Stock indices had another negative week, while commodities continued their uptrend, Disney stock rises.
Wall Street was pulled down by another decade-high inflation report and statements by St. Louis Federal Reserve President James Bullard, who hinted that the central bank could operate more aggressively than expected to tighten monetary conditions in the face of rising prices.
The consumer price index rose 7.5% year-on-year on Thursday, higher than predicted and the highest increase since 1982. After starting the year at 1.51%, the 10-year Treasury yield has risen above 2%.
Short-term rates rose even higher, indicating that investors anticipate the Fed to take more aggressive action to prevent inflation from getting entrenched. It was the first time since 2009 the 2-year yield increased by more than 26 basis points in a single-day move.
In the most recent weekly data, first-time unemployment claims fell, continuing a recent decreasing trend in jobless claims as Omicron-related labor market pressures eased. For the week ending 5 February 2022, another 223,000 Americans filed new claims, falling short of expectations of 230000.
Russia’s military build-up on the Ukrainian border has been making investors nervous of late and Friday’s session was no different. While the indices had been trending lower early in the session, it was the news later in the day that accelerated the fall. The US warned that, “Russia could invade Ukraine at any time” and that American citizens should leave immediately. Several other countries told their own citizen to leave on what might be the last few available commercial flights leaving Ukraine.
For the week, the Nasdaq Composite fell 327.63 points (-2.32%) to 13,791.15, the S&P 500 fell 87.11 points (-1.93%) to 4,418.64, and the Dow Jones Industrial Average dropped 370.32 points or -1.05% to 34,738.06. After the Ukrainian news, both gold and oil surged, the latter finished the week at multi-year highs.
Overall Stock Market
Companies in the US continued reporting positive quarterly performance. According to Refinitiv statistics, 78% of the S&P 500 companies have reported results that had surpassed analysts’ earnings projections.
Disney Stock (NYSE: DIS)
Walt Disney stock rose 6.02 or 4.20% to 149.47 after the business posted quarterly profits that surpassed analysts’ consensus estimates. Disney’s revenue for its experiences, parks, and consumer products segment surpassed analysts’ expectations.
On Wednesday, Disney had posted fiscal first-quarter earnings exceeding analyst expectations with regard to earnings per share (EPS) and revenue. On the news, the shares increased approximately 8% in extended trade.
Earnings per share (EPS) will be $1.06 adj. versus 63 cents as predicted by Refinitiv. Revenue was $21.82 billion, up from $20.91 billion predicted. Disney+ subscriptions totaled 129.8 million, compared to 125.75 million predicted.
Despite officials previously claiming that subscriber growth will be more substantial in the second half of the year than the first, with original programming due to start in Q4 2022, Disney+ subscribers surpassed forecasts.
In the first quarter, about 12 million Disney+ subscriptions were added. In the US and Canada, its services’ average revenue per user (ARPU) increased to $6.68 per month from $5.80 a year before.
Disney CFO Christine McCarthy said the company intends to spend a lot of money on streaming in the second quarter. She said the company anticipates production costs and direct-to-consumer programming to increase by $800 million to $1 billion, including Hulu live programming fees. Because of pandemic-related timing changes, they expect linear expenses to rise by around $500 million.
Scot Johnson, CFA, Principal, and CIO at Adell, Harriman & Carpenter said, “The impressive results from the Parks segment might surprise in terms of magnitude, but not in terms of what it says about momentum toward normalcy. They continue to make progress toward their aggressive guidance on Disney+ subscriber growth. We view those targets as aspirational but achievable. It’s hard to match Disney in legacy content, and they continue to leverage their intellectual property portfolio with impressive new content on both the quality and quantity fronts.”
Affirm Stock (NASDAQ: AFRM)
Due to an increase in stock-based compensation following the company’s first public offering, Affirm Holdings Inc. (NASDAQ: AFRM) announced a higher loss for its second fiscal quarter.
On Thursday afternoon trading, the stock dropped as much as 33%. Later during the evening, Affirm was down 19.35% to $60.23 per share. The share price ended the day at $58.68, down 21%. The announcement came after an unintentional tweet revealed a portion of the data.
The net loss attributed to the common shareholders increased to $159.74 million, or 57 cents per share, from $26.61 million, or 38 cents per share, in the three months ended Dec. 31. Affirm reported a $7.9 million adjusted operating loss, compared to $3.1 million in adjusted operating income a year before.
Affirm reported a 77% increase in sales to $361 million, compared to expectations of $329.1 million. Gross merchandise volume was $4.5 billion, up 115% from expectations of $3.73 billion.
After a since-deleted tweet from the company’s official Twitter account was sent, Affirm stated it had inadvertently reported a portion of its second-quarter data ahead of schedule.
US Commodity Markets
Crude and Brent Oil
There was a mid-week oil price surge after US crude stockpiles fell by roughly 5 million barrels and fuel demand reached an all-time high, highlighting the market’s persistent tightness.
Brent crude futures closed the week at $93.350 a barrel. The March contract of CME crude oil settled at $93.10 a barrel.
Last week, U.S. crude stocks declined 4.8 million barrels to 410.4 million barrels, the lowest level since October 2018. According to government data, the product supplied, a barometer for demand, reached a four-week high of 21.9 million barrels per day.
The high volume of activity and ramp-up in refinery processing in the United States portends a tight market in the months ahead.
Gold futures finished higher propelled higher by the threat posed to Ukraine by Russia and stronger-than-expected US inflation statistics. Hawkish remarks from a Federal Reserve policymaker raised expectations of a significant interest rate hike and following the report’s release, Treasury yields in the United States rose as well.
Adell, Harriman & Carpenter is an Investment Management & Financial Counsel firm. Neither Tim Thomas nor Timothy Thomas Limited have any affiliation to the firm.
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Tim Thomas is long Crude Oil and Silver but has no other positions in the stocks or commodities mentioned.
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