Stocks traded lower for a second straight day after mostly expected hawkish comments by the Fed. The world is not done fighting inflation as global central banks continue to tighten credit conditions.
When pigs fly. There are just so many routes I can take with that tagline, but let’s just start with a practical one. There are too many pigs…[fill in your choice here]! Actually, there ARE too many pigs in the pigpens of the farms in North America. It’s true. I have written about the dearth of chickens due to disease as the leading cause of explosive egg inflation as well as my expensive package of chicken thighs. I have also written about the rise of corn prices due to poor crop yields, a result of poor weather conditions. The corn, along with also expensive soybeans, are used in feed, prices of which are on the climb as well, further exacerbating the already high prices of chicken. ON THE OTHER SIDE OF THE FARM, the hog population is thriving. That leaves hog farmers in a particularly difficult position. You can say that they are hogtied.
Hog farmers are reportedly losing some $80 per head due to a glut of livestock. The glut has been caused by a number of factors. First, herds are healthy for the moment. They aren’t always healthy, though. Remember swine flu which put China in a tricky position awhile back? Speaking of China, that is another cause for the oversupply. China is a large buyer of US-produced pork, and its demand has slowed. Remember basic economics? Higher supply and lower demand means… lower prices. That is bad enough for pork producers, but it gets worse. Going back to those rising corn costs, many pork producers raise their own corn crops to be used to feed their herds. Fertilizer is more costly (thanks Russia), and yields are lower, which has caused prices to rise. It gets more challenging when states like California (which consumes some 15% of the US’s pork) enact laws requiring farmers to provide more space for the animals. So, price points are going down and costs are going up. The result is a loss for each animal. This has put pig farmers in a unique position where the corn they grow for feed may be more profitable to sell than to feed it to their livestock. Hogtied, indeed.
I believe in capitalism, and basic economics works effectively in a capitalist market structure. I say this because I don’t want to be misconstrued when I report that companies are raising prices on us in order to keep their profits high. I report that countless companies’ sales growth is faltering while they continue to grow profits. As investors, we like that, but as consumers… well, corporate success is being shouldered by us. Still, all fair… it’s just business. But how much is too much? That is ultimately up to the consumers. At some point, consumers will simply not purchase products that are too expensive. The reduced demand will force companies to lower prices. That clearly has not happened yet. Consumers remain joyful and demand-pull inflation remains high. If you are a fan of pork products, you may be in luck, as prices may come down a bit due to this tricky situation. Now, I am no biologist, but it would seem that giving the animals more room to roam about may help reduce the pork population a bit, but then again… I am no biologist. I do know that all these nature-related commodities price anomalies are normal and that they happen in cycles. Unfortunately, many of the troughs are happening at a particularly tender moment for the global economy.
STOCKS TO WATCH THIS MORNING
Intel (INTC) and Advance Micro Devices (AMD). The two semiconductor giants were yesterday’s biggest losers on the S&P500, declining by -6.00% and -5.73%. The stocks sold off in response to Powell’s hawkish comments on Capitol Hill yesterday, which implied higher interest rates. Semiconductors are the most volatile sub-industry group in technology, which we all know by now is highly rate sensitive. This morning the two stocks are on the move. Intel is marginally lower by -0.18% while AMD slightly higher by +0.48% in the premarket. Powell will be on The Hill again today, so keep an eye on all your favorite tech and semiconductor stocks.
Accenture PLC (ACN) shares are lower by -2.78% in the premarket despite announcing beats on both EPS and Revenues. The company lowered its full year sales guidance which is the likely cause of the decline. Dividend yield: 1.43%. Potential average analyst target upside: +5.6%.
YESTERDAY’S MARKETS
Stocks dipped yesterday in response to Powell’s hawkish testimony on Capitol Hill. The S&P500 declined by -0.52%, the Dow Jones Industrial Average slipped by -0.30%, the Nasdaq Composite Index dropped by -1.21%, and the Russell 2000 Index slipped by -0.20%. Bonds gained and 10-year Treasury note yields were unchanged at 3.73%. Cryptos gained +6.43% and Bitcoin jumped by +6.45%. The S&P500 ESG Index pulled back by -1.35%.
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