KEY DRIVERS 4-11-22
TIP – This is a brief bullet-point summary. It is a tool that gives investors and financial advisors a fast and simple list of what to watch for and talking points for the week.
- Ukraine Conflict (Potential Peace Agreement)
- Rising Inflation & Recession Fears
- Tuesday, April 12 – Core CPI (MoM) (March)
- Thursday, April 14 – Retail Sales (MoM) (March)
Financial markets lost ground this week, still weakened by the Ukrainian crisis and the flurry of sanctions against Russia. The Fed also dampened the mood by making hawkish remarks from several officials. Inflationary pressures continue to drive a rapid normalization in monetary policy. Investors are selling off as they wait for next week’s quarterly earnings release.
This week will see important economic events return. These include US inflation in March (Tuesday 12, the ECB’s decision regarding monetary policy, and US retail sales for March (Thursday 14).
STOCK & ETF LISTS
Tip: Use this section to find stocks and ETFs to add value to your portfolio by increasing the alpha (return) and decreasing the beta (beta). Our list is updated monthly to help provide our readers with timely insights. Readers should do their own research before making any investment.ts.
All stock/ETF picks are updated as of January 1st and are now on one page. Click here to view them.
- Inflation Stock Picks: List of stocks that we think should perform better in a rising inflation environment.
- Auto Parts Stock Picks: Auto parts companies are likely to see their stocks rise as the average age of cars and light trucks increases from 11.9 years in January 2017 to 12.2 years in January 2021, according to new data from IHS Markit. Below are the top auto parts companies that investors should buy now before the profits roll in.
- Solid Picks: This group of stock/ETF picks is likely to experience growth and perform well into the near future.
- Dividend Stocks: List of stocks that have excellent dividends and business performance.
- Dividend Growth Stocks: List of stocks that have a history of growing dividends.
- Dividend ETFs Picks: This list of ETFs is selected for their ability to pay dividends.
- Dogs of the Dow: This list of DOW stocks based on H. G. Schneider’s Article in the Journal of Finance in 1951 that used the price-earnings ratio. The general idea is that blue-chip companies that pay a dividend are more likely to withstand an economic downturn.
MACRO MARKET TRENDS
Tip: Use this as a quick guide on the short-term direction (1-2 weeks) and long-term (1.5-5 years) of key markets. It is not a signal to buy or sell, just to show the trend. This is a quick cheat sheet to know the trend and help understand what is happening with the markets in the short term. I started making this section years ago because once had a client that would call me nearly every day asking the direction of the markets.
S&P 500 SECTOR TRENDS
Tip: Use this section to know the performance of various sectors, weight portfolios, or look for trades. Modern portfolio theory stresses the importance of diversification, but recently several sectors like technology have outperformed others like utilities. This is also a way to narrow the sectors to find investment opportunities.
WEEKLY REPORT: Market Uncertainty, Real Inflation 13% and Food Crisis
Traders are living in uncertainty, and they don’t know if they should listen to Jerome Powell, who warns about the dangers of inflation, or Warren Buffett, who wants to go back to shopping.
This week, Warren Buffet became the largest shareholder in HP, a technology company born from the 2015 Hewlett-Packard split. It holds 11% of HP’s shares. American investor, who had already purchased Alleghany Corporation, an insurer, for 11.6 billion dollars at the end of March, was already in a buying mood. While he seems to be in a buying air, a gentle breeze of panic is slowly taking over stock markets.
However, stock market strategists are more confident in predicting a recessionary shock, despite the backdrop of rising inflation and tightening central banks’ monetary policy. What is the future for equity markets? Nobody really knows. The panic can be contained as long as real rates (after inflation) remain below equity market yields.
This week, the fed wanted to prepare investors for an aggressive strategy against rising prices. According to the market, it was time. However, investors are still not confident. Is the Fed able to reduce its forcible support without affecting the economy’s momentum? This is a multi-billion-dollar question at the moment.
