Inflation, Commodities and Earnings Season

17/7/22 ~ Sunday summary, by The Financial Fresher

Inflation

The most significant and crucial event that occurred this week was the US inflation report, which was estimated at 8.8% yet came in at 9.1% (highest figure since 1981). This has caused many investors to question whether the Fed will decide to maintain increasing rates by 0.75% or potentially even 1% in their next meeting on the 27th. A 100 bps rise is not unprecedented, as the last time they raised rates by 100 basis points was in 1981, when inflation was 9%.

Alongside this, many investors are believing that inflation has now peaked and the only way is down since the price of oil and other commodities has dropped significantly so far in July. If I were a betting man I'd say that the CPI august print will be the peak, leading to the Fed pausing rate hikes and eventually lowering them to stimulate the economy in 21.

This stimulation will occur as money is essentially cheaper (to borrow), meaning people will have more money after paying back mortgage loans, businesses will invest more due to cheaper loan.

𝘙𝘢𝘵𝘦𝘴 𝘰𝘧 𝘪𝘯𝘧𝘭𝘢𝘵𝘪𝘰𝘯 𝘢𝘳𝘰𝘶𝘯𝘥 𝘵𝘩𝘦 𝘸𝘰𝘳𝘭𝘥

Australia: 5.1%

Norway: 6.3%

Sweden: 7.3%

Canada: 7.7%

Denmark: 8.2%

Eurozone: 8.6%

UK: 9.1%

US: 9.1%

𝘗𝘳𝘪𝘤𝘦 𝘳𝘪𝘴𝘦𝘴 𝘧𝘳𝘰𝘮 𝘵𝘩𝘦 𝘱𝘳𝘪𝘰𝘳 𝘺𝘦𝘢𝘳 (𝘊𝘗𝘐 𝘳𝘦𝘱𝘰𝘳𝘵)

Fuel Oil: +98.5%

Gasoline: +59.9%

Gas Utilities: +38.4%

Electricity: +13.7%

Food at home: +12.2%

New Cars: +11.4%

Overall CPI: +9.1%

Transportation: +8.8%

Food away from home: 7.7%

Used Cars: +7.1%

Shelter: +5.6%

Apparel: +5.2%

Earnings Season

Earnings season is now arriving, here are some key earning reports to keep and eye out for...

Netflix - the stock rose +8.2% on Friday following news that Netflix hired Microsoft for an ad service partnership whereby Microsoft will help Netflix build up a cheaper subscription tier with ads, a move which Netflix hopes will rectify its 600,000 subscriber loss in the first 3 months of 2022, with an expected loss of 2 million during Q2.

Tesla - a heavily shorted stock (following the Musk-Twitter news) lead to great volatility, yet earnings are expected to grow once again, however, a poor report may see the electric car firm share price tumble further from its -40% decline YTD.

WEEKLY TIP

"Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn't, pays it" ~ Albert Einstein

If you invested $8 a day for 40 years into the $SPX500 index fund and it continues it's average of a +10.5% annual growth, within 40 years you will have amounted well over $1,350,000. Now more than ever is the time to invest as the $SPX500 is currently sitting at -19.46% since the start of 2022.