There has been a bit of talk this week about whether the U.S. is facing a deep or a shallow recession. With the Federal Reserve set to revise interest rates by the end of July, the U.S. central bank will be working hard to encourage a stronger recovery.
The Fed is the most hawkish central bank out there according to many commentators. Partially, no doubt, down to how the dollar remains so strong. Indeed, the strong dollar topic has been going around for some time now. The word ‘hideous’ isn’t often used to denote the growth of a currency. But after the pandemic, it seems somehow appropriate.
And while we bring you news of U.S. equities each week, it’s worth considering the dollar in all this. Because most of the U.S. companies quoted on the Nasdaq or the NYSE all have substantial exporting businesses. Especially the FAANGs.
One of the largest markets that U.S. firms export to is the eurozone. The cautious approach to inflation being shown by the European Central Bank (ECB), will inevitably lead to the strengthening of the dollar against the euro. And this week there were further reasons for caution in the eurozone.
German economy suffers setback
In May the composite Purchasing Managers’ Index for services fell in Germany. It was expected to fall to 53.1 from 53.7 in May. However, it came in much lower at 51.3. The index accounts for more than two-thirds of the German economy. And, while it remains above 50 things are going to be bearable. However, should it fall below that point things could start to look substantially more unstable than they do today. Germany is the leading European economy, so this is also a setback for the whole of the eurozone.
Phil Smith, economics associate director at S&P Global, said the June flash PMI data showed that German’s economy had lost virtually all the momentum it had gained when coronavirus restrictions were eased. May saw the growth in services decline, June saw it decline further. What will July bring and what can the ECB do to stop the downward spiral?
Mixed news in the U.S.
Whilst the eurozone battles with its own issues, things in the U.S. seem to be better. Oil prices are coming down, or at least they were, until this morning. The price of a barrel of crude oil is no longer heading north of $120, with prices nearer to $105 per barrel this morning. Strange, demand hasn’t dropped much yet, so the drop in price is not clear cut.
Perhaps one of the reasons is how the President has finally tried to relieve the costs related to oil:
Yet, for now, oil prices have edged up a little further this morning. Perhaps the President’s plan needs more time to come to fruition?
Bloomberg commentators have also been at loggerheads as to whether we are exiting the bear market or not. There are more glimmers of hope than normal. Indeed, there are several companies on the buy list according to several stories on CNBC. Warren Buffet is just one of the many investors who are looking at energy stocks.
Elsewhere Bank of America has also made Nvidia into a Top Pick. You may recall hearing about the company a few years ago when there was a lack of graphics cards for computers. The firm supplies up to 80% of all graphics cards in laptops available on the market today.
Can Netflix maintain its status as a FAANG?
Netflix is now by far the smallest of the FAANGs. The streaming firm’s market cap is just above $80 billion today, a far cry from the $2.238 trillion that represents Apple’s market cap. If things continue as they are, we may soon be seeing the FAAGs and no longer the FAANGs on our trading platforms.
Before we get on to the rest of the FAANGs, its worth mentioning the Twitter saga briefly. Twitter is trying hard to come up with new ideas whilst the turmoil caused by Elon Musk’s potential takeover continue. Musk is supposedly waiting for three issues to be addressed though: earning shareholder approval, obtaining debt financing, and getting answers to his questions about spam and fake accounts. No doubt the saga will continue into next week too.
Are the FAANGs leading a recovery?
Facebook’s Meta was also in the news. The firm settled a lawsuit with the Department of Justice in the U.S. this week. Related to how the algorithm works. Share prices for Meta are down 3% again this week.
Apple is up 5%. Google’s Alphabet is just behind at 4.5% growth this week so far. Finally, Amazon round up the FAANGs showing an almost 6% increase in share price this week. By far the best performer from amongst its peer group.
Tesla is up over 8% with some analysts suggesting it might be time to buy again. Another encouraging sign. It’s been some weeks since anyone suggested buying Tesla.
None of the large cap firms have shown a 10% increase this week. However, many of the energy and health sector stocks are showing even up to 8% increases this week. Prices correct as of 12.30 GMT.
Could we be seeing the end of the bear market? More importantly, could the optimism amongst large cap firms in the U.S. be a sign of things to come? Against the backdrop of a strong dollar and the inevitable role of the central bank needing to stimulate a recovery. Things do look a little more rosy than most weeks.
It might be time to realign your portfolio.
Author: Andy Samu
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