June 22nd, 2022
In our last newsletter, we discussed how inflation got the best of the Federal Reserve yet again in May. And how would the Fed respond? By announcing its biggest interest rate hike in over 25 years.
Unfortunately, interest rates were about the only numbers going up last week. The stock and cryptocurrency markets both finished deeply in the red.
All that bad economic news isn’t keeping individuals and families from spending money on movie tickets…at least not yet. U.S. box offices raked in the dough last weekend to provide a welcome jump-start to the summer movie season.
Here’s a closer look at last week’s top stories and a look ahead at what we’ll be watching over the coming days.
What Everyone’s Been Buzzing About
The Fed raised interest rates by 0.75%. That’s the largest hike that it’s made since 1994 and shows just how aggressively it plans to fight against inflation. But many on Wall Street are worried that such dramatic rate increases could plunge the economy into a recession rather than achieve the “soft landing” that Fed Chair Jerome Powell is hoping for. A higher interest rate environment could be especially dangerous for companies that are heavily indebted like Affirm and Peleton.
Learn more >>> Which Stock Sectors Are Affected Most by Interest Rates?
Stocks officially fell into a bear market. The S&P 500 ended last week down 4.25%. That pushed its year-to-date returns down to -23.39% and well into bear market territory. A bear market is generally defined as a benchmark index’s decline of at least 20% from its most recent market high. While no stocks have been safe this year, technology stocks have been hit the worst. The tech-heavy Nasdaq is down 31.80% YTD.
Crypto companies and investors are reeling. Celsius, the crypto platform most known for its borrowing and lending products, announced last week that it was pausing withdrawals. Soon rumors began to swirl that the company was in danger of becoming insolvent. The news sent shockwaves throughout the crypto industry which was already hurting due to the ongoing price meltdowns of Bitcoin, Ethereum, and most altcoins.
Bitcoin fell as low as $17,601.58 over the weekend, which was the lowest trading price we’ve seen since 2020. Ethereum temporarily dropped below $1,000. Multiple crypto companies have recently announced layoffs including Coinbase, Crypto.com, and BlockFi.
Crypto haters who say that Bitcoin and other cryptos are just pyramid schemes are loving life right now. To put things in perspective, though, Bitcoin has fared only slightly worse this year than Fortune 500 companies like Tesla and Facebook. Still, it looks like the chickens may be coming home to roost for companies and investors that have relied heavily on crypto borrowing.
U.S. investors can now invest in a short Bitcoin ETF. Are you one of those Bitcoin haters referenced above? If so (and if you live in the U.S.), you may be thrilled to learn that there’s finally an ETF that will allow you to bet on BTC’s demise. The ProShares Short Bitcoin Strategy (BITI) launched yesterday on the New York Stock Exchange. It follows the Horizons Inverse Bitcoin ETF which launched on the Toronto Stock Exchange in April 2021.
The summer box office is booming. I couldn’t let an entire newsletter go by without mentioning at least one piece of good news. Last weekend was an overwhelmingly positive one one for the film industry. Overall, the box office led by Jurassic World: Dominion, Lightyear, and Top Gun: Maverick brought in $163 million. That was 20% more than in 2019 before the pandemic. That’s objectively great news. But some industry experts worry that the U.S. box office is still too reliant on blockbusters to perform this strongly on a consistent basis.
What To Keep Your Eye on This Week
Jerome Powell is testifying before Congress today. Twice per year the Fed Chief is required to testify on monetary policy to both houses and one of those semi-annual reports take place today. Expect Powell to receive plenty of questions regarding how the Fed’s interest rate hikes could affect the economy, especially unemployment. Speaking of unemployment…
A new weekly jobless claims report comes out tomorrow. We don’t typically highlight weekly reports in this newsletter. But a spike in this week’s report could be an ominous sign that unemployment is heading in the wrong direction. We’re currently near all-time lows, but the rash of recent layoff announcements (especially from companies in the crypto, real estate, and tech sectors) has us worried.
Here are three stories from around the web that our team found interesting:
- Want to Restore Faith in Crypto? Maybe It’s Time for the Industry to Show Some Humility (Fortune)
- Why The Racial Wealth Gap Is So Hard To Close (NPR)
- Stocks Historically Don’t Bottom Out Until the Fed Eases (Wall Street Journal)
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