Hope up, oil down, stocks higher

Stocks staged an impressive risk-on rally yesterday on hopes of a de-escalation in Ukraine.  Crude oil prices fell sharply but still remain alarmingly high.

Filling up - going up.  Last night, my daughter informed me that she just paid over $5 for a gallon of gasoline. After she made the admission, I thought “wait, didn’t I just pay like $4.97 for a gallon of premium just a day before?” I know that my daughter typically uses “plus” grade, so I questioned her. She accentuated her point by saying that she paid $4.65 for the same grade at the same filling station just last weekend. First of all, I was proud that she gave such an accurate accounting of numbers (rounded to the nickel), but then my mind turned to the issue at stake: inflation…cold, very real, inflation.

When I notice that a half-shredded Banksy sells for $25.4 million, I cock my head, raise an eyebrow, smile, and think “good for him (the artist, that is).” When I see the lines of people queued up in front of Chanel’s 57^th Street store for a chance to buy one of the company’s iconic, but not-so-cheap products, I purse my lips, nod my head, and think “good for them.” But when I see those numbers tick higher at the gas station…numbers that are already high…I bite my lip, shake my head and think “oh, [insert your favorite expletive here]!” I know that my first two examples are extremes, but I wanted to make it clear that there are differences between “wants” and “needs”.  Wants are purchased with discretionary income.  That is the money you have left over after paying for necessities, or needs, such as food, rent, utilities, etc. Another such need is automobile fuel, if you need your car to get to work or pick the kids up from school. In January, gasoline was +40% higher than it was a year prior. That January price increase, as reported in the CPI does not even account for this latest jump. If you need your car for transportation…well, you will simply have less to spend on your wants. But wait, what if you don’t make enough money to even have discretionary income? A sharp rise in your commute cost will eat into another need, like…food. Speaking of that need, food, it cost +7% more in January than a year earlier. There were a variety of reasons for food inflation, but principal amongst them are increases in transportation costs. Transportation has its own share of challenges. Principal amongst those is…wait for it…the rising cost of fuel. You know that I can go on forever to make my point, but the fact is that rising fuel costs, happening as we speak, will surely amplify the already high inflation we are experiencing. Supply shortages and increased demand are still present and higher gasoline prices are simply fuel for that inflation fire.

I noticed that Netflix, Amazon Prime, and now even my water delivery company have all raised their prices in the past few months. The water delivery company cited increased transportation costs. My commute costs are now higher, and I now must decide if those are wants or needs. It is a close call. Never mind, I have decided that steak, up +17% from a year ago, is a want.  Chicken is only up by +10%, and steak isn’t good for my cholesterol anyway. If fuel prices go higher yet, I might have to cut deeper into the wants and pick up a good book…that doesn’t sound like such a bad idea.

WHAT’S SHAKIN’

Amazon.com Inc. (AMZN) is trading higher by +5.15% in the pre-market after it announced a stock split and share buyback after last night’s close. The company announced last month that it beat EPS estimates but missed on Revenue targets.  Potential average analyst price target upside: +48.4%.

Cisco Systems Inc (CSCO) shares are lower by -2.18% in the pre-market after the company was downgraded to EQUAL WEIGHT by Wells Fargo.  Cisco announced last month that it beat both EPS and Revenue estimates last quarter.  Dividend yield: 2.71%.  Potential average analyst price target upside: +14.2%.

YESTERDAY’S MARKETS

Traders, encouraged by the potential for a de-escalation in Ukraine and falling crude prices decided to buy the dip, driving recently beaten down shares higher. The S&P500 gained +2.57%, the Dow Jones Industrial Average climbed by +2.00%, the Nasdaq Composite Index jumped by +3.60%, the Russell 2000 advanced by +2.72%, and the S&P500 ESG Index rose by 2.62%.  Bonds traded lower and 10-year Treasury Note Yields jumped by +11 basis points to 1.95%.  Cryptos traded higher by +6.39% and Bitcoin advanced by +8.8%.

NXT UP

• Initial Jobless Claims (March 5) are expected to come in at 217k compared to last week’s 215k.
• Consumer Price Index (February) may have increased to +7.9% from +7.5%.
• After the close earnings: Rivian Automotive, DocuSign, Ulta Beauty, Oracle, and Inspirato.