Morning folks, Wall Street closed higher yesterday, boosted after minutes from the Federal Reserve's latest monetary policy meeting showed policymakers unanimously felt the U.S. economy was very strong as they grappled with reining in inflation without triggering a recession. The Federal Open Market Committee's May meeting, which culminated in a 50-basis-point hike in the Fed funds target rate - the biggest jump in 22 years - showed most of the committee's members judged that further such rate hikes would "likely be appropriate" at its upcoming June and July meetings. Read more of this morning’s report to find out why the Fed has decided to act on inflation, and what this means for the market!
“I don't feel that it is necessary to know exactly what I am. The main interest in life and work is to become someone else that you were not in the beginning.” - Michel Foucault
For today’s overall market recap, we have updates on the global scale, however, first and foremost we are going to zoom into the predicaments facing North American consumers, and corporations. As we all know by now inflation is the silent tax, and while consumers have been feeling the brunt of this tax, certain corporations are primed for disappointing financials as a result. Imagine a pie chart representing the income of the average consumer, with one section representing % spent on essentials, the second representing % saved, and the third representing % spent on non-essential goods, for this example let’s also assume that income remains fixed. Now, as inflation continues the essentials section will begin to expand, eating up shares from the other two. One must ask themselves, with these increases in prices, and bearish fears running chills up even the most devout bull’s spine, would the rational consumer A. take a percentage of their income away from savings for non-essential goods, or B. cut out non-essential goods in favour of savings? If you guessed B, congratulations. This is further compounded by the figures shown in the chart below, as securitized consumer credit has ballooned after a short dip during the height of the pandemic, while the savings rate has declined drastically. With all that being said, companies which were built by distilling luxury goods for the middle class, and non-essential goods manufacturers could be in for a reckoning of epic proportions.
As for the war in Ukraine, not much has changed. Intense fighting still rages on, with the Ukrainian Army and armed civilians ensuring that the Russians will forfeit blood for every inch of ground gained. Recent casualty estimates released by the French intelligence service are ballparking Russian losses at 28,000. This would mean that close to 10,000 Russians have died per month, a figure far larger than Coalition losses in the entirety of both the Iraq and Afghanistan Wars. And what would a major geopolitical event be without Henry Kissinger chiming in? At the WEF summit in Davos this week Kissinger’s remarks more or less were; that Putin is a threat to civilization however, somewhat surprisingly also said that the Ukrainians should give up some of their territory to the Russians. While the policy could work, it’s eerily reminiscent of the appeasement strategy that the Allies undertook shortly before the outbreak of the Second World War.
Navigating The Microchip Arena (& Recommendation!)
For today's piece, we're coming to you with something a little different - a deep dive into the microchip space and an industry-specific pick to help you gain exposure to this key area of the economy. Read our long-form article, published to our partner site here! Also, enjoy this informative chart below on which areas of the chip supply chain are driving the shortage.
Chart of the Day: US IG & HY Bond Change (%)