise, knowledge of risks, and financial preparation of potential options traders, brokerage companies conduct screenings. An options trading agreement will be used to obtain broker clearance for these facts.

(Please note: The requirements can vary from broker to broker and will depend on the trading account and options trading level you’re applying for. For a basic options trading account, some brokers only require a little extra capital in order to approve your account.)

Some brokers require you to supply your:

  • Aims in investing. Income, expansion, preservation of capital, and speculative activities all fall under this category.
  • Experience in trading. The broker needs to know how much you know about investing, the length of time you’ve been trading stocks or options, and the number of your trades.
  • The specifics of your financial situation. This can include how much cash you have on hand, your annual income, overall net worth, and information about your job.
  • Choosing the trade set ups. Some brokers will quiz you on your understanding of options. For example, they may ask you to explain a  spread, a call, or a put. They may also ask you the difference between covered and naked options.

The broker normally provides you an initial trading level based on the degree of risk you indicate in your responses (typically 1 to 5, with 1 being the lowest risk and 5 being the highest). You’ll need this if you want to trade in specific types of options.

You need to screen your broker!

Choosing a broker to trade options with is the most critical decision you will make. For investors who are new to options trading, finding a broker that provides the tools, information, guidance, and support you need is critical.

Decide whether to purchase or sell certain options

Call options are contracts that allow you to buy a stock at a specified price (the strike price), but you aren’t obligated to do so.

An option to sell shares at a certain price before the contract expires is known as a “put.” (For more information on trading options, you might want to see our free course on how to find stocks that have the potential to explode higher in price.)

The type of options contract you choose will be determined by the direction you predict the underlying stock to go in.

You would buy calls if you believe the stock price will increase or puts if you think the price will decrease.

You can purchase both pus & call options in the same transaction.

If you think a stock will remain at a certain level, you can also sell options.

Predict the strike price of an option

An option contract has to be “in the money” for it to have any value.

For this to happen, you have to choose a price level that you think the stock will be above or below.

This is called the strike price.

In the case of calls, the price of the stock must be above the strike price for the contract to be in the money.

For puts, the price of the stock must be below the strike price for the contract to be in the money.

If you sell a call or a put, then for either to be in the money, the above scenarios would be reversed.

The amount you pay for an option contract (referred to as the premium) includes both intrinsic and time value components. If the stock price is higher than the strike, the intrinsic value is the difference between the strike and the share price. A stock’s “time value” is based on its volatility, the expiration date, and interest rates, among other considerations, as well.

Decide on a time range for the options

Options contracts have a designated expiration date that identifies when you can exercise the option. You can’t just choose a date out of thin air in this case.

And when you look at the list of available options (called option chain) you can see all the available time frame options.

Options contracts are classified as either American or European based on when the option can be exercised. American options can exercise at any time before the expiration date, but European options can only exercise on the day of expiration. Due to its greater freedom for the option buyer (and more risk for the option seller), American options often cost more than European options.

Days, weeks, months, and even years are all possible expiration dates. The most experienced options traders avoid trading daily and weekly options because of their high level of risk. Monthly and annual expiry periods are best for long-term investors. Your investment thesis will have more time to play out with longer expiration dates. But this longer expiration period also means that the options will be more expensive to purchase.

Even if the stock falls below the strike price during the contract, so long as there is still time left before the expiration date, the option will still have some value. (Because there is still a certain amount of time left for the trade to fluctuate.)

 

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