- The impact of rising interest rates is starting to hit home, with sectors that rely heavily on debt beginning to feel the impact of lower demand
- Used car retailer Carvana looks close to bankruptcy after its stock has fallen 98% since the start of the year, and the housing market continues to soften
- There’s been renewed talk of a potential recession this week, but the reality is that we’re already experiencing the effects of a stalling economy
- Precious metals have held up particularly well against all the economic turmoil, and are living up to their billing as a long term inflation hedge
- Top weekly and monthly trades
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Major events that could affect your portfolio
Let’s talk about interest rates. As you already know, they’ve gone up significantly throughout the year as the Fed has been trying to get inflation back down to reasonable levels. Whenever the Fed changes rates, banks and financial institutions adjust their products, but it can take some time for this to reflect in the data.
There are generally existing loans already in the pipeline for things such as mortgages and auto loans, and for those who are imminently about to make a purchase, a single rate move isn’t likely to alter their decision. But as multiple rate hikes stack on top of each other, and it becomes clear that the cycle is going to continue, consumers start to step back.
We’re starting to see this have some serious impacts on the economy as a whole and on individual companies.
This week, we’ve seen one notable example in Carvana. The demand for used cars is expected to be 12% lower than this time last year, as higher rates mean fewer people can afford to get themselves a new set of wheels. It puts Carvana in a very tough spot, with high debt levels and this declining demand resulting in a stock price that’s down almost 98% since the start of 2022.
Companies that rely heavily on consumer debt to fuel their demand are likely to struggle as long as the Fed continues to hike rates, and probably for some time after they begin to come down, too.
Recession has been a major trending topic this week. Understandably, many workers are concerned about what a recession might mean for their jobs and investors want to know how it’s going to impact their portfolios.
It’s important to keep in mind that when the National Bureau of Economic Research (NBER) decides we have officially entered recession territory, nothing specific changes. CEOs aren’t refreshing Forbes every morning waiting to send a company wide layoff email on the basis of an NBER announcement.
Make no mistake, it’s not good news if a recession is officially called, but in many ways we’re already experiencing something akin to one. Widespread layoffs are already occurring. The stock market is down significantly. Inflation remains high.
The start of an official recession means that some economic data has deteriorated, but it doesn’t mean that deterioration has been rapid or unforeseen. An example is the latest wholesale prices report which was out today, showing that prices have increased by 0.3% in November and 7.4% over the past 12 months.
Not great news given all the measures in place to bring down inflation, but nothing new.
So what’s the takeaway? The economy is likely to be pretty lackluster for a while yet, and the stock market might be as well. But if and when an official recession is finally called, don’t expect either of them to look much different than they do right now.
With that in mind, now’s a great time to evaluate your income and investments and make them as secure as possible.
This week’s top theme from Q.ai
One asset class which has a long history of stability during times of economic turmoil is precious metals. The use of metals like gold and silver as a store of value goes back literally thousands of years, and even in our modern financial system they play a significant role.
Even now, precious metals are considered a hedge against inflation. Like every investment that thesis isn’t always 100% accurate, but so far this year our Precious Metals Kit has lived up to the reputation. Buoyed by a strong November, the year to date performance to 12/08/2022 has been 12.61%, though of course this past performance doesn’t guarantee future results.
While gold is the most well known of the precious metals, this Kit also includes an allocation to silver, platinum and palladium.
Precious metals might be one of the oldest asset classes in the world, but we use a decidedly modern approach to investing in them. Every week our AI predicts how these precious metals are likely to perform for the coming week on a risk-adjusted basis.
Based on these predictions, the AI automatically rebalances the portfolio across the ETFs which we use to gain exposure to each metal.
Not only that, but if you hold the Kit as part of our AI portfolio, it also automatically adjusts the weighting to the Kit itself, based on the other Kits you hold and the predictions on the markets for the coming weeks. It’s a level of data analysis that simply isn’t possible to do yourself, and we’ve made it available to everyone.
Top trade ideas
Here are some of the best ideas our AI systems are recommending for the next week and month.
CVR Energy (CVI) – The diversified energy company is one of our Top Buys for next week with a B in Quality Value. Revenue is up 65.3% over the past 12 months.
Applied Digital Corp (APLD) – The data center operator remains our Top Short for next week with our AI rating them a B in Quality Value and a B in Low Momentum Volatility. Earnings per share was -$0.18 in the 12 months to the end of August.
U.S. Cellular Corp (USM) – The mobile network operator is one of our Top Buys for next month with an A rating in Technicals. Earnings per share was $0.97 for the 12 months to September 30th.
Celsius Holdings (CELH) – The beverage company (not to be confused with the bankrupt crypto platform) is one of our Top Shorts for next month with our AI rating them an F in Low Momentum Volatility and Quality Value. Earnings per share was -$2.11 over the 12 months to September 30th.
Our AI’s Top ETF trade for the next month is to invest in Hong Kong, Chinese large caps and silver, and to short U.S. Treasuries and short duration corporate bonds. Top Buys are the iShares MSCI Hong Kong ETF, the iShares Silver Trust and the iShares China Large-Cap ETF. Top Shorts are the iShares U.S. Treasury Bond ETF and the Vanguard Short-Term Corporate Bond ETF.
Recently published Qbits
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