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🩺Inflation and Fed🎙

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🎈Feel the pain?🔫

While the Fed has not raised any interest rate, some stocks sensitive to economic development are starting to feel the pain. For example, the industrials, materials and transport sectors are among those that are affected by the prospect of a higher interest rate environment.

Companies are feeling the pinch as borrowing costs is on the rise. Often known as the corporate credit spreads, investors expect more yields for owning the company’s bonds. In addition, economically sensitive stocks are highly impacted as their demand rises and falls, given their cyclical nature.

In a nutshell, a higher credit spread of such cyclical firms means that investors are asking for a higher yield on the bonds due to the earnings risk.

Ultimately, the outcome is mainly dependent on how fast inflation moves and whether the Fed will be aggressively hiking interest rates.

💰The test of the market🔨

Companies may find it more challenging to meet Wall Streets estimate. If this is true, then the bull market may have lesser fuel on the run. We are ushering in another new earnings season, starting with the big banks.

So why would companies disappoint in their earnings? There is often a trend for analysts to quickly push up a company’s profit during recovery or the early expansion phase. However, as we enter the mid-cycle phase in 2022, the earnings may tend to be less impressive such that growth may start to moderate.

Pika World shall dive deep into the latest earnings seasons to explore any signs of weakness, especially with the onset of Omicron.

🏀Inflation is still Hot🥊

The latest CPI continued to reflect a hot price market. On the bright side, it wasn’t worst than anticipated and this gives a tiny comfort to the equity market. All eyes are now on the FOMC meeting next week where we will likely receive new clues on the Fed’s monetary trajectory and with the earnings season coming, the market is back on a volatile mode as we had seen since mid Nov 2021.

Pika World wishes everyone a prosperous trading day ahead!

Pika Nat.