To say US investor sentiment soured over the past week would be something of an understatement. If the OECD's global growth forecast cut wasn't enough spiking May inflation tipped the balance and Wall Street stocks ended the week coated in red ink, and it's all down to Russia, blames the organisation.
‘Countries worldwide are being hit by higher commodity prices, which add to inflationary pressures and curb real incomes and spending, dampening the recovery,’ said OECD Secretary-General Mathias Cormann. ‘This slowdown is directly attributable to Russia's unprovoked and unjustifiable war of aggression, which is causing lower real incomes, lower growth and fewer job opportunities worldwide.’
The OECD's lowered forecast, which followed a similar cut by the World Bank over the past week, now projects global growth to decelerate sharply to around 3% this year, and 2.8% in 2023, way down on its 4.5% and 3.2 forecast in December. In some advanced economies, inflation is now expected to reach levels not seen since the 1970s, the statement warned.
Investors didn't have to wait long to see just how right that gloomy prediction was, with US prices rising at their fastest pace in 40 years. Rampant energy and food price inflation saw US annual inflation rates hit 8.6% in May, the highest rate since 1981, the Labor Department said, after easing in April.
Evercore ISI strategist Julian Emanuel warned that the S&P 500 could fall another 30% if rising energy costs caused further economic contractions. That's either very loose, or very scary talk.
US indices came under intense selling pressure during the past week as recession signals flashed and 10-year Treasury yields rallied back over 3%.
Needless to say, growth got it in the neck again, perhaps best illustrated by ARK's sinking ETFs. Cathie Wood's stable of funds has been the biggest casualty among the top 25 issuers. Data from Bloomberg Intelligence showed her nine ETFs, with a combined $15.3 billion under management, losing 48% since the start of the year. Her flagship ARK Innovation ETF (ARKK:NYSEARCA) lost another 2% over the past week but even tech heavyweights flagged under the strain, led by Amazon's (AMZN:NASDAQ) 6.5% slump.
SPOTIFY
Music streaming platform Spotify Technology (SPOT:NYSE) left investors gobsmacked after predicting that it could be churning out profits on a scale to match Apple (AAPL:NASDAQ) within a decade as it aims for $100 billion revenues.
‘I believe our future is a lot bigger,’ chief executive Daniel Ek said in a statement on 8 June, speaking at the company's investor day that flagged bold podcast growth projections. Still, traders couldn't resist taking the bait, with Spotify stock jumping 6%, before inflation reality dawned and reversed most of those gains.
Last year the company produced $2.78 billion gross profit on $10.4 billion revenue, implying massive growth over the next 10 years, if it gets there. That must remain a big if given the struggles investors have seen at other streaming businesses to keep rampant subscribers growth going - Netflix (NFLX:NASDAQ) anyone?
TARGET
It's unusual for a single company to set the tone for the whole market, but that's what happened on Wednesday as the market digested another profit warning from retail giant Target (TGT:NYSE).
The Minneapolis-based company slashed its second quarter operating margin forecast from over 5% to around 2% after the market close on Tuesday. Action to reduce its inventory levels, such as increasing markdowns and cancelling some orders, are expected to dent profits.
In the light of the squeeze on consumer spending, the firm expects to steer sales away from higher-margin discretionary items towards essentials like food and household items.
ALIBABA
Shares in Chinese internet platform Alibaba (BABA:NYSE) had a rollercoaster week, jumping 14% on 8 June on talk regulators might revive the IPO (initial public offering) of its Ant payments and financial services subsidiary. The excitement didn't last, with Alibaba executives quick to poo-poo the gossip.
Ant, controlled by the Jack Ma, the billionaire founder of Alibaba, was scheduled to float in Hong Kong and Shanghai in November 2020 in what would have been the biggest IPO in history, until China's regulatory cops got involved, cracking down on technology companies that the Chinese political establishment believe have too much data, power and influence over the masses.
