S

PR Drawdowns - In a last-ditch effort to stabilize gas prices, the White House has released almost half of the Strategic Petrolium Reserve without any plans for replenishment. The SPR is meant to be an emergency reserve, not a means of saving face before midterm elections. While the administration may be taking credit for lower gas prices and new "deals" with OPEC, the harsh reality is gas prices may be even higher this winter. By October, the SPR will shrink to the lowest level in 40 years.

Amazon buys iRobot - Last week, the company announced a $1.7B strategic acquisition of iRobot, the company behind Roomba. The deal came as a surprise to some, but the rationale checks out. Amazon needs to accelerate development of Astro, the home-monitoring robot-assistant. iRobot's 30 years of experience developing room-scanning, AI technology is the perfect fit.


Market Wrap

By MATT KOHRS & MIKE LEVINE

Markets finished mixed last week. The Dow Jones Industrial Average declined by 0.10%, the S&P 500 finished up 0.40%, while the NASDAQ gained 2.2%.

Last weeks jobs report came in TOO hot, at 528,000 new nonfarm payrolls, more than double what was expected. Equity markets declined and bond yields rose as expectations for Fed policy recalibrated higher. Unemployment has declined to "3.5%" (the real figure is likely higher due to a lower labor force participation rate), the lowest rate since 1969. But too many jobs is just as bad as too few: unemployment and inflation are the key inputs to monetary policy.

Too much employment can accelerate inflation as much as fiscal stimulus, which may indicate rates are not high enough. But, the Fed has already met it's 2.5% average inflation mandate after a decade of very low inflation in the US. The bond market now expects another rate hike of 0.75% in September instead of the 0.5% hike that was priced in before, with a peak fed funds rate of 3.6% in March 2023.

Labor Market Strength: Current Payrolls vs. Fed Policy Payroll Requirement Source: Federal Reserve

Broad inflation pressures suggest that the Fed has more work to do while the entire effect of the current rate hikes has not yet been fully felt in the economy. Restrictive policy drives the unemployment rate higher and corporate earnings lower, which makes the midsummer gains a bear-market rally with major indexes heading lower toward the end of the summer.

But, a mild recession is about equally as likely as the chance for a soft landing. The signal from the yield-curve inversion and weakness in some leading economic indicators should not be dismissed.


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Only Degenerates and its analysts have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

Posted 
Aug 8, 2022
 in 
Weekend Wrap
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