August 8th, 2022
Last week’s market summary (August 1st-August 5th, 2022):
- S&P 500: +0.80%
- Dow: +0.15%
- Nasdaq: +2.76%
- Bitcoin: –0.0075%
Last week, Coinbase shares experienced explosive growth. But a large part of that increase may be due to meme trading and short squeezes rather than traditional investors jumping on board.
Instagram came under fire for adding TikTok copycat features that users hated and Walmart announced layoffs that left 200+ corporate employees without jobs.
The stronger-than-expected job market was actually bad news for the stock market as it caused renewed inflation fears. But in plainly good news, Berkshire Hathaway saw a huge increase in operating income.
Get the full scoop on all five of these stories below — plus see two economic events that you may want to keep tabs on this week.
What Everyone’s Been Buzzing About
1. Is Coinbase Becoming the GameStop of 2022?Coinbase has had a rough year (to put it mildly) between the crypto crash and its recent run-in with the SEC. Yet despite all this bad news, COIN shares soared last week. At one point on Wednesday, they were trading 90% higher. Coinbase ended the week up over 52%. What gives?
Well for one, Coinbase announced a partnership with BlackRock. Through its Prime platform, it will provide crypto portfolio management to BlackRock's Aladdin institutional investors. That's a nice snag — but was it a big enough deal to warrant a 50% pop? No.
As it turns out, Coinbase was hugely popular on WallStreetBets last week — even more than GameStop. Meme traders licked their chops at its high level of short interest and tried to exploit it. So it's likely that at least some of last week's intense spike was due to short squeeze dynamics.
So should you invest in Coinbase today? Unless you're ok with potentially enduring massive volatility over the short-term, we don't recommend it. It's incredibly difficult to predict the future price movements of meme stocks. Could Coinbase jump another 50% next week? Sure. Could it just as easily drop back down to its previous lows (or lower)? Yes.
2. Instagram Is Instagram Again…For Now
One of the biggest dramas playing out on Instagram last week was about…well, Instagram. The powers that be at Meta (Instagram's parent) had been testing out changes to the app that coincidentally all seemed like imitations of TikTok features. The most notable change was the addition of an “immersive viewing experience.”
And how did users respond to the changes? With dismay, hatred, and vitriol. Many Instagramers complained that the new full-screen mode made the app utterly “unusable.” Mega-influencers Kylie Jenner and Kim Kardashian even joined the fray and boosted the Change.org petition to “Make Instagram Instagram Again.”
Instagram responded to the PR crisis by reverting the changes. But you can be sure that Meta hasn't stopped worrying about TikTok. And it's only a matter of time before it tries to copy some of its most popular features again. The only question is whether it will be able to do it in a way that doesn't alienate its existing userbase.
3. Walmart Cut 200+ Corporate Jobs
Walmart has laid off over 200 corporate employees in what it's labelling a “restructuring.” The move comes on the heels of the company announcing a significantly-reduced profit forecast for 2022. Walmart execs said that inflation has caused customers to pull back their spending on high-margin products like clothing and electronics to make room in their budgets for necessities like groceries.
4. When Good News Is Bad News (AKA the U.S. Jobs Report)
U.S. job growth far exceeded expectations last month. The consensus estimate was 258,000 jobs, yet employers more than doubled that number by adding 528,000 jobs in July. The unemployment rate also fell to 3.5% — its lowest rate in 50 years.
That all sounds like pretty great news, right? Not so fast. In the bizarre world that is economics, a simmering job market is actually not what all analysts are hoping to see right now. Why? Because it's an indicator that the Fed is still struggling to get inflation under control.
Translation: there could be more interest rate hikes ahead. And a rising interest rate environment is a kryptonite for stocks. Understanding that helps to make sense of why the stock market actually dipped after the robust jobs report.
Learn more >>> What Industries Are Most Affected by Interest Rates?
5. Berkshire Hathaway Reported Strong Operating Profits
Despite a reported loss of $43.76 billion in the second quarter, Berkshire Hathaway saw increases in operating income across the 90+ companies that it owns entirely. Warren Buffett has often said that operating income is a better marker of his company's performance. And Berkshire still has over $100 billion of cash available at the ready that Buffett can use to pounce on any juicy investing opportunities that catch his fancy.
What To Keep Your Eye on This Week
1. Blink Q1 Earnings (Monday, August 8th)
Blink is a startup that provides Level 2 electric vehicle charging stations. We recently included it on our list of the top EV charging station stocks to watch in 2022. The company is still in the growth phase so it's not expected to turn a profit for some time. However, revenue has been growing by leaps and bounds; and investors will be keen to see a continuation of that trend.
2. July Consumer Price Index (Wednesday, August 10th)
Until the Fed is able to get the U.S. inflation rate closer to its target (~2% per year), this will continue to be a story that we follow on a monthly basis. Last month, the CPI hit a scorching 9.1% and led to another 0.75% Fed rate increase. We're expecting a dip this month thanks to a drop in commodities futures. But with jobs and wages still rising, there's a strong chance that inflation will still be too hot for the Fed's liking.
Here are three stories from around the web that our team found interesting:
- The Metaverse Real Estate Boom Turns Into a Bust (The Information)
- Perspective | Why the ‘Inflation Reduction Act' is No Such Thing (Washington Post)
- Energy Stocks Have a Sustainable Future: It’s in Their Dividends (MarketWatch)
Enjoying this newsletter and want it to be delivered right to your inbox? Sign up below!