Stocks ended a third straight weekly decline on a modestly upbeat note in a volatile session on Friday, but still suffered the largest weekly percentage decline since March 2020, when the economy was shutting down because of the COVID-19 outbreak. Several key pieces of economic data missed forecasts during the week, ranging from retail sales to housing starts, and the Federal Reserve raised its benchmark interest rate by 75 basis points, the most since 1994. The Dow Jones again closed under the 30,000 mark after dipping below that level on Thursday for the first time since January 2021. The Dow closed down 4.8% for the week, its 11th losing week out of 12, while the S&P 500 slumped 5.8% and the tech-heavy Nasdaq also fell 4.8%. For both the Dow and the S&P, it was the worst week so far this year.
Trouble hit the cryptosphere on Monday, but accelerated throughout the week as risk sentiment continued to erode in the broader market. The latest catalyst came from the most recent inflated CPI reading – which showed prices rising 8.6% Y/Y in May – though the downturn quickly picked up pace across the entire sector. Bitcoin (BTC-USD) came close to falling below $20,000 – close to the peak of the crypto’s last major bull run in 2017 – while Binance Coin (BNB-USD), Bitcoin Cash (BCH-USD) and Ethereum (ETH-USD) also slipped deep into the red.
Bigger picture: Not helping the situation was an announcement from Celsius, which is one of the largest crypto lending platforms (topping $20B in assets last August). The DeFi giant paused all withdrawals due to “extreme market conditions,” as its CEL digital token (CEL-USD) went into freefall, plunging over 50% over the course of 24 hours. Celsius also suspended its swap and transfer products by “activating a clause in our Terms of Use that will allow for this process to take place.”
The debacle is another dose of bad news for the crypto market, which was just dealt a wake-up call following the collapse of “not so stable” stablecoin TerraUSD (UST-USD) in May. Celsius has also run afoul of regulators, with some users blaming the platform for heavy financial losses by promoting them to hold CEL as collateral for loans. The digital token even promises “actual financial rewards” on its website – including as much as 30% extra in weekly returns – but the latest news is likely to dent faith in highly-touted crypto projects.
Commentary: “From the next cycle’s view, we are probably near the bottom but that doesn’t mean that price can nuke 50% further,” said Bobby Ong, co-founder of crypto price-tracking company CoinGecko. “FWIW, I don’t think we are at the bottom yet coz conferences are still full, crypto parties are still extravagant, still seeing excesses among teams, macro environment is still weak. The layoffs have started but not widespread yet. Stay strong and manage your positions well.” (129 comments)
It has been nearly a decade in the making, but Amazon (AMZN) finally announced that it will begin Prime Air drone deliveries later this year as it attempts to get the long-delayed project off the ground. The service will initially be available in Lockeford, California – which is about 40 miles south of Sacramento – and will use feedback from the service to improve its operations. To fly delivery drones in the U.S., companies have to be approved by the FAA, and the retail behemoth is one of only three firms that has received Part 135 certification.
How it works? “Once onboarded, customers in Lockeford will see Prime Air-eligible items on Amazon. They will place an order as they normally would and receive an estimated arrival time with a status tracker for their order. For these deliveries, the drone will fly to the designated delivery location, descend to the customer’s backyard, and hover at a safe height. It will then safely release the package and rise back up to altitude,” Amazon wrote in a blog post.
“We’ve created a sophisticated and industry-leading sense-and-avoid system that will enable operations without visual observers and allow our drone to operate at greater distances while safely and reliably avoiding other aircraft, people, pets, and obstacles. It can also detect moving objects on the horizon, like other aircraft, even when it’s hard for people to see them. If obstacles are identified, our drone will automatically change course to safely avoid them.”
The competition: Alphabet’s (GOOG) (GOOGL) Wing launched commercial service just north of Dallas in April, and hopes to soon press the button on wide-scale deployment. Walmart’s (WMT) drone delivery program is also available to more than 4M households in the U.S., making it possible for customers to get diapers or dinner ingredients delivered in 30 minutes or less. Meanwhile, Uber Eats (UBER) has promised to ratchet up drone delivery operations in the near future, but until now, the technology has been mainly focused on small-scale trials. (33 comments)
The Federal Reserve on Wednesday implemented its largest interest rate hike since 1994, taking the threat of inflation seriously by intensifying its campaign against surging prices. Another 75 basis point hike – or a 50 bps move – is also in the cards for the meeting in July, according to Fed Chair Jerome Powell, who is just beginning to show his aggressive side. Stocks initially climbed into the close in somewhat of a relief rally, but a bloodbath rocked Wall Street in the following session, with the Dow Jones tumbling below the key 30,000 level for the first time since January 2021.
Cue the uncertainty: “We don’t seek to put people out of work,” Powell said at a press conference, adding that the central bank is not trying to induce a recession. “Of course, we never think too many people are working and fewer people need to have jobs, but we also think that you really cannot have the kind of labor market we want without price stability. It’s not going to be easy, and it may well depend, of course, on events that are not under our control.”
How will it affect the average American? Despite the largest rate hike in three decades, it will take some time for the higher borrowing costs to cool demand and make their way into the economy. Mortgage rates will continue to go up, as well as car loans and credit cards, making it much more expensive to borrow cash. The hikes also won’t impact the supply side, which the Fed largely attributes to soaring gas and food costs. In terms of the stock market and retirement funds, things will largely depend on whether investors believe the Fed will be successful in pulling off a “soft landing,” by stabilizing inflation without denting economic growth.
