Inflation Set Another Record – But it May Have Finally Peaked
In other news, Netflix chose Microsoft as its ad partner
Last week’s market summary (July 11th-July 15th, 2022):
- S&P 500: -0.46%
- Dow: +0.03%
- Nasdaq: -0.63%
- Bitcoin: +1.49%
Another month has gone by and inflation has hit yet another 40-year high. But unlike in previous months, this time there's actually a strong sign that the tide is about to turn.
Netflix is partnering with Microsoft to serve ads on its cheaper ad-supported tier that's set to come out next year. That's a huge snag for Microsoft, but could there may be more to the deal than meets the eye?
Crypto lenders are falling like flies and the FDA received its first application for an over-the-counter birth control pill. Get the full scoop on all these stories below and see which of this week's earning reports we're most eager to see.
What Everyone’s Been Buzzing About
Inflation is still terrible – but some see light at the end of the tunnel. The latest Consumer Price Index (CPI) showed that inflation rose 9.1% in June. That's the highest rate we've seen since the inflation crisis of the 1980s. But many analysts are encouraged to see that the Bloomberg Commodity Spot Index (BCOMSP) has been declining sharply since June.
- As commodities go… So tends to go inflation. The BCOMSP tracks the futures prices of consumer goods like food and energy. And as the chart below shows, this index has historically been one of the best leading indicators of the how the inflation rate will move next. So if that trend holds true, there's a good chance that about a month from now we'll finally have some positive inflation news to discuss.
Microsoft's ad business gets a huge boost from Netflix. Microsoft announced last Wednesday that it will serve as the global advertising technology and sales partner for Netflix's upcoming ad-supported tier. This is a big win for Microsoft and instantly makes it a major player in the ad tech pace. Some say that Microsoft's recent acquisition of Xandr from AT&T played an important role in helping it to seal the deal.
- Let's be cynical. Reportedly, Google and Comcast were the other two finalists to serve the ads. But both of those companies have their own streaming platforms that directly compete with Netflix. I suspect that had more to do with Microsoft winning the deal than any sort of technical advantages it may possess. One analyst has speculated that Netflix is cozying up to Microsoft because it's hoping to be acquired down the road, but I'm not personally buying that theory.
Head-to-head comparison: >>> Apple vs. Microsoft: Key Differences For Investors to Consider
Voyager and Celsius both filed for bankruptcy. Both companies were big names in the crypto lending space. That's a niche that exploded over the past two years as individuals and institutions flocked to these platforms to borrow against their crypto assets. But I don't think it's a coincidence that these are the first two companies to file for Chapter 11 this year, while Binance.US and FTX (which both focus much more on trading than lending) have been looking to expand in 2022.
- The bigger they are, the harder they fall. Just last November, Celsius was valued at $3.5 billion during a $750 million funding round. And Voyager Digital's stock (VYGF) price reached its peak of over $27 per share in March 2021. Now, both companies are insolvent and VYGF is trading for around $0.27 as of writing. Their stories are poignant examples of the high-risk, high-reward stakes that come with being a crypto lender.
Redfin stock falls after it says failing deals are at a 2-year high. Redfin (RDFN) stumbled nearly 10% after the company announced that housing contracts are falling through at the highest rate in 2 years. This comes just a month after the company laid off 8% of its workforce in expectation of a cooling market. Shares of RDFN are now down nearly 85% from this same time last year.
- Sorry, not sorry. Prospective homebuyers are unlikely to feel sympathy for Redfin's recent misfortunes. In just one year, their cost to purchase a home has risen by ~50%. So it's no surprise that buyer's remorse is causing many of them to pull out of deals before they reach the closing table – especially since we're finally starting to see contracts include contingencies once again.
Stay positive >>> 3 Benefits of Buying a Home When Interest Rates Are High
FDA received its first application for a “mini” birth control pill. Paris-based HRA Pharma has asked the FDA to approve its over-the-counter birth control pill. Often referred to as “mini pills,” these oral contraceptives only include progestin (while “combination pills” include estrogen as well). Mini pills are available around the world, but have yet to receive U.S. approval. Cadence Health is hoping to submit an FDA application for its own mini pill in the next year.
- All eyes are on the reproductive healthcare space. Since the overturning of Roe vs. Wade, contraception access has received more attention. The availability of a non-prescriptive birth control pill could significantly reduce the number of unintended pregnancies that occur in the U.S. each year. In addition to pharmaceutical companies like HRA Pharma, many expect women to more widely rely upon FemTech companies (think period trackers, fertility apps, and women's telemedicine services) in the Post-Roe world.
What To Keep Your Eye on This Week
Earnings reports from big banks. Several of the largest U.S. banking corporations are reporting quarterly earnings this week, including JPMorgan, Morgan Stanley, Wells Fargo, Citigroup, and PNC. Wall Street will be especially paying attention to the amount of cash these banks are reserving as this could indicate their level of concern regarding an impending recession.
Hunker down >>> How to Prepare for a Recession in 2022, 2023, and Beyond
American Airlines and United Airlines Earnings are reporting earnings too. That's two of the top three airlines in the U.S. The third airline, Delta, reported earnings last week. It posted profits that were post-pandemic highs, yet still $350+ million below expectations due to skyrocketing costs.
Here are three stories from around the web that our team found interesting:
- Crypto is Crashing – Where Were the Regulators? (New York Times)
- Five Charts Explaining Why Inflation is at a 40-Year High (Washington Post)
- Welcome to the Full-Employment Recession (Wall Street Journal)
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