Welcome to our weekly Market News Roundup 🗞️:

A huge shoutout to our 12 new subscribers this week — thank you for being here! Here’s the 3-point agenda:

1. 🖼️ Big Picture: this week’s overall market sentiment

2. 📊 Interesting Set-ups: a few stocks worth watching

3. 🔭 Market Mood™ outlook for the week ahead

Part 1: Overall News Sentiment 🖼️

• Overall news: +22% sentiment, slightly bullish 🟢

• S&P 500 (large cap) news: +28% sentiment, slightly bullish 🟢

• Russell 2000 (small cap) news: +25% sentiment, slightly bullish 🟢

Heading into this weekend, the sentiment of stock market news coverage was broadly optimistic, culminating in the longest streak of net positive news sentiment days since January, driven by a combination of rallying markets and a hopeful US jobs report (see last week’s blog post here).

This all changed on Friday after the US government’s monthly inflation report, which sent news sentiment back to highly bearish levels over the weekend. With Friday’s drop, this week’s overall news sentiment regressed to a net score of +22% — and while this is still a slightly bullish reading, the trend suggests we’ll see more bearishness in the days to come. Here’s what happening:

📈 1. CPI says Inflation remains unhinged, surpassing estimates:

Friday’s Consumer Price Index from the US Bureau of Labor Statistics revealed that inflation climbed to an annual rate of 8.6% in May; its fastest year-over-year growth in over 40 years. The unsettling piece here is that analysts had believed inflation peaked in March at 8.5% and was beginning to retreat in April and May — now we know that inflation is still climbing and continuing to accelerate higher, driven particularly by surging energy and food prices. What’s more, other independent inflation indicators (like the U of M’s Consumer Sentiment Index and the private-market Truflation index) suggest that actual inflation is probably higher than the government’s reading. More on the situation here:

🌪️ 2. Equities, Bonds, and Crypto’s hit hard in the aftermath:

Following the release of the CPI on Friday, securities and commodities across the board reversed course from their recent bear rallies, showing high degrees of investor fear and volatility (see the stock market and crypto Fear and Greed indexes).

• Stocks: the major US indexes ended the week down between 5-6%, with the S&P 500 and the NASDAQ posting their ninth negative weekly result out of the past ten.1 

• Bonds: bond prices declined in suit, sending the 10-year US Treasury bond yield back above 3% for just the second time this year.

• Crypto’s: last (and certainly least) was the cryptocurrency market, which crashed more than $100B in market cap — Bitcoin fell below $27,000 for the first time since early 2020, while Ethereum reached a new 1-year low below $1,500. The global cryptocurrency market cap is now hovering at $1.16T, well below its all-time high of $3T back in November.

Part 2: Stocks to Watch 🔥🧊

here’s a quick look at three notable stocks to keep an eye on based on their sentiment expressed in stock market news coverage: Snap, Visa, and Abbott Labs

1. Snap Inc. ($SNAP) 📸— bearish and falling 🔴

this week: 🔻-100% news sentiment | 🔻-8% stock price

It’s been 3 weeks since Snap Inc. (parent company of Snapchat)’s CEO Evan Speigel sent out a memo to employees warning that the company is expected to miss its Q2 earnings targets and slow its place of hiring throughout the year, as a direct result of inflationary pressures on advertisement spending (which is a big deal, given that Snapchat relies almost exclusively on ads for revenue). The memo kickstarted a sell-off of $SNAP stock, which fell more than 30% the following day — the largest intraday price decline in $SNAP’s 5-year history.

Since then, the stock has steadily shed value over the past three weeks, skidding to a current price of $13.28 (well below its 2017 initial public offering price of $17) and sending a shockwave of selling across the rest of the advertising and tech-space on the market; other notable ad-tech decliners include Roku, Meta, Twitter, and Pinterest. On the whole, analysts argue that the macro-environment for advertising-dependent internet and social media companies will probably remain pretty adverse over the coming months, making it tough to justify buying $SNAP and its peers over the near term as things play out.