Commentary: “It’s about time we exit this artificial world of predictable massive liquidity injections where everybody gets used to zero interest rates, where we do silly things whether it’s investing in parts of the market we shouldn’t be investing in or investing in the economy in ways that don’t make sense,” said Mohamed El-Erian, Chief Economic Advisor at Allianz. The Fed isn’t the only one existing the monetary regime, with the Bank of England raising rates for the fifth time in a row on Thursday and the Swiss National Bank hiking its benchmark for the first time since 2007. (74 comments)
An interesting dynamic continues to play out in energy markets as Americans continue to feel pain at the pump. Who is to blame for the current situation? Why is it happening? And what could be done to counter record gas prices? In a letter to U.S. oil refiners this week, President Biden chastised the industry for making “well above normal” profit margins during a “time of war” and requested solutions to the ongoing oil refining crisis.
Quote: “I am prepared to use all tools at my disposal, as appropriate, to address barriers to providing Americans affordable, secure energy supply,” he wrote. “The crunch that families are facing deserves immediate action. Your companies need to work with my administration to bring forward concrete, near-term solutions that address the crisis and respect the critical equities of energy workers and fence-line communities.” Biden is not only looking for help from the domestic oil industry, but has confirmed a trip to once dubbed “pariah” Saudi Arabia next month to urge more production.
ExxonMobil (XOM) was among the seven refiners to receive the letter from the president and was quick to outline some solutions to the fuel crunch. “In the short term, the U.S. government could enact measures often used in emergencies following hurricanes or other supply disruptions – such as waivers of Jones Act provisions and some fuel specifications to increase supplies. Longer-term, the government can promote investment through clear and consistent policy that supports U.S. resource development, such as regular and predictable lease sales, as well as streamlined regulatory approval and support for infrastructure such as pipelines.”
Go deeper: While the shale revolution has allowed the U.S. to move from the world’s largest importer of oil to the world’s largest producer, the same cannot be said for refining capacity. Some companies like Exxon have invested into the sector, while others are afraid, given that the payback period is around 10 years and there will likely be many more millions of vehicles on the road then that are electric. “Oil and gas companies that have listened to policymakers’ calls for less investment in fossil fuels is one of the reasons for current globally tight energy supplies,” added Patrick Pouyanne, CEO of TotalEnergies (TTE). (451 comments)
Over the past couple of months, Elon Musk has gone back and forth on an offer to buy Twitter (TWTR) for $44B. He most recently suggested that he could walk away from the deal due to being willfully misled on fake accounts (or an inability to secure financing), but in the meantime, he’s on the hook for going through with the transaction. Twitter employees have also expressed uncertainty and mixed reactions to the takeover, prompting a Q&A session moderated by chief marketing officer Leslie Berland.
Why do you love Twitter? And also, why did you and do you want to buy Twitter? Some people use their hair to express themselves, I use Twitter. So you know, I find it’s the best forum for communicating with a lot of people simultaneously… not through the lens of the media. I think it’s essential to have free speech and to be able to communicate freely.
Can you share what your point of view is on remote work, and specifically for Twitter? Now Tesla (TSLA) makes cars and you cannot make cars remotely, obviously. [But] there are some roles at Tesla where the work can be done remotely, like, say, software or design. I think that’s still a case where you want to aspire to do things in person, but if somebody is exceptional at their job, then it’s possible for them to be effective, even working remotely.
Can you speak to how you’re thinking about layoffs at Twitter? Well, I think it depends on, you know, the company does need to be – to get – healthy. So I mean, right now, the costs exceed the revenue. So that’s not a great situation to be in. And so there would have to be some rationalization of headcount and expenses to have revenue be greater than cost. Otherwise, Twitter is simply not viable or can’t grow.
You’re obviously learning and gaining information as we get closer to this deal being closed. What do you feel that you have deep understanding and grasp of? What I have less understanding of is this sort of bot spam or multi-user account – basically, anything that affects the monetizable daily user number, that’s probably my biggest concern. Because that’s really what drives advertising revenue, as well as subscription revenue. And really, Twitter’s revenue is going to be subscription, advertising – I think payments would be an interesting thing to do, as well. But all of those things are only relevant as a function of how many unique humans are on the system.
How if at all do your political views play into the leadership of the companies that you currently run? How would it affect Twitter, if at all? Well, my political views, I think, are moderate, at least as would be, you know, as if you said, like, what is the center of the normal distribution of political views in the country, I think that’d be pretty close to the center. But I’m allowing people who have relatively extreme views to express those views within the bounds of the law. So that’s, you know, as I said publicly, I think if, let’s say, the far left 10% and far right 10% were equally upset on Twitter, then that would probably be a good outcome.
There’s been some discussion about will you be CEO, will you not be CEO? Well, I guess I’m not hung up on titles, but I do want to drive the product in a particular direction. So, you know, it could be like … I don’t really care about being CEO. In fact, I renamed myself “Techno King” at Tesla in an official SEC filing. So, I mean, what I really just want to do is, like, drive the product and improve the product, and then it’s like, basically, software and product design. So you know, I don’t mind doing other things, you know, related to operating the company, but there are chores. There are a lot of chores to do as CEO. And all I really want is to make sure that the product evolves rapidly and in a good way. (143 comments)
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