Markets continue to trade in volatile fashion fueled by Ukraine, Chinese lockdowns and inflation readings. Last week, energy, agriculture and natural resource stocks bolted higher only to fall back this week as traders try to work out the supply demand equation. Meanwhile Amazon announced a 20 for 1 stock split and a $10 billion share buyback program. Last week the Dow lost about 670 points or 2% to close at 32,944 and so far this week the Dow is up over 1% as peace talks in Ukraine unfold. The Dow closed up 599 points today at 33,544 on lighter trading volume. The 10 year US Treasury yield topped 2% as investors are anticipating a rate hike soon. With all the uncertainty, IBD continues to list markets in correction mode however BTS is still positive on the markets but notes that short term volatility will make for a bumpy ride.
Oil prices pulled back from recent highs due to a confluence of factors which include OPEC and the US pumping more oil and the prospects of slowing demand from China as that nation locks down parts of its economy due to covid outbreaks. The China lockdown is also pulling prices of base materials like iron ore and aluminum lower and within China itself equity markets have lost 40% from a year ago in the worst selloff since 2008.
The Economy and Earnings
Inflation in the US showed a 0.8% increase for February and is now up 7.9% over 12 months besting a record 7.5% reading back in 1982. One third of the increase was due to gasoline but food, shelter, travel, airline fares also jumped which means that inflation is broad based across our economy. Producer price inflation was reported this morning and came in at 10% which was a record increase.
Tesla announced it was raising vehicle prices by 5% to 10% as prices of materials increase. Russia produces 17% of the world’s nickel which is an important metal in EV battery’s and other things like stainless steel. Prices on the London Metal Exchange or LME hit $100,000 per ton last week after a short squeeze came into play. A large Chinese bank had apparently bet the price of nickel would fall and had to scramble to cover its bets by buying nickel in the spot market. The LME Shut down trading in nickel and is trying to bring the market back to normal. JP Morgan stepped in to help the bank in China cover the $8 billion margin call and people familiar with the metals markets are calling this event “unprecedented”. Other gurus are saying the price spike in nickel, if it holds, could add up to $1,000 to the price of an electric car.
EV truck maker Rivian reported quarterly results last week which missed estimates and sent shares lower. The company delivered 909 trucks and generated $54 million in sales but production costs were well over $400 million and the quarterly loss reported by the company was $2.4 billion. Management announced on the call that supply chain and inflation issues are pushing the company to increase vehicle prices by 20%.
Items of Interest
There is big news here at Greystone and next week I will have some details for you!
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