Weekend Wall Street #63 - Markets Panic
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Happy weekend everyone and welcome back to Weekend Wall Street. The markets continued to slide this week, declining 1.56% after what has been a pretty huge run in Q1. Opportunities are still everywhere as the market focuses on macro and geopolitical events more.
Let’s take a look at what next week has in store for us!
The big news this week was the CPI inflation report that released this week, which showed a 0.4% increase over the 0.3% that was expected, and markets reacted very negatively to that news. One thing that economists are really worried about was the sticky prices in housing with XLRE (S&P Real Estate ETF) declining every day since Wednesday. I mentioned a few weeks ago how I didn’t think we’d be getting as many rate cuts as the markets had originally priced in (the market is historically terrible at predicting what the Fed does) with the odds of rates being maintained increasing by ~30% after the report in June as seen by the FedWatch tool below:
UPDATE: After I wrote this, there’s confirmation of an attack, but futures aren’t open so it will be seen how it affects markets.
As for the "imminent" Iran-Israel conflict for the weekend. The best hedge to the portfolio would likely to just be long UVXY calls short term (the VIX always gets crushed so holding it isn't the greatest idea). Personally, I'm not going short oil here. The reason the conflict is so important to oil traders is Iran's management of the Strait of Hormuz where ~21M barrels of oil pass through per day (20% of daily supply) which is basically why oil has been so volatile recently. A move from Iran to Israel likely sparks a larger conflict in the middle east where much of the oil supply comes from. The senior PM at Tortoise told MarketWatch this week that there are already low supplies of oil in inventory and that there was already an expectation of oil being undersupplies for Q3 and Q4 of 2024, but he believes there is already $5-7 worth of risk premium embedded in prices.
This is the amount of oil that flow through the Strait of Hormuz:
Ticketing stocks are looking to enter an IPO market with StubHub looking for a $16.5B valuation which matches their valuation round from 2021. They’ve been looking for two years but seem to be working with Goldman Sachs and JP Morgan on this deal. StubHub would be up against LiveNation which is the biggest public ticketing site on the markets right now and hasn’t done too horrible since the start of 2023.
Tesla cut the price of its full self driving service to $99/month from $199/month which is a huge discount to all drivers that are going to be using their service. In a turbulent time for the company, what does this mean for the stock? According to Barrons, the company needs an additional 400K users to offset the cost of the discount with every 200K users over 800K equaling about 1 additional nickel in their earnings per share.
#1) Earnings week is better than last week with some of the banks reporting earlier in the week, as well as Netflix at the end, which should be interesting as Netflix seems to be the only streaming service that’s continuing to grow.
#2) On Monday, the reports on credit card delinquencies and the March sales numbers will release.
#3) On Tuesday, BIDU is hosting an AI conference and housing starts for March will be reported at 8:30 AM.
#4) On Wednesday, the Fed’s beige book report will be released.
#5) On Thursday, a few Fed members will be speaking throughout the day (New York and Atlanta President’s).
S&P 500
The S&P 500 ($SPX index) has finally broke this channel here and is looking to pullback. Any good, healthy pullback has a 5% drop implying that we may have some more to drop. We tapped the 50SMA perfectly and bounced last Friday, although there was a bit of a selloff in the after-hours session.
My key breaks are $514.78 for bulls and $509.13 for bears.
The best ways to play the S&P 500 are via. SPY/SPX options or SPXL (3X Bull S&P 500 ETF.
INDIVIDUAL STOCKS & LEVELS
Let’s recap some of the levels of some popular names:
TSLA
Tesla is trading in this range and had unusually low volume last Friday. No new catalysts for this to actually break anywhere with Wells Fargo and Citi both decreasing their price targets on the stock, expecting a miss on Q1 estimates. This is from the analyst’s note: "While we expect a Q1 miss, expectations are low after weak deliveries. Poor fundamentals
may be overshadowed on the Q1 call by FSD 'razzle-dazzle'. Once the show is over, fundamentals should matter again. We reiterate our UW & lower our PT to $120. “
AAPL
Apple was super strong these last two days of the week after news that they’d be releasing a redone Mac line-up next year with AI processing capable chips. This is right before their developers event in June, which should further give insight into Apple’s AI capabilities.
PLTR
PLTR is a name that just seems to be getting weak on volume here and it’s something I’ve noticed with retail heavy names is that when things go south, these go down first. I think a lot of the news this weekend was bearish, so if the markets break down, I like this for a short play.
Insider Activity
Insider buys were pretty slow after a good run, but PGY is an interesting one to me. They’re a trendy software company so it’s interesting this dip is being bought.
Thanks for reading this weekend’s article, have a great week!
-Adit Dayal