Inflation, Rate Hikes And JPMorgan Earnings: Forbes AI Newsletter

TLDR:

1. Fake inflation report circulates before official announcement of 9.1% CPI in the year to June
2. Further Fed rate hikes expected, with some analysts predicting a 1.00 percentage point increase to 2.75% at the end of July
3. The Q2 earnings season has begun with Wall Street bellwether JPMorgan announcing a 28% fall in profit

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Major events that could affect your portfolio

There’s a first time for everything, and to our knowledge this week saw the first-ever counterfeit press release from the U.S. Bureau of Labor Statistics. Economic data like this usually doesn’t arrive with much fanfare, but inflation has rarely been so hot, in more ways than one.

With CPI running at historically high levels, investors are uber keen to know the most up to date figures. Knowing this, tricksters circulated a fake report on the Tuesday before the official announcement, stating that inflation had hit 10.20%.

The report didn’t quite pass the sniff test, with some notable errors including the data in graphics not matching the text. Even so, it went viral online and Bloomberg reported a late afternoon market sell off as a result.

The U.S. Bureau of Labor Statistics eventually put out a statement outing the report as a hoax, confirming that the official figures would be released on the morning of Wednesday July 13th. When the official announcement came, it still wasn’t good news with inflation hitting 9.1% in the 12 months to June, the highest figure in nearly 41 years.

Why is this important?

The release all but confirms that another large rate hike will be on the Fed’s agenda at their next meeting in late July, with some analysts now expecting an increase of 100 basis points, which would take the base rate to 2.75%.

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Against this economic backdrop, the Q2 earnings season has been hotly anticipated. JPMorgan kicked off proceedings with a big miss, which has seen their quarterly profit fall by 28%. The revenue and earnings per share numbers were not only down from last year, but also below analysts expectations.

The company’s CEO Jamie Dimon hit the headlines last month with comments that a “hurricane” was coming. In a call on Thursday, Dimon reiterated his concern over the macro environment but backed away from full scale doom and gloom, stating, “If we go into any recession, consumers are in good shape. If you spoke to businesses you’d hear CEOs say things are looking good, and I agree.”

JPMorgan is the largest bank in the U.S. based on assets, and for this reason they can often provide an indication as to the overall health of Wall Street.

Why is this important?

Over the coming days and weeks there will be a huge number of announcements from companies across all different sectors. Analysts are currently undecided as to whether a recession is on the cards, though it can’t be denied that many companies have been having a difficult time so far in 2022.

This week’s top theme from Q.ai

Inflation has been a theme for a while, but it seems to be growing in importance every month. While the Fed has committed to implementing sizable interest rate hikes, it’s likely to be some time until this has a material impact on the rate of inflation.

Some inflation is a positive thing and it signals that an economy is growing. For investors, this generally means that companies will be growing revenue and profits which, over the long term, is likely to reflect in increasing share prices.

With that said, whenever the economy experiences a situation that is outside the norm, such as record high inflation, investors can get jumpy. These nerves often translate to a flight out of assets that are considered ‘risky’, such as stocks, and into assets that are thought to be safer.

That money has to go somewhere, and there are some specific assets that have a history of holding up well against the effects of inflation. One of the most widely used are Treasury Inflation Protected Securities (TIPS), which are U.S. Treasury securities which are indexed to inflation. As yields change, TIPS adjust their price to keep their real value stable.

More traditional assets that have a track record as an inflation hedge include precious metals such as gold and silver, as well as other commodities such as agricultural products. We’ve bundled these assets into our Inflation Kit, which uses AI to add a defensive dimension to a portfolio.

Top trade ideas

Here are some of the best ideas our AI systems are recommending for the next week and month.

Dream Finders Homes (DFH) – The national home builder is on our Top Buys for next week with a B in our proprietary Growth factor and EPS growth of 3.46% over the past 12 months.

Histogen Inc (HSTO) – The regenerative medicine company is a Top Short for next week with our AI rated them a D in our Technicals and Quality Value factors. Their earnings per share in the 12 months to March 2022 sits at -$5.29.

Xperi Holding Corp (XPER) – U.S. technology and semiconductor company Xperi is a Top Buy for next month with an A in Quality Value and a B in Low Momentum Volatility and analysts expected revenue growth of 6.51% in 2022.

Evofem Biosciences Inc (EVFM) – The women’s health company is a Top Short for next month and our AI rates Evofem as an F in Technicals and Low Momentum Volatility and had LTM EPS of -$19.01 to the end of March 2022.

Our AI’s Top ETF trade for the next month is to invest in technology stocks and the retail sector, while shorting fixed interest and healthcare. Top Buys are ARK Autonomous Technology & Robotics ETF (ARKQ), SPDR FactSet Innovative Technology ETF (XITK) and the SPDR S&P Retail ETF. Top Shorts are iShares 1-3 Year Treasury Bond ETF (SHY) and the Invesco DWA Healthcare Momentum ETF.

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