Real Inflation 13.5%
Decentralized finance (DeFi) firm Truflation is based on the same calculation method as the CPI but is different in that it uses real “price data” versus the government’s survey data. It uses current real-market prices data from sources such as Zillow, Penn State, and Nielsen to measure and reports inflation changes each day.
What is the “real” rate of inflation? The Truflation Dashboard, which runs on Chainlink, is accessible and visible to everyone and says 13.5% (with Food prices up 26.5%).
Food Supply Storm
A storm of rare conditions brewing threatens the world’s food supply. The raw materials that drive the global agriculture industry are running out, from fertilizing manure to tractor-fuelling diesel. It matters because these shortages make farming difficult and have led to record-breaking food prices. We experienced inflation and shortages due to the pandemic. With Russia’s war against Ukraine and Covid lockdowns within China’s agricultural provinces, the situation is getting worse.
High-priced breadbasket: Prices for wheat and corn soared by more than 19% in the last month due to war + sanctions reducing supply from the Black Sea “breadbasket.”
The breadbasket is empty: Russia bombs Ukrainian wheat fields, and crucial shipping ports are still closed.
FYI: Russia is the world’s largest exporter of wheat, while Ukraine accounts for a quarter of all grains trade, and Ukraine is also the top exporter of sunflower oils.
Price increases for Corn Flakes are only one ripple effect of a significant crisis. Americans are aware of the food inflation through the higher prices of General Mills Cheerios and Kellogg’s Pop-Tarts. The latest rally in food prices is affecting the poorest people around the world, even though they are up 8% compared to a year ago. For example, countries in North Africa and the Middle East are suffering the most from food shortages as they import a lot of their staple foods. If Russia continues its war, 40 million more people could be in extreme poverty.
Food Takeaway – More Arab Springs?
It’s a perfect storm. A rare combination of horrible circumstances, including war and pandemics, puts all aspects of food production under severe pressure. Global food prices have risen 75% in the past year and are expected to continue growing. According to the UN, some countries are at a “breaking point” because of food insecurity. It is well-known that more civil unrest can be caused by food insecurity. Over a decade ago, bread prices sparked the Arab Spring.
Bond yields have risen due to the aggressive stance of the central bank, as confirmed by the minutes from the March meeting. US debt currently pays 2.71% over ten years, and this rate was 2.15% two weeks ago and 1.97% one month ago. Investors may be confused by the intermingling of medium- and long-term maturities yields.
The euro fell 2% against the dollar in the foreign currency market over the past week, compared to USD 1.0895. At the moment, the Fed is more hawkish than the ECB. A giant slide was against the greenback. It fell 10% to the ruble at RUB76.50 to USD 1. Half the low of a month ago was reached at RUB154 for USD 1… A parity that returns to its prewar levels in Ukraine.
Financial advisors and investors should take note that the US 10YR yield went over 2% which is over the average S&P 500 dividend. Bonds are getting crushed, but we think investors will start moving out of equities into higher-paying conservative investments such as CDs.
For crypto-investors, the joy was short-lived. Bitcoin is still tied to the Nasdaq and closely follows the US index’s signs of nervousness, but with more significant swings. The price of bitcoin is hovering at $43,000 after it rose to close to $48,000 earlier in the week.
Oil prices fell another week, with Brent prices hovering around USD 100 per barrel. The International Energy Agency (EIA), releasing 60 million barrels of oil from its stocks, seems to be paying off. The United States has committed to drawing on its reserves for one million barrels per day for six months, which amounts to 180 million barrels. This is an attempt to reduce rising energy prices and offset declining Russian oil supplies. Traders are also closely monitoring the progress of China’s containment measures, as this country is synonymous with the demand for compressed oil.
Even though inventories are still struggling to recover, and with supply still being depressed by high energy costs in Europe and disruptions in China further disrupting China’s economy, industrial metals prices fell this week. Zinc is currently trading at USD 4,250, having reached a 15-year peak—the copper and aluminum trade at $10290 and $3345, respectively. The precious metals sector is quiet, with the price per ounce of gold stagnating and the price of gold fluctuating between USD 1920 to USD 1940.