"We're Screwed", says Consumer Sentiment Report

Jun 12, 2022 | Consumer sentiment prints all-time low as investors panic

Consumer Sentiment Hits Record Low as Stocks Tank

Stocks dropped sharply on Friday after a highly anticipated inflation report showed a faster-than-expected rise in prices, while consumer sentiment also hit a record low. After Friday's selloff, all major indexes ended the week in heavy red. The S&P dropped 5.05%, the Dow dropped 4.58%, and the tech-heavy Nasdaq dropped 5.60%. The selling was heavy across the board with declining stocks outpacing advancing ones, nearly 5:1.

Consumer Price Index Report

The Consumer Price Index or CPI Report for May came in at its highest levels since 1981, which immediately put pressure on stocks. The report showed prices rising 8.6% year over year, and 6% when excluding food and energy prices. Inflation continues to be a major concern as energy, food, rent, and healthcare costs all continued to rise higher in May. These numbers were actually worse than Economists were predicting.

Hot inflationary numbers continue to add fuel to the fire over a possible recession. Conversely, due to sky-high prices, the Consumer Sentiment Report (used to measure how consumers feel about current conditions) dropped to an all-time low for June. High CPI is clearly affecting consumers, how they feel, and how they’re spending.

Energy costs and gasoline are just some of the biggest drivers of inflation, as we’ve seen record levels in gas costs. As of last Friday, the national average for gas currently sits at $4.97 per gallon. But unfortunately, we’re seeing increased pricing pressure across the board, as most broad spending categories are all trending higher.

 

More Rate Hikes

With such shocking inflationary numbers, it was no surprise to see the Treasury Yield spike on Friday. The 2-year yield, one of the most sensitive to rate hikes, jumped over 3% on Friday. This was its highest level since 2008. The rates immediately started to put pressure on stocks, especially the tech sector. Netflix dropped 5%, while chip-making giant Nvidia went down nearly 6%, in one-day losses.

What it Means: Investors have been looking for any sign of optimism that would show inflation has begun to slow. Stocks ended May with a brief rally off the 2022 lows, as traders hoped that the worst days for inflation could possibly be behind us. Friday’s CPI report immediately ended any of those hopes for investors. Unfortunately, the latest CPI report is likely to force continued action from the Fed. Signaling yet another catalyst for stocks to trade lower.

 

 

Target’s Fire sale: Too Much Inventory

Rising prices and supply chain issues have left Target with a surplus of extra inventory. This can be problematic for several reasons. For starters, it forces businesses to make tough decisions about what products need to be prioritized. Is the excess supply temporary? And how will this affect supply issues for the rest of the year?  

To make matters, despite all the extra inventory, big-box retailers like Target are still battling supply chain issues caused by the pandemic. Looking back at the early stages of the pandemic, we got a clear reminder of how disruptions can force businesses to make bold decisions regarding future inventory and supply levels. Just think of the baby formula shortage we’re currently experiencing… a major reason we’re having issues today is because of the decisions made during those early stages of the pandemic. As we’ve heard throughout earnings seasons, these prolonged supply chain issues have been persistent, quarter after quarter.

 

More Inventory than Target Would Like

This week, Target gave a warning to its investors when they reported they currently had 44% more inventory on hand than this time a year-ago. Inventories for Target currently total $15.1 billion, a large jump from $10.5 billion inventories on hand last year. Unsurprisingly, Target blamed inflation for some of its inventory issues. Another reason for the inventory surplus? Target and Wal-Mart both admitted to intentionally stocking up on excess inventory in an attempt to always keep shelves stocked. Right now, we’re seeing what happens when demand slows due to rising prices, and retailers have bulked up on their supply.

 

Fire-Sale! Discounts for All

To help reduce inventory, Target is launching a broad discounting campaign across its entire business. The hope is that any price reduction may incentivize customers to keep buying. Though, such large discounts are sure to impact Target's expected profit. Target also already predicted its second-quarter profit margin to drop from 5.3% to 2%.

What it Means: Bad news for retailers may just mean great news for consumers! Target and Wal-Mart were big winners during the early days of the pandemic, but as prices continue to rise, consumer demand has begun to slow for non-essential items. At the risk of affecting their bottom line, Target plans to roll out a large discounting program to help get their inventory issues under control.

This Week’s Picks

EDR (Endeavor)

August 14, 2022

Entry Price:

24.50

Stop Price:

23.35

Target Price:

26.46

Time Frame:

3 Week Hold

EDR has been in a channel pattern over the last few weeks. As it approaches the bottom band, after a some mid-week volatility, look to make enter the trade off the rebound. As noted in KMX, keep a trailing stop loss and close the position quickly should the market turn.

KMX (Carmax)

August 14, 2022

Entry Price:

101.85

Stop Price:

96.45

Target Price:

109.15

Time Frame:

4 Week Hold

KMX, along with most of the market, has been rebounding off June lows. We've seen strong momentum and a crossover of our long-term MAs. Watch for a market pull-back and keep a trailing stop loss. We're riding strong tailwinds, so get in and out quickly

How the Feds are Prosecuting a Recent NFT Insider Trading Scheme

We’ve talked extensively in our newsletters about the future regulation of crypto. Well, after a recent insider trading arrest, revolving around the sale of NFTs, the Department of Justice (DoJ) could use this case as a model for how it will monitor market manipulation for digital assets going forward. On June 1st, a U.S. attorney's office in New York announced an indictment for an insider trading scheme involving NFTs sold on OpenSea, an NFT marketplace. The DoJ has indicted this will be the first-ever digital asset insider trading case ever brought forth.

This comes fresh off the heels of a new executive order from Joe Biden in March to help ensure the “responsible development of digital assets”.  Coupled with the latest executive order, this indictment will send a strong signal for operators of NFTs and crypto marketplaces. According to the indictment, the defendant took advantage of the way OpeaSea promotes NFTs on its site. OpenSea frequently lists "featured NFTs on its homepage". The price for these specifically promoted NFTs nearly always appreciated in price after appearing on the homepage due to increased visibility. The case will look to determine if insiders were able to profit, by knowing which NFT would be featured ahead of time.

What it Means: Crypto regulation has been an ongoing discussion for quite some time. Digital assets are still very new, and people are still identifying different use cases for how they will be utilized. This indictment represents a huge moment in crypto regulation. We’ll be watching closely to see what lessons can be learned, as crypto continues to slowly, gain wide-spread acceptance.

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Weekly Review

Market Performance- Week of 08.14.2022

Recent Winners

CF (CF Industries)

CF (CF Industries)

Entry Price:

87.40

August 14, 2022

Price at High:

105.10

Return for Members:

16.84%

Timeline:

4 Week Hold

CF is a manufacturer of fertilizer and other farming products. Similar to our thesis on oil last week, we're expecting more global tensions to arise over the coming months. Although not directly related, CF should appreciate if adverse events occur. Technically speaking, we're seeing a bounce off the 180MA. However, there is negative momentum so be careful with entering too early.

MRNA (Moderna)

MRNA (Moderna)

Entry Price:

168.85

August 7, 2022

Price at High:

197.33

Return for Members:

16.86%

Timeline:

1 Week Hold

We're starting to see a reversal take place. Watching the 50 day moving average cross over the 100 day. Saw some weakness to close this week, so wait for upward momentum before jumping in.

X (US Steel)

X (US Steel)

Entry Price:

20.15

July 31, 2022

Price at High:

23.75

Return for Members:

17.86%

Timeline:

1 Week Hold

Stark momentum shift from the lows on this one. Tracking our moving averages on the 2-hour time chart. Looking for an early entry and quick trade.

Recent Watchlist Winners

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