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How to Lose $108b in One Week

It’s been quite a year so far.  For the week, the S&P 500 and the Nasdaq look to finished convincingly higher.  For the year, it’s been even more impressive.  The Nasdaq is up almost 15% while the S&P 500 is up almost 8% which is close to the historical average for an entire year’s return.  You’ll notice I’ve not mentioned the Dow Jones Industrial Average (DJIA) which is up for the year but only by a small margin.  When we step back and look at this in respect to 2022, we see that the areas of the market that underperformed last year, i.e. technology have come roaring back this year.  The Nasdaq still has a lot of ground to cover if it hopes to match the boring DJIA over the past twelve months, but it appears to be trying to close the gap.

The big news this week was the much-anticipated interest rate hike which was announced by the Federal Reserve on Wednesday.  With the economy slowing, expectations are for the Fed to begin slowing its pace of hikes, and this announcement was in line with that thinking.  The Fed announced a 0.25% rate hike which appears to satisfy most people as not going too far to throw the economy into a recession.  The next opportunity for a rate hike will be at the FOMC meeting ending March 22nd.  We anticipate another 0.25% rate hike at this meeting with a big question mark after that.

Fed Chair Jerome Powell’s comments on Wednesday indicate the central bank remains concerned that inflation still has a “long way to go to reach its 2% target.”  His tone in the press conference did skew dovish by opening the door to lower forward-looking rate hikes at the March meeting and expressed more confidence in the deceleration of inflation.  This latest hike brings the federal funds target rate to a range of 4.5% to 4.75%, its highest point in more than fifteen years.  Many believe the terminal rate will be just north of 5% which aligns with the March FOMC meeting and another 25bp rate hike.

Perhaps the biggest surprise this week was the jobs report which was released today.  It reported that 517,000 jobs were added in January, more than double the consensus expectation.  This was a blowout number which took everyone by surprise and caused the unemployment rate to fall to 3.4%, marking its lowest reading since 1969.  Additionally, both November and December payroll numbers were revised higher to the tune of 70,000 jobs.  While inflation may be slowing, the economy is still running on all cylinders.  Time will tell if this is good news or bad news, but we’re going to say the slowdown appears controlled for now.

In company news, we continued to parse earnings announcements.  Some highlights include Exxon Mobil which had a huge beat and announced a $35B stock repurchase agreement.  This met the consternation of the White House which believes some companies are taking advantage of consumers during these inflationary times.  Last week we learned Microsoft has invested billions in OpenAI’s ChatGPT AI platform.  In response, Google announced it is testing new AI products and has invested $350M in a startup called Anthropic.  We should expect to see more investments in AI ahead.  Apple made the surprise announcement that it will no longer have a head design chief.  You may remember Johnny Ive left the company in 2019 to form an independent design company named LoveFrom. The twenty industrial designers currently at Apple will now report to Chief Operating Office Jeff Williams, who is a possible successor to Tim Cook.  And lastly, Amazon is not immune from the atmosphere of cost cutting that has embraced our economy.  In its latest move, the company will no longer offer free delivery on Amazon Fresh grocery orders below $150.  The move to impose new fees comes as the company attempts to trim costs amid inflation.  First there was shrinkflation, then there was substantial inflation, and now there are the fees.

In closing, I turn to an astounding loss.  No one has had a worse week than Gautam Adani.  Just one month ago, I mentioned that Sam Bankman-Fried (the CEO of defunct FTX) lost $32b overnight when his company went belly up.  Mr. Adani’s Indian businesses lost $108 billion in value, and his own net worth plummeted by $52b.  Because Mr. Adani was once the second-richest person in the world, he’s still got plenty left in the bank.  So, what happened?  A week ago, Hindenburg Research claimed Adani’s empire was “the largest con in corporate history.”  The report accused it of stock manipulation and accounting fraud.  Investors got spooked and the rest is history.  So, if you’re having a tough week, just know that Mr. Adani has got you beat.  Now you know. 

Bruce J. Mason, MBA