Inflation seems to be getting worse rather than better, and that is going to affect the market in the short term. It’s not all bad, per se, but some stock sectors do better than others when inflation (and interest rates) are rising.
That said, some do worse. This is a big week for inflation reports with both the Core Personal Consumption Expenditure Price Index (PCE) and the Bureau of Labor Statistics (BLS) labor and unemployment reports due yesterday and today, respectively.
The PCE tracks the pace of price increases on consumer goods, and on Thursday, those numbers were in line with estimates that included an increase of 6.4% over the past year, the biggest jump since 1983. The Fed will watch this number, among others, to adjust interest rates. It will be a good indicator of how consumer defensive stocks — food, beverages, and other household products — will perform and whether they’re good buys.
According to the BLS, the unemployment rate fell from 3.8% to 3.6%, and the U.S. economy added 431,000 jobs. Wages ticked up slightly, continuing the trend of hourly pay rising 5.6% over the past year. These are all positive factors helping to tamp down inflation for now.
We’ll let you know what trends are on our watchlist in this week’s rundown.
Monday’s Livestream: What to Watch as Inflation Gets Worse
Last week, we warned of volatility after Fed Chairman Jerome Powell gave speeches on Monday and Wednesday. That volatility did follow to an extent; however, the market was fairly stable, and that behavior continued this week. Fluctuations have been related to inflation, and economic fundamentals outside of inflation are fairly positive right now.
Wage growth, lower unemployment rates, and low interest rates are keeping inflation at bay — for now.
Look for the Russia-Ukraine war to be a bit of a wild card, but we’re hoping to see improvement on that front. Pressure on the energy market is definitely impacting inflation.
We’re still watching the curve flatten between 2- and 10-year Treasury yields. When those values invert, it is one of many factors that can signal an economic downturn.
Bottom line: Real estate, commodities, and financials tend to do well in inflationary environments. If inflation continues to rise, and economic/wage growth is flat or negative, then avoid tech stocks, which tend to underperform in inflationary environments.
Wednesday: Mega-Cap Stock Splits Are Just What We Need
The S&P’s massive growth over the past decade or so is in large part due to mega-cap stocks like Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG), Amazon (NASDAQ:AMZN), and Tesla (NASDAQ:TSLA), which have seen meteoric share prices. Shares of these stocks have been largely out of reach due to their exorbitant prices but can have lucrative returns for investors, even when individual shares are “split.”
But this week, some mega-cap stocks announced they’ll allow stock splits, which split shares of individual stocks among investors, making them far more affordable.
While that might sound a little scary for shareholders, the company’s total market remains unchanged — there’s still plenty of value to be had. If you’ve ever been interested in these stocks but thought they were out of reach of your price range, then now’s the time to add them to your portfolio.
Both GOOGL and AMZN have announced plans for 20:1 stock splits this year. Based on current prices of $2,842 for GOOGL and $3,338 for AMZN, these splits would bring these share prices down to $142,10 and $166.90, respectively. That’s a heck of a lot more affordable, isn’t it?
Last Night’s Livestream: Are Meme Stocks like GME, AMC, & BBBY a Buy?
Meme stocks like GameStop (NYSE:GME), AMC Entertainment (NYSE:AMC), and Bed Bath & Beyond (NASDAQ:BBBY) launched higher last week but have started to fade over the past few days. So what is this telling us?
These stocks tend to be indicative of what level of risk traders are willing to bring back into their portfolios. Specifically, the resurgence of these stocks tells us that traders are willing to take on more risk in search of larger returns.
With traders not receiving bond returns anymore, there are not a lot of great options out there for generating returns in your portfolio. As most know, if we are going to remain in a high-inflation market environment, holding a lot of cash is not going to do you any favors.
With every day that passes and as inflation rises, the purchasing power of your cash is diminishing. We are seeing fund managers trying to deploy these funds somewhere, which brings us back to the meme stocks. For more on these meme stocks as well as our analysis of the S&P 500, the falling VIX, and rising Treasury yields, click here to watch a replay of last night’s livestream.
With Q1 2022 already past us, we wanted to take some time to review the profit opportunities our readers at Strategic Trader had the chance to see.
On average, our readers had the opportunity to score 4.38% per trade (we executed 34 trades this quarter), holding the positions for an average of 19 days.
Out of those 34 trades, we saw zero losers…and that’s pretty darn fantastic for how volatile the last three months have fared.
And we’re excited for what Q2 will bring — we hope you are, too. Click here to learn how to join us at Strategic Trader.
Don’t forget to catch our twice-weekly livestreams on Mondays and Thursdays at 7:00 pm Eastern on YouTube.
We’ll be back with you next week.