Market News 8/03

Markets

Yesterday, investors displayed an exceptional eagerness to sell their assets, reminiscent of the atmosphere at a bustling used car lot. This rush to sell was triggered by Fitch's decision to downgrade the long-term credit rating for the US. The Nasdaq experienced its most significant decline since February. Among the hardest-hit were chipmakers, with AMD's stock declining due to a forecast of weak sales for the next quarter. Similarly, Qualcomm's shares plummeted after disclosing a 25% decrease in chip sales for the previous quarter.

U.S. Downgrade Sparks Selloff in Stocks and Bonds

In the aftermath of America's credit downgrade, both U.S. stocks and bonds faced a significant wave of selling, leading to a surge in Treasury yields, reaching the highest levels of the year. Major indexes suffered a sharp decline, with the S&P 500 falling 1.4%, and the tech-heavy Nasdaq Composite experiencing its worst one-day performance since February, losing 2.2%. The Dow Jones Industrial Average also dropped by 1%, mainly impacted by declines in Intel and Microsoft shares. The selling was part of a broader global selloff that affected markets in Europe and Asia.

The 10-year Treasury note's yield rose to 4.077%, the highest since November, as bond prices experienced a fall. These declines marked a setback for the steady upward trajectory of major indexes witnessed throughout much of 2023. The ascent had driven U.S. stocks to some of the highest levels in the past year and fueled speculative bets on various assets, including artificial intelligence and meme stocks.

Following the credit downgrade and recent earnings results, investors became more cautious, and some portfolio managers expressed concerns about the sustainability of major indexes' further climb. The rising bond yields complicated decisions for investors on where to allocate their cash, especially with the S&P 500 having rallied almost 18% throughout the year.

The unexpected shift in the 2023 investing playbook became evident with the rapid upending of earlier beliefs. Initially, many investors anticipated that economic risks on the horizon would keep Treasury yields in check. However, strong economic data, debt sales, and the U.S. downgrade led to an increase in yields, disrupting the investment landscape in recent months.

Retail

Amazon is struggling to conquer the retail aisle

Amazon is undergoing the most extensive transformation of its grocery business since it acquired Whole Foods six years ago. Despite its reputation for revolutionizing industries, the tech giant has faced challenges in revolutionizing grocery sales. To address this, Amazon is enlisting experienced grocery executives to implement new strategies aimed at strengthening its physical stores and increasing its market share in the $1.5 trillion US grocery market, which is currently dominated by Walmart and Kroger.

Some of the significant changes include expanding Amazon Fresh delivery services to non-Prime members in several cities, with plans to make it available nationwide by the end of the year. The company is also redesigning its supermarkets, incorporating brighter colors, Krispy Kreme stands near the entrance, and self-checkout lanes to complement its existing "Just Walk Out" system, similar to an E-ZPass.

In addition, Amazon is streamlining its online shopping experience by merging the shopping carts for Amazon Fresh, Amazon.com, and Whole Foods, eliminating the need for separate checkouts.

However, Amazon's previous attempts to establish dominance in the grocery space have encountered challenges, including four lawsuits related to stalled Amazon Fresh store openings and recent layoffs of hundreds of store workers. The success of these new strategies will be crucial for Amazon Fresh, and this year may determine its future in the competitive grocery market.

Sports

Jamaica’s crowdfunding journey to the knockout stage.

Yesterday, the Jamaican women's national soccer team celebrated a remarkable achievement at the World Cup by drawing with Brazil to advance to the knockout stage. This success seemed improbable just months ago when the team faced financial challenges in preparing for the tournament.

Back in April, the self-styled Reggae Girlz had to turn to their fans and launch crowdfunding campaigns to gather the resources they needed for their World Cup journey. The Jamaica Football Federation (JFF) was struggling to finance the team's trip, leading to complaints from the players about inadequate planning, transportation, accommodations, and training conditions. The lack of support from the JFF prompted an overwhelming response from the public. Through two crowdfunding campaigns, over $100,000 was raised collectively to cover travel expenses, training, and support for the team's staff.

Among the notable supporters was Cedella Marley, the daughter of the legendary Bob Marley, who had previously helped keep the team afloat when the JFF disbanded it due to insufficient funding.

The challenges faced by the Reggae Girlz are not unique, as women's soccer has historically been underfunded compared to men's soccer. Recently, there have been strides towards achieving greater gender equality in the sport. Last year, the US women's national team reached a historic equal pay settlement, and just last week, the Canadian women's national team struck an interim deal with Canada Soccer to ensure equal pay for both women's and men's teams.

Economy

Everyone who warned about a recession last year

At this point, discussions about a potential recession are met with a level of desensitization similar to that of doomsday cult prophecies. However, the landscape has shifted, and yesterday, Bank of America's economists became the first among major Wall Street banks to reverse their earlier prediction, stating that the US will not face a recession in the next year.

Less than a year ago, virtually everyone was forecasting an imminent recession, and the Bloomberg Economics probability model indicated a 100% chance of the US plunging into a recession within a year. JPMorgan CEO Jamie Dimon even warned investors to brace for an impending economic "hurricane" in June 2022.

Yet, recent economic indicators have shown positive signs. Bank of America highlighted robust consumer spending and a cooling inflation rate of 3% last month. The labor market has also remained strong, with a low unemployment rate of just 3.6% in June, and companies are gradually hiring.

The Federal Reserve, while raising interest rates again, expressed its belief in a recession-free 2023. Goldman Sachs also revised its estimation of the odds of a recession in the next year from 25% to 20%.

CEOs, during their Q2 earnings calls, expressed optimism, with the phrase "soft landing" being mentioned 97% more frequently this cycle compared to the last one. While some CEOs, like PNC's Bill Demchak, feel confident in the concept of a soft landing, others, like Tesla's Elon Musk, remain uncertain.

Despite these positive outlooks, not everyone shares the same sentiment. The recent downgrade of the US' credit rating by rating agency Fitch, amid political polarization, has raised some concerns. Historically, economists have made high-profile soft landing predictions before recessions in 1990, 2000, and 2008. Therefore, while optimism is prevalent, caution remains warranted.