Investment Insights Notes from the Kitchen

Stocks End Losing Run

  • May 19, 2022
  • Andrew Gillham

Global stocks broke a 6-week losing streak, albeit with sharp gyrations and divergence between winners and losers. The blue-chip S&P 500 and technology focused Nasdaq gained 0.4% and 0.3% respectively.

In another busy week for first quarter corporate earnings reports, Walt Disney’s were one of the most anticipated. Its revenue increased 23% from the same period a year ago to $19.2 billion, driven by strong growth at Disney+ and visitors returning to its theme parks as pandemic restrictions eased. Disney+ added 7.9 million new subscribers, gaining more market share from Netflix, the world’s largest streaming service.

The exodus of Western companies from Russia continued. Shell agreed to sell more than 400 of its petrol stations to Lukoil, Russia’s second largest oil producer, for an undisclosed amount and Renault sold its controlling stake in Avtovaz, the manufacturer of Lada, for a symbolic sum of 1 rouble to NAMI, the state-run car research institute.

McDonald’s, which operates 850 restaurants and employs 62,000 workers in the country, also announced its intention to leave. In a letter to employees, Chief executive Chris Kempczinski wrote “it is impossible to ignore the humanitarian crisis caused by the war in Ukraine.”

The fast-food group began operating in the country in January 1990, attracting queues of thousands at its flagship restaurant in Puskhin Square eager to try a Big Mac for the first time. McDonald’s’ operations in Russia and Ukraine contributed 9% to its revenue last year and it will take a more than $1 billion hit from the sale.

The takeover of Twitter took another twist on Friday when Elon Musk tweeted the deal is “temporarily on hold” until the social media platform provides more evidence that fake accounts represent less than 5% of its 229 million users. Although Musk reiterated that he is committed to the acquisition, his tweet fuelled speculation he is seeking to renegotiate a lower price. Twitter shares now trade at a 30% discount to his $54 per share offer.

Annual US inflation rose 8.3% in April, moderating from an 8.5% increase in March. Most economists forecast a sharper drop, but food and grocery store prices rose at the fast pace in more than 40 years. Airfares also rose 19% in April, and 33% from a year earlier, suggesting that post-pandemic demand for seats is enabling airlines to pass on higher fuel and staff costs to passengers.

Closer to home, evidence is mounting that high inflation is pushing the economy towards recession. UK retail sales fell 3.1% in April from a month earlier, the first decline in 15 months, and credit and debit card transaction data revealed a similar trend. Consumer spending accounts for around two-thirds of the UK’s GDP.

Brent crude rose 8% to $114 a barrel as the EU moved forward with plans to ban imports of Russian oil, despite opposition from members such as Hungary. The EU imports more than a quarter of its oil from Russia. Surging oil prices are swelling the coffers of major producers, including Saudi Aramco which has overtaken Apple as the world’s most valuable company with a market cap of $2.5 trillion.

Wheat prices also rose sharply last week, more than 14% to $12.47 a bushel after India imposed a ban on exports. It had been hoped that the world’s second largest producer would sell some of last year’s bumper harvest abroad but the Indian government is seeking to curb soaring food prices at home.

In a tumultuous week for cryptocurrencies, Bitcoin fell below $30,000 for the first time since July and more than 50% lower than its November all-time high. Digital assets were shaken by the collapse of the Terrra stablecoin and its sister cypptocurrncy Luna. The Luna Foundation Guard sold 80,000 bitcoin tokens last week in a vain attempt to save Terra from collapse.

(Cover Image Source: Nicholas Cappello)

TEAM Asset Management is a trading name of Theta Enhanced Asset Management Limited which is regulated by the Jersey Financial Services Commission.