Weekend Update #75
Welcome to Blue Room's Weekend Update. Each week, we're sharing what companies we're researching and the what, the who and the how that we think makes the companies interesting and unique. This roundup is brought to you weekly by a group of interns, creative minds, artists and investors who believe that through best in class investing along with the democratization of financial education we can do great things together. Enjoy, Explore and Share.
A confluence of headwinds continued to prove a difficult task to navigate for investors this week — understanding how quickly and how much the Fed will raise interest rates, continued pricing pressures due to supply chain issues, concerns about productivity in China with ongoing Covid lockdowns, indications of slowing economic growth in the U.S., and projecting the chance of a U.S. recession.
The S&P 500 closed the week at 3,901.36 (-3.05%), the Dow Jones Industrial Average closed at 31,261.90 (-2.90%), and the Nasdaq Composite closed at 11,354.62 (-3.82%). This marks the 7th week in a row of losses for the S&P 500 and the Nasdaq Composite. At one point on Friday, the S&P 500 traded down 20% from its January high — crossing the threshold into bear market territory.
Key events for the week include major disappointments in retail earnings by Walmart (-20% this week), Target (-29% this week), and Ross (-21% this week) — pointing toward weakening consumer demand and companies’ difficulties in navigating inflation. Jerome Powell’s commentary took a noticeably more hawkish tone this week as he discussed the possibility of a soft-ish landing and how there could be “some pain” involved in restoring price stability. Investors are also increasingly losing confidence that Elon Musk will complete his acquisition of Twitter, coinciding with the removal of Tesla from the S&P ESG Index due to concerns over working conditions and the handling of driver-assistance systems investigations.
In economic news for the week, Retail Sales and Ex Auto Retail Sales increased by 0.9% and 0.6% month-over-month, respectively, pointing to resilient consumer spending — albeit, supported by an increase in credit card balances. The NAHB Housing Market Index continued its decline to 69 in May, down from a peak of 90 in November. Housing Starts and Existing Home Sales also fell to 1.72 million and 5.61 million, respectively, in a sign of a cooling housing market amid rising mortgage rates. Initial Jobless Claims rose to 218,000 during the week ended May 13th — a continued increase since a low of 166,000 on March 18th that potentially signals a slowdown in hiring ahead.
Thank you Blue Room Analyst JARED FENLEY
May 18, 2022 at 10:00 AM EDT
Moderators:
David Lebowitz — Citi
Neena Bitritto-Garg — Citi
Speakers:
Karen Akinsanya — Schrödinger, President of R&D, Therapeutics
Piet van der Graaf — Certara, SVP, Quantitative Systems Pharmacology
Matthew Gline — Roivant Sciences, Chief Executive Officer
Ben Zeskind — Immuneering, Co-Founder & Chief Executive Officer
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David Lebowitz — Citi
This panel is going to be focusing on the technology behind development — talking about artificial intelligence, machine learning, and computational medicine. This has become increasingly prominent in recent years. Could we have each panelist introduce themselves, tell a little bit about their company, and tell about where they fit in this spectrum?
Coinbase’s stock plunged following its most recent earnings call, hitting an all-time low of $40.83, as it missed estimates and provided a poor outlook for its near term future. The stock is down 74% year-to-date and 82% from its highs in November as fears in the broader economy continue to pressure the equity market, especially tech stocks, as well as the cryptocurrency market which has become more highly correlated with equities as of late.
Coinbase’s disappointing quarter was driven by lower volatility and volume in crypto trading due to investors looking to reduce risk as the Fed continues to hike interest rates and as fears of a recession grow. In the most recent quarter, trading revenue accounted for 87% which demonstrates the high dependence Coinbase has on volume. Daily transaction volume over the past few months has been hovering around $2.7 billion per day, compared to $5.8 billion in Q4 of last year. During a market downturn, this poses a large risk to the company’s earnings because users are less likely to trade. Further, exchange fees tend to trend towards zero over time, as we’ve seen with brokerage fees in equity markets, threatening Coinbase’s future revenue potential. Due to these circumstances, investors and analysts have had a much more negative sentiment about the company’s future outlook.
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