Traders returned from a long weekend and were smacked by a selloff as oil prices rose and treasury yields jumped to 1.85% as inflation fears continue to point to a sooner-than-expected interest rate hike as Fed Chairman Powell wrestles with the beast of inflation. At the close the Dow was lower by 543 points on heavy trading volume to close at 35,368. Energy and material stocks held up well while techs were whacked. Last week the Dow fell 0.88% or about 320 points and for the year is now slightly negative. IBD has markets listed as under pressure so caution is advised.
Microsoft today announced a cash offer to buy video gaming company Activision for $69 billion. The news sent Activision shares up 24%. Gurus like the move since it makes Microsoft the third largest gaming company behind Tencent and Sony, fits in nicely with its cloud offering and provides it with more building blocks for the metaverse.
The Economy and Earnings
The latest CPI inflation reading came in hotter than expected in December as the index jumped 7% while the core inflation rate rose to 5.5% which is the highest level in 39 years. In what is the biggest gain on record, the producer price index or PPI rose 9.7% indicating that inflation is evident at all levels of the economy. The Federal Reserve is stepping up its fight against inflation and market gurus are now expecting 3 or 4 rate hikes this year with the first one coming in March. One of the drivers of inflation continues to be supply chain disruption. One analyst pointed out that demand remains solid but supply is spotty since workers are often sidelined due to covid or lockdowns in places like China affects the movement of goods to market on a global scale. Another driver of inflation is energy prices. After a brief pullback, WTI crude oil rose to $85 per barrel and natural gas prices are once again back over $4 per mbtu as winter demand for gas remains robust. The jist of this latest report is that inflation is expected to get worse before it gets better and this might not occur for another 6 to 18 months.
Sales of EVs around the globe were up 26% in 2021. In the US, over 310k electric vehicles were sold in the first six months of 2021 compared to 322k EVs for all of 2020. Leading the charge is Tesla while Ford now seems to have slipped into the number two position and overtaken GM. The demand for EVs however is sparking a surge in prices for lithium, copper and especially nickel which is now at a 10 year price high of $23,000 per ton. Gurus at Goldman Sachs are saying that consumers are waking up to the supply demand imbalance in materials and companies are starting to line up long term supply deals while mining companies are looking to expand production.
Items of Interest
The scout venture crew is set to hike into the snowy depths of the Cascade mountains this weekend. I will let you know how it goes on Monday. I scouted the area this weekend and the area looks good with lots of snow for building caves, igloos and quinze’s.