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đ The Investing Week Ahead: You Will Be Tested
Prepare, don't panic...
Welcome to your new week⌠and sorry that itâs off to an ugly start.
Instead of digging through endless articles, scrolling Twitter for hours, or calling your uncle that works at a bank â you can simply read below.
Weâre formatting this Investing Week Ahead post differently today so you can have some clarity.
Hereâs your step-by-step directions on what you need to do:
Read the Hold on Tight post from Friday.
Read the Week in Review from yesterday (Sunday).
Listen to the Rich Habits episode posted today (Monday).
Read below about Japan, the Fed, and other important callouts.
The Japanese Carry Trade seems to finally be unwinding. Weâve talked about this five different times on Rate of Return since late 2022. The Bank of Japan has been keeping the Yen artificially cheap to borrow for years.
This helps with keeping exports high, managing inflation in the short-term, and limits the pain of the gross amount of debt that Japan technically owes themselves.
For many years â institutions have been partaking in the Yen Carry Trade. This means that you borrow Yen and sell US bonds or buy US equities. They are borrowing a cheap currency (Japanese Yen), and swapping it to buy something with a better yield in another country (USA).
This is why last week we told you that we were once again watching the Japanese Yen (JPY) closely. When the JPY becomes more expensive, the Carry Trade becomes more expensive. At some point â things start to break because those involved with the Carry Trade are susceptible to being too complacent and too greedy.
This is why the Fed is rumored to be having an emergency meeting today. They wouldnât just be having it because stocks are going down. They would have it because the U.S. economy seems to be deteriorating, the Fed may have held rates high for too long, and the Japanese Carry Trade is a terrifying shockwave to the world markets.
Here are links to all of the times that weâve mentioned Japan: 2022, 2023, 2023, 2024, 2024. I encourage you to review them.
See the Nikkei 225 below, Japanâs primary stock market index:
Before you read on, remember the following:
Quick Callouts
Below are some of the most interesting charts / links that weâve come across. Weâre going to keep these very brief for you.
Warren Buffettâs Cash Pile
Youâve likely heard by now, but Warren Buffett sold half of his stake in Apple (AAPL) and once again has earned his title as the âOracle of Omaha.â
Perhaps the âcash is trashâ folks are doing some self-reflection this morning?
The VIXâs Massive Candle
CBOE Volatility Index (VIX) gave us the biggest green candle itâs had since the Covid Crash. Itâs now trading above 65, a level only seen two other times in its history â the 2008 Financial Crisis and the 2020 Covid Crash.
At the time of writing â the VIX is up +550% from its July 2024 lows. Simply astounding. The S&P 500 has now erased $5 TRILLION of market cap over the past month.
This is why we are saying that you may not want to just smash the buy button like a mad man. Volatility is here and more red can be reasonably expected. DCAâing is therapeutic.
Rotation to Utilities
Also from The Kobeissi Letter:
Another sign that markets are worried about a recession: 74% of the Utilities sector companies made a new 52-week high on Friday, the most since March 2019. This marks the fifth-largest share over the last 14 years.
As the stock market sell-off accelerated, investors moved their capital into more defensive stocks such as utilities. In effect, the S&P 500 utilities sector rallied +4.4% over the last week and is now up +17.1% year-to-date.
Iran Seems Active
As if we needed anything else thrown into the mix â thereâs been rumors that Iran and Hezbollah could attack Israel this week. Russiaâs top security official was also in Iran today.
Defensive stocks like Lockheed Martin (LMT) and Northrop Grumman (NOC) are up +17.5% and +13.8% over the past month. Itâs almost as if somebody knows something.
Do not be mistaken. While the U.S. may not âofficiallyâ be at war â the unrest with our border, Israel, Palestine, Russia, Ukraine, Iran, Taiwan, China, etc. are all leading to decreased confidence in the market. At this point in time, it feels like a major geopolitical catalyst can come at any moment. I sure hope thatâs not the case.
Key Earnings Announcements:
Eli Lilly, Disney, Hims & Hers, Robinhood, Shopify, Uber and plenty of other major names chose a difficult week to have their earnings reports.
Monday (8/5): Carlyle Group, CSX, Diamondback Energy, Palantir, Realty Income, Simon Property Group, Summit Materials, Tyson Food, Vornado Realty, Williams
Tuesday (8/6): Airbnb, Amgen, Caterpillar, Celsius, Diageo, Fox, GlobalFoundries, Hyatt Hotels, Molson Coors, Reddit, Rivian, Super Micro Computer, Toast, Transdigm, Uber, Vulcan Materials, Wix.com, YUM Brands, Zoetis, ZoomInfo
Wednesday (8/7): Brookfield, CVS, Disney, Duolingo, Equinix, Hubspot, Monster Beverage, New York Times, Novo Nordisk, Robinhood, Shopify, UHaul, Warner Bros, Wix.com, Zillow, Unity Software, Vistra
Thursday (8/8): Alibaba, Cheniere, Datadog, Dropbox, Eli Lilly, Expedia, Gilead, Liberty, Restaurant Brands, Take-Two, The Trade Desk, US Foods Holding, Unity Software, Vistra
Friday (8/9): Canopy Growth, Embraer, Nikola
Major Economic Events:
Rate cuts could supposedly be coming as early as this week due to the Fedâs emergency meeting. This seems driven by speculation though.
Monday (8/5): Emergency Fed Meeting, ISM Services, S&P Final U.S. Services PMI
Tuesday (8/6): U.S. Trade Deficit
Wednesday (8/7): Consumer Credit
Thursday (8/8): Initial Jobless Claims, Richmond Fed President Barken Speaks, Wholesale Inventories
Friday (8/9): None Scheduled
If youâre starting your investing journey or are interested in buying T-bills yielding 5% or more, consider visiting Public.com.
If you want high-quality stock research and portfolio management tools, consider signing up for Seeking Alpha.
If you want to check out the full episode list of the Rich Habits podcast, click here.
Disclaimer: This is not financial advice or a 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.
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