It's a Risk off Week - Your Money February 18th 2022
Posted by Steve Bokor
On Tuesday btw, US Consumer confidence is expected to fall from 113 to 109 followed by Q4 GDP on Thursday plus PCE inflation stats which are forecasted to rise 0.5%.
For the most part, the most worrying of the numbers will be the inflation stat. This week, most of the talking heads at the Federal Reserve spent their time walking back the idea of a 50BP rate increase in March, saying they will be taking a measured approach to combating inflation. However, if the inflation number surprises to the upside, be prepared for another round of panic selling in the bond market driving yields back above 2%. That could cause another round of selling in stocks.
Now, thanks to fears of a Russian incursion as early as this weekend, stock market participants to hit the sell key this week and moved money to cash and bonds. There is no question Mr. Putin is looking longingly at the industrial complexes in Ukraine as well as its growing IT prowess. However, by all indications, NATO is drawing a line in the sand and any military action by Russia would be met with both economic and military responses that could hurt them in the pocketbook.
If I were a conspiracy theorist, its plausible to believe that Russia may be doing all of this on purpose just to push up the price of oil to increase their foreign currency flows. Why sell oil at $75 when you can scare the price up to $90? However, recall what happened at the end of the last Olympics. We believe Russia has agreed not to steal the limelight from China and upset the apple cart until its over. Still, one has to wonder, as this is The President’s Day long weekend. If you want to catch your opponents while they are sleeping, this would be a good time to do it.
Looking back on the week, more of the high-flying tech stocks with lots of growth but little to no profits came crashing down as they released earnings and guidance. It could best be described as a train wreck in my opinion. February 2022 is turning into an ugly month and for some an even uglier start to the year. I mentioned names like Roblox, an online gaming portal with millions of users that can play, communicate, and build new games through its system, saw its stock price plummet 22% this week and 51% this year. The real losers are shareholders that bought it in mid November when it was trading at $140. It closed today at $49. However, that pales in comparison to Roku, a Wall Street darling last year that soared to $490 last Summer and is now back down to $112. OUCH!
And if you think its just US stocks that are melting down, I only must mention Shopify. It spent the last two years climbing from $600 to $2200 this past November. At that price btw, it had a market cap greater than the Royal Bank. Since that time, the stock has come back down to earth in rather dramatic fashion. This week alone it lost over $250 dollars, closing at $837 today. And let me put this into perspective. Shopify has $113 million shares outstanding which means every $100 price in the change in price means a market value change of $11.3 Billion. With a drop of $250 dollars, Shopify lost the equivalent value of a Magna, or Fortis. THIS WEEK! Now, if you still own Shopify, its market cap is still sitting at over $102 Billion.
Hopefully, the volatility comes down now that option expiry week is behind us. However, that may not be the case especially when you consider in North America alone, there are now over 20 million first time investors who were conditioned over the last two years to “buy the dip” aka jump back in as soon as a stock or index drops by 5%. Right now, many of them are probably shell shocked from the 13% drop in the Nasdaq this year (its only 7 weeks old). So, they could continue to panic into next week especially when over 700 US companies report earnings including several energy and retailers along with a few already battered unicorns like Beyond Meat.
Lastly, In Canada we have 90 companies reporting including the banks starting with the Royal on Thursday. Given their history of stable earnings, I would expect another $3billion to drop to the bottom line which means they may increase their stock buy backs as well.
Happy trading and Stay safe.
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