Narrative Driven Economy … (TWTW May 9-13, 2022)

Narrative Driven Economy … 

I am “borrowing” this week’s title from remarks made by E.B. Tucker in an interview Daniela Cambone from Stansberry research recently conducted with him => Click HERE to access! because I think it encapsulates nicely the kind of market dynamics we are currently seeing playing out.

We evidently just went through another rather painful week, where the downside seemed to not have any bottom to it, until Friday, when … I am guessing, some decided that maybe enough was enough, respectively it was going to be a lucky Friday the 13th for them. No matter the catalyst, the speed and magnitude of price declines, and reversals was rather impressive.

In the meantime, energy stocks continued to report strong results on the back of oil prices that remain high (without yet the benefit of China reopening …), Elon Musk did what Elon seems wont to do – namely this time he is talking about still being committed to the $TWTW deal (but presumably want a lower price …) and Peloton did what it does best – which … isn’t cycling, but rather diving…

A few thoughts and headlines:

  • FED – Jerome Powell spoke last week, and pretty much guaranteed the next two 50 bps hikes, while also leaving aside the possibility a 75 bps hike.
  • Twitter – Elon Musk caused TWTR stock to drop sharply on Friday, after he indicated that he was having some second thought about buying the company – all the while being “committed” to the deal. In 2022 language, I guess what this is saying is like: “Takeover Elon style = $54.20 was being cute … not let’s reprice this exercise”
  • Disney – disappointing results pressured the stock, notwithstanding decent Disney+ segment
  • Bitcoin – Interesting developments in the crypto arena, where a Bitcoin “pegged” set up effectively pressured Bitcoin as the peg blew up, and said “set-up” saw its stock crater => click HERE!
  • RBC – published this on Canadian housing => Click HERE! which … point to the Canadian RE market being more vulnerable than the US one at this point. Only “positive” I saw in there was “immigration” … which … of course is all well and good … but then again, doesn’t say that immigrants have the $$$ necessary to afford a Canadian RE market in “housing crisis” mode …
  • Bank of Canada = so they’ve been talking very “hawkish” recently, but when push comes to shove … will they have the determination needed? This => click HERE! may  suggest they won’t …
  • Inflation – Talking of which … US CPI came in at 8.3% … AND … US PPI is up a whopping 11% y/o/y (ouch) => click HERE!

 

Evidently the markets have already pulled back rather sharply. As many have pointed out, counter trend rallies in Bear markets can be sharp. The environment remains very challenging, and many risks remain that may well take markets down lower. This changed environment in my books calls for continued caution. I doubt if we are out of the woods yet, but as per usual, we will only know well after the fact … Remain cautious out there …

oh, and yes, with bonds getting decimated alongside stocks in the recent market correction => clearly at some point, bonds should be able to perform somewhat better and provide some offsets to further equity market losses, should they materialize. I haven’t “loved” bonds in quite some time … and certainly had latched on to the “return free risk” label. I still don’t love them … and don’t feel “compelled” to change that sentiment … BUT as noted, they should be expected to do better, likely soon, particularly if/when all the inflation and rate hike fears subside, should they eventually do so …

For now, Friday’s action may suggest that markets are setting up for an “oversold” bounce … BUT whether there will be sustainability in any such bounce remains to be seen … Keep emotions in check!

Weekly performance: Sectors; Thematics; and Factors:

  • Staple (defensive …) the lone sectors gaining on the week (aside from tech)
  • Canadian tech – a rare positive week, presumably assisted by Executives at Shopify committing to, or buying the stock after its prolonged dive …
  • Financials; Industrials; Discretionary; materials = can we spell “recession”?

  • Losses across the thematic landscape last week as well, with the magnitude of the losses dampened somewhat by a reasonably decent bounce on Friday
  • Travel joining to the downside after recently having held together well = again recession risk … first spike in traffic, recall, the pent-up demand … then … the fear everyone hunkers down. NOT because of COVID-19 any longer … but because the prospect of recession likely causes everyone to pause on spending …
  • Gaming? the flipside of travel? After all, gaming does rather well when no one gets to go anywhere…

 

  • rare weekly outperformance of Growth, and traditional market cap last week, relative to Value, and Fundamental. the key reason? likely the fact that financials joined to the downside, on a relative basis being more damaging to the latter
  • Min Vol – continuing to do “its thing” as it has now for some time

YTD Performance: Sectors; Thematics; and Factors:

  • Big picture-wise, Energy still the only area making notable gains. Everything else, led by technology, repricing lower, with no current reprieve for financials from prospect of further rate hikes serving to restore NIM
  • REITs weakness … joining the worried crowd with regard to the impact on this “bubble” from monetary policy being forced to focus on inflation (although the BoC has already blinked last week by the looks of it, speaking to the fact that tightening will take real estate’s reaction into account …)

  • In the overall, Thematics with many “themes” in Bear territory
  • Metaverse – impressive as to how quickly these ETFs went from launch to almost – 40% …
  • Blockchain – back to pre-take-off levels, after huge decline in recent months …
  • ARKK – when Jim Cramer speaks off Cathie Wood the way he did recently … Click HERE!

One thing is for sure … you look at a high level at the performance of Tech versus Energy, and the environment has changed rather markedly … so much so that apparently, aside from talking about us being in a recession already, Cathie also bought some Oil stocks recently => click HERE! … while also having sold some TESLA and bought some GM … (The buy oil one … seems a tad to cute to be true … but evidently her earlier call for USD 12.00 per barrel hasn’t played out …). All of this, incidentally, not preventing money from continuing to flow into ARK, with Bloomberg’s senior analyst Eric Balchunas updating us that: “$ARKK just posted its biggest week of inflows in over a year with $534m (top 1% among ETFs). Now on 5th straight week of inflows, crazier tho its taken in nearly $2B since Feb 11th, during which its lost 39% …”