2. Visa Inc. ($V) 💳 — bearish news sentiment🔴

this week: 🔻-77% news sentiment | 🔻-7.5% stock price

Visa’s news sentiment fell to significantly pessimistic levels this week due to a collection of negative news events. First, Visa’s news sentiment dipped after reports surfaced earlier this week of major credit card outages across the country, with thousands of customers from Visa, Mastercard, and Chase reporting card processing errors — and while these card processing outages have since subsided, the card companies have yet to comment on the issue.

The second source of pessimism pertaining to Visa came after the company announced plans to raise their “swipe fees” — an interchange fee that merchants pay with each credit or debit card transaction. Retailers are claiming that hiking these fees will ultimately accelerate the current inflation pressures, given that most merchants are forced to pass on the rising fees to their customers by raising prices. Add in the fact that most consumers are opting to use cards instead of cash over recent months, and some analysts say that these types of dynamics can become a vicious negative cycle of rising prices.

3. Abbott Labs ($ABT) 🍼 — bullish momentum 🟢

this week: 🔺+73% news sentiment | 🔻-6.6% stock price

News sentiment surrounding Abbott Labs recovered somewhat optimistically this week from its bearish stretch of the past month after the company announced the reopening of its halted baby formula production plant in Sturgis, Michigan last week. Abbott, which is a perennial producer of baby food (along with other health and medical products), had been shut down by the FDA after a recall of its infant formula due to contamination, deepening the current nation-wide supply shortage of baby food.

With roughly 73% of baby food products out of stock throughout the US as of May 22nd (according to Datasembly), and Abbott Labs accounting for roughly 40% of the infant formula market, the reopening of the company’s Michigan plant will be essential if supply is to even remotely return to its normal state, though analysts say it may take weeks before production levels reach full capacity after the plant officially reopens, which is expected to take place on or about June 20th.

Part 3: Market Mood™ Outlook 🔭

Well folks, here we are. In a week that started considerably bullish in terms of news sentiment, market conversation fell to some of its most bearish levels of the past year this weekend after the release of the government’s monthly inflation report — marking the end of the bear rally that we called two weeks ago. Mentions of the word “fear” on Wall Street reached a new high in the aftermath of the reading, the majority of which came in reference to the US economy’s potential for a bonafide recession. Here’s our key points, and what we might expect over the coming weeks and months:

1. Headline vs. Core inflation: know the difference

While the CPI revealed that headline inflation has now reached an unprecedented 8.6% annual rate (driven by rising prices of staples like energy and food), the important silver lining to note here is that core inflation did show a modest decline in May from 6.2% to 6.0% year-over-year (driven by declining prices for medical and transportation services, in part).2 Other components with potential to slow down core inflation further in the coming months may include:

• rising mortgage rates — which could begin to cool the housing market (impacting the shelter/rent component of the CPI).

• early signs of layoffs from a large chunk of the tech sector may slow the upward trajectory of wage inflation.

• other areas, such as used- and new- car prices and airline fares (both of which remained high in May’s inflation report) could also trend lower in the months ahead, given that travel has essentially returned to “normal” in the US.

2. Recession potential? More than likely, but not inevitable.

According to research from Edward Jones, the Fed is by all means expected to retain its planned 0.5% rate hikes at its upcoming June and July meetings, with some arguing that we may see hikes reach 0.75% by the end of the year if the Fed decides to get aggressive in its attempt to curb accelerating inflation. Watching the market — with the S&P 500 and NASDAQ now down about 18% and 27% this year (respectively), stocks seem to be pricing in over a 70% probability of recession in the coming months (though our current backdrop of a solid labor market and strong corporate earnings over the past few months would certainly make this an abnormal start to a recessionary period by historical standards). As for what to do with your stock portfolio, I think EJ put it well here:

As always, the future remains to be seen. That’s all for this week — let us know if there’s anything we missed by commenting below, replying to this email, or sending us a text at +1 (833) 878 9106. And if you liked this post, please support us by clicking the like button! Best of luck to all of you in the markets this week, and thank you for reading. 😎

Disclaimer: This is not financial advice or recommendation for any investment. The content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.