Wowza, yesterday was quite the Monday with Wednesday’s impending rate hike being all the rage as the probability of a 100 bp hike ran up to 84% by close... During the pandemonium, both of our trades had a stellar double-digit day despite the market’s overarching risk-off sentiment. Keep reading for some more market inspiration!
"Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria"
- Sir John Templeton
Market Talk
Since the start of the yield curve’s steepening last week the probability of a higher than expected rate hike has increased in lockstep with more and more traders now pricing in the probability of a 75bp+ rate hike occurring this Wednesday. This was all instigated by the surprising red hot 1% inflation print that took place over the month of May and has now put the Federal Reserve in a tough spot as they look to curb these rising prices without destroying growth further. These rate hike fears have already sparked widespread risk-off sentiment with a market sell-off to the tune of 4% having taken place yesterday - the S&P 500 has now lost investors 21.5% YTD.
Short: Block Inc (SQ:NYSE) | Timeline: 3-5 days
Block Inc is a US-based firm with a diversified suite of companies, however, their primary focus is payment processing. The nine-letter word on everyone’s mind, inflation, it's disrupting the purchasing patterns of billions across the globe, but more importantly for our readers, it’s causing chaos in the stock market. Combined with a meltdown in the “inflation hedges” trusted by millions of young people worldwide, Block is set to be battered. While yes it does own a diverse portfolio of companies, including CashApp, Tidal, Square, Spiral (Crypto), and TBD a decentralized finance platform based on bitcoin, I will summarize the potential troubles on the horizon for this portfolio. CashApp is a payment system which brings ease to financial transactions, however as money becomes tighter usage is likely to slow. Tidal is a paid music streaming platform, which allows for greater customization of sound quality for the end-user, however, when there are free alternatives such as Spotify and Youtube Music, this streaming service expense is likely to be first on the chopping block for their financially conscious users. Square is one of the most innovative companies of the last 15 years, however, they rely on fees to fuel revenues, as fewer products are purchased they will suffer as a result. Spiral & TBD’s current and future difficulties are self-explanatory as the crypto market continues to crater. Moreover, as Block Inc has regressed to non-profitable territory their loans will become more costly to finance, and as a result, their value will decline. While the majority of these concerns are longer lasting than our trade timeline, crypto’s steep decline over the past week will add large weight to this already sinking ship.
Chart of the Day - Liquidity Trends
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