2020-2: Another correction or Transitory
2021 was a great for investors, with the S&P 500 racking up its third-best yearly performance in the 21st century.
2022 is off to a rough start for investors all over the world. This past week capped off a third consecutive fall with the sharpest weekly declines since covid hit in March 2020.
For specifics, the NASDAQ composite is down -11.9% YTD driven mostly by the huge drops in tech stocks performance. The S&P 500 is down -7.73%, while the DJIA is down -5.70%
Red light, Red light.
This feels like another episode of Squid Game except instead of playing the game red light, green light the markets are playing a different game. Netflix ($NFLX) would surely do with another blockbuster like Squid Game right about now. Their shares dropped 21.79% in Friday’s trading session after they reported that they would add (only) 2.5m new subscribers for the period Jan 2022-Mar 2022, less than half what analysts had projected (5.9m).
Earlier, Peloton ($PLTN), one of the best performing stocks in 2020 has seen a massive erosion of its price going to below IPO price after a 27% drop in Thursday’s trading session after a CNBC report that they were halting production of their bikes. Cue the memes.
Peloton will report their second quarter results on February 8th. We’ll certainly mark our calendars for this.
The US markets weren’t the only ones suffering though. Major cryptocurrencies were also down onfriday with Bitcoin falling 15% to trade around $36,000. Ethereum also fell to around $2,500. Of course this prompted all the memes of HODLers reapplying for jobs at MacDonald’s. Still can’t believe this is a president’s official handle.
Earnings Season and the Fed
Coming up this week is a slew of activities by some of the world’s most valuable companies. As the companies report on their Q4 performance, it will be interesting to see how retail sales and consumption performed over the holiday period and whether customers are worried about the rising inflation.
Full list of companies releasing their earnings can be found here: https://www.kiplinger.com/investing/stocks/17494/next-week-earnings-calendar-stocks
The Federal Reserve will also hold its first Federal Open Market Committee (FOMC) meeting for the year. Although the Fed is not expected to raise interest rates just yet, the meeting will be an indicator of when the rate hikes will come. Analysts expect the Fed to hike the rates four times this year to try and reign in the 7% inflation rate.
Profit warnings; Car & General Rally
Closer home, the Central Bank of Kenya will hold it’s first Monetary Policy Committee meeting of the year on Wednesday 26th Jan. The MPC will likely retain the Central Bank Rate at 7%, for the 12th consecutive time. Analysts see slight upward pressure on the interest rates in the mid term especially in Q3 as the government compensates investors for the increased risk and uncertainty posed by elections.
On the Nairobi Securities Exchange, Car & General led the gainers with 18.10% over the week. The stock is up about +123% YTD after opening the first 2 weeks of the year with over 50% gains.
Kakuzi, Sanlam and Limuru Tea have issued profit warnings for the full year results thereby expecting a drop of more than 25% in their profits. The agricultural sector continues to be hit hard from poor rains experienced last year as well as logistic challenges posed by Covid. We shall be keeping a keen eye on the other players in the insurance sector since Sanlam cited higher default rates as part of their reasons for the profit warning.
What Other Cowries are We collecting?
This week is a massive week with the many earnings being reported. We expect to see more activity as well this week mostly in anticipation and/or reaction to actual company performance against the analysts expectations.
Big Tech ($MSFT, $AAPL) - Last week Microsoft announce the blockbuster $69 Bn deal to acquire Activision $ATVI (makers of Candy Crush) and Tuesday’s earnings are expected to show a jump in revenues and earnings per share.
Energy ($XOM, $CVX) - last week Exxon Mobil pledged to have net-zero carbon emissions from operations by 2050. This followed by oil hitting a 8 year high in price means the stock is up 20% in 2022 and up almost 70% since it was replaced from the Dow Jones Industrial Average in Nov 2021. $XOM also committed to its dividend making it a good dividend stock for all the dividend hunters out there.
EV ($TSLA, $NIO, $F) - Tesla report their earnings on thursday and we expect this to have some movement for EV stocks, and yes we have included Ford Motors in this segment.
NSE ($CGEN) - Car and General has been on an absolute tear to start the year buoyed by good half year results in which they posted a Kes 887 million net profit (300% jump from 2020) as well as their decision to do a 1:1 bonus issue besides the Kesh 3.20 dividend. Circle these dates $CGEN investors (24th March - dividend payment) and 8th April (bonus payment).
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Disclaimer: The writer of this article owns $AAPL, $F shares. This article does not constitute any investment recommendations. Investors and the general public are advised to do their own research before making any investment decision.