Inflation Finally Fell Last Month – And the Stock Market Loved It
August 15th, 2022
Last week’s market summary (August 8th-August 12th, 2022):
- S&P 500: +2.98%
- Dow: +2.69%
- Nasdaq: +2.70%
- Bitcoin: +4.35%
Here's a quick summary of the five news stories from last week that we're discussing today:
- As inflation fell on multiple fronts, the Nasdaq officially entered a bull market.
- Zillow announced a strategic partnership with Opendoor.
- Congress allocated $52 billion towards boosting U.S. chip production.
- H&R Block released strong earnings results to extend its hot streak in 2022.
- Roblox stock rose despite missing its earnings estimates.
I'll also explain why I think all eyes should be on the retail industry this week. Enjoy!
What Everyone’s Been Buzzing About
1. Prices Are Falling Everywhere
You heard it here first. Last month, we predicted that inflation would fall in July; and fall it did. The year-over-year rate of inflation growth in July was 8.5%, down from 9.1% in June. That was an even bigger drop than expected as the consensus estimate was 8.7%.
Not convinced that prices are beginning to cool down? Here are a few more signs:
- Gas prices…have fallen for 58 days straight (as of writing on August 12th, 2022)
- Lumber prices…have been declining for five months, as far as 65% down from their 2021 peak
- U.S. wholesale inflation…fell in July for the first since time 2020
The stock market has reacted mostly positive to all of this news as it's given investors hope that the Fed may soften its interest rate policy. All major indices finished in the green for the week. And the Nasdaq has officially re-entered a bull market.
2. Zillow Is Partnering With Opendoor
Less than a year after exiting the homebuying market, Zillow has announced a multi-year partnership with Opendoor. Once the deal goes live, home sellers will be able to request cash offers from Opendoor from right inside the Zillow app. Zillow will receive a referral fee when users sell to Opendoor.
The deal comes as both companies are bracing for a housing market slowdown. Inventory is rising faster than expected throughout the U.S. and mortgage applications have been hovering near record lows. Zillow's stock is down 35% for the year and Opendoor has plummeted 58%.
The good news is that both companies are financially secure enough that they should be able to stay afloat until the market rebalances. And, in the meantime, joining forces could help both companies generate some additional revenue to boost their bottom lines.
3. Chips Anyone?
If we're talking about chips for electronics, the U.S. Congress just ordered a lot more of them – $52 billion worth to be exact. That's the amount of money that was allocated towards boosting U.S. chip production in the CHIPS and Science Act of 2022. The bipartisan bill passed both houses of Congress this month and was signed into law by President Biden last Wednesday.
As part of the bill-signing festivities, Micron announced that it will invest $40 billion in memory chip manufacturing, leading to the creation of up to 40,000 new jobs. Qualcomm said that it will increase semiconductor production by 50% over the next 5 years and it announced a $4.2 billion partnership with Global Foundries (GFS) to expand production capacity at its Malta, New York manufacturing facility.
4. H&R Block Is Feeling It
Tax preparation companies rarely make it onto the lists of best recession-resistant industries, but they probably should. Most of us have heard the old saying: “In this world nothing can be said to be certain, except death and taxes.” Well, here's a corollary: “People will always need tax help regardless of the ups and downs of the economy.”
Case in point — H&R Block had a killer earnings report last week. The mega tax prep company announced a dividend hike and a $1.25 billion stock buyback. And while the majority of stocks have struggled mightily this year, H&R Block is up an eye-popping 85% in 2022.
5. Roblox Stock Rises Despite Missing on Earnings
The popular gaming platform was one of the biggest stock market winners during the pandemic. In fact, Roblox added approximately 35 million users within the first three months of COVID-19 lockdowns alone.
Roblox went public in March 2021. And, by November 2021, it had nearly doubled in value. But then the stock cooled off as people began to spend more time outdoors and less time at their computers. At its lowest point in June of this year, Roblox shares had tumbled all the way down to $27 from their all-time high of over $134.
Fast forward to last week's earnings report and Roblox missed on both its top and bottom revenue numbers and reported a loss of nearly 2 million average active daily users. Yet it provided a more positive outlook for Q3 by pointing to strong growth in July.
The result: Roblox finished the week up 6% and is up more than 37% over the past month.
What To Keep Your Eye on This Week
1. Retail Sales (August 17th)
The retail sales report is a key economic indicator that measures the total receipts of both online and brick-and-mortar retailers. The data is used to gauge consumer spending habits and trends.
The retail industry often takes a hit during inflationary periods. Why? Because consumers have historically responded to high inflation by allocating less of their budgets towards discretionary items and more towards necessities like gas and groceries (that tend to have thinner margins).
For these reasons, growing retail sales doesn't necessarily translate to more profits for retailers. Still, a strong retail sales report will show that consumers are at least still spending (even if on lower-margin items) rather than stashing their money away in savings due to recession fears.
2. Retail Stocks
Sticking with the retail theme, a few major stores are announcing earnings this week including Walmart, Target, and Home Depot. All three of these companies recently made it onto our list of the “5 Best Retail Stocks To Watch or Buy in 2022″ despite the inflationary headwinds that they're facing. Learn why >>>
Here are three stories from around the web that our team found interesting:
- The U.S. Is Investing Big in Chips. So Is the Rest of the World. (Wall Street Journal)
- The Rise of High-Tech Real Estate Investing Platforms and Their Effect on Housing Affordability
- Crypto Can’t Rely on the Government To Save It From Itself (CNN)
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