WC-11/14: The Market Really Doesn't Care Anymore, Deflation Will Be Good for Carvana
It's not obvious that economic reports will make a big difference till mid-January. October CPI was bad, at 0.9% MoM. But the market returned to near all-time highs after a day.
Watchlist
Disney (DIS)
Disney’s most recent earning miss caused price action from $175 to a low of $159.63, rendering a a great opportunity to buy into a quality company at a low price. As of 11/11, Disney’s (DIS) RSI is 37.45, implying that it’s slightly on the oversold side
Per stockrsi.com’s plot, 37.45 seems pretty low for Disney so now seems like the time.
Carvana (CVNA)
Used car prices are largely driving the high inflation we’re seeing, and it will likely drag inflation downward. Once that happens, and companies issue more back-to-office mandates, we have believe Carvana will attract even more users.
Carvana is revolutionizing the buying of used cars by providing an all inclusive online platform for obtaining financing, purchasing a vehicle and scheduling a delivery right to your home. During a time when most companies are struggling with supply chain logistics and production, Carvana is thriving as it boasts 110,000 cars delivered at the end of Q3 and a growth of 74% year over year. Furthermore, Carvana has announced a partnership with Hertz (who recently announced their partnership with Tesla (TSLA), which will allow Hertz to take advantage of the already established transaction tech and logistics network.
Catalyst Calendar
11/16 - United States Retail Inventories Excluding (Ex) Autos (MoM)
The main concern here is that we don’t have a crazy positive change (e.g. something like 1.0%) which would mean that the value of unsold goods is skyrocketing and would imply that (based on basic supply and demand) inventories are low.
If we see a change of around 0.8%, that could cause a brief sello, but anything much higher and the market might get scared about how the Fed might respond.
Per investing.com:
“Business Inventories measures the change in the worth of unsold goods held by manufacturers, wholesalers, and retailers. A high reading can indicate a lack of consumer demand.
A higher than expected reading should be taken as negative/bearish for the USD, while a lower than expected reading should be taken as positive/bullish for the USD.”
Per tradingeconomics.com, retail inventories excluding automobiles in the United States increased 0.60 percent between September and August 2021, following a 0.5 percent advance in July. source: U.S. Census Bureau.
OCT CPI at 0.9% MoM Change is Bad, But The Market Doesn’t Care
Economic catalysts probably don’t matter anymore. Market Forces = The Fed + 10Y Treasury + Margin Debt.
0.9% MoM change in CPI is substantially more than the 0.6% we thought would be line to cross for market danger. But it didn’t matter. Here is the full report.
The report came, the market hurt for a few days, and, as always (but now more than ever), it bounced back. If we take the Dow Jones Industrial Average (DJI) as representative of the broader market, then “the market” seems to rebounding quite nicely.
If we let the S&P 500 represent “the market”, we can see that this CPI report caused nothing more than a blip with respect to the past month’s growth.
We’re experiencing what’s called irrational exuberance, as mentioned in a previous piece. This is just people throwing money into the market regardless of the systemic risks. As a result, catalysts likely to have less and less of an effect, as traders and investors try to ride this trend.
Here is Wednesday’s CPI report.
We’re in the month of the November, so this month’s CPI report is about October’s price changes.
We feel inclined to describe it in detail but, in all honesty, the details of this report aren’t the most important to the market. What matters right now are the overall inflation numbers and sentiment of the market, which appears arbitrarily bullish.
Used car and truck prices were still one of the largest contributors. But CPI’s energy component rose 30% over the last 12 months though, which should raise a few eyebrows. Still… this doesn’t seem like the reason the market will crash.
Dow Futures contracts — which can be an indicator of the day’s market performance — were down before and during the release of this data, and the market looked as bad as other days. Nothing extraordinary.
Strange sign: Bitcoin took a bit longer to respond than normal.
Our hunch: Weird trading activity surrounding economic reports may present good buying opportunities for Bitcoin.
Usually Bitcoin will begin a climb as soon as the numbers are released. Additionally, the climb usually lasts a little longer and isn’t as discrete as we saw on Wednesday. CPI is usually released at 8:30am and Bitcoin, which is also used as an inflation hedge, jumped over $4k at around 1:30pm.
Afterward, it had what one might call a “mini correction”, dropping to less than $62.9k on Thursday from a high of about $68.6k the prior day — an 8.3% decline, roughly speaking.
It’s not obvious what exactly this means, but our guess is that “big money” decided to pull the trigger a bit later, or there is a interesting amount of trading activity surrounding bitcoin and related economic reports. The latter seems more likely, and is best interpreted as a word of caution regarding investing in bitcoin around these times.
This doesn’t seem like the result of retail investors slowly piling into bitcoin after lunchtime — people have jobs, and likely don’t all use investing apps all at the same time.
M&A, IPOs, and Deals
Rivian’s (RIVN) Valuation
Rivian was the biggest IPO of 2021 and is now valued at over $100 billion. Rivian is now ranked above car manufacturing giants such as GM and Ford; both being valued at $86 billion and $77 billion respectively.
Is it overvalued? Will it continue going up? If the market continues it’s risky run, it’s probably worth buying right now so as to catch enough of the hype to stay above the price any correction would leave it at.
Other headlines
J&J (JNJ) Split - The 135 year old healthcare giant has made the decision to split its consumer products and pharmaceuticals into two separate businesses.
Storytel (STRYF) enters the U.S. with acquisition of Audiobooks.com.
Spotify (SPOT) buys Findway to expand audiobook business.
P.S. Our long-term and short-term portfolios are coming out by the end of this week so keep an eye out.
[Disclaimer: This is not financial advice. We are not financial advisors. This information reflects the decision-making of Weekly Catalysts authors and is not a recommendation.]