The Weekly Market Monitor

Your Weekly Digest of Market News and Analysis from the Editors

August 6, 2023

Notable market news this past week (06-Aug-23)

Here is the Skeptivest roundup of the latest market headlines for the week

🇺🇸 Fitch downgrades US credit rating from AAA to AA+ 

Fitch shouldn’t kill your vibe, says Warren Buffett. Buffett told CNBC that Fitch’s controversial downgrade of the US credit rating is not affecting his investment strategy, and he’s still plowing into US Treasury per usual

Straight A student scoring an A-: Fitch's recent action echoes a significant event that occurred almost 12 years ago when S&P surprised the markets by downgrading the US from AAA to AA+ for the first time in history. This historical move was led by Beers and John Chambers, and their rationale back then bears a striking resemblance to Fitch's current reasoning: concerns over escalating US deficits and political dysfunction.

Case study of S&P's downgrade in 2011: The long-term repercussions were minimal, as investors eventually regained confidence in US assets, and government debt yields experienced a decline shortly afterward (which ironically lowered borrowing costs for the US government). Nevertheless, note that the market response in 2011 unfolded amid a sovereign debt crisis in Europe, which made US debt more attractive as a haven.

Immediate impact on the markets: The surge in US bond yields led to a significant decline in global stock markets, with the tech-heavy Nasdaq experiencing a 2.8% drop within the week

Refocus on US' woeful fiscal situation: The Fitch move is unlikely to alter the US policy outlook, as it remains characterized by fiscal challenges rather than stability. The possibility of a government shutdown looms, with Republicans and Democrats in contention over a $120b spending gap for fiscal 2024, which could occur as early as 1-Oct. Future debt ceiling standoffs (like the one we experienced few months back) also look inevitable as the recent debt deal set up another showdown sometime after 1-Jan-25. There is still no realistic action on the horizon to address the wider fiscal challenges Fitch mentions in its downgrade

🤪 Tupperware, a meme stock favorite now

For Tupperware to make a true comeback, it needs to tackle the core reasons for its initial decline - rising competition from the likes of Rubbermaid

A failing company: Following a surge in sales during the pandemic, the 77-year-old company, Tupperware Brands, faced difficulties as the demand declined. In June, due to its low value and stock price falling below $1, the NYSE issued a warning that it might delist the company.

To the moon: Since 21-Jul, online day-traders participating in discussions on platforms like Stocktwits and Reddit's r/WallStreetBets have joined forces to buy over $15m worth of Tupperware shares. As a result of this collective action, the company's market value has surged from $40m to almost $225m.

In hopes of a short squeeze: A short squeeze occurs when numerous investors place bets against a stock, but instead, its price sharply rises. This phenomenon accelerates the stock's ascent as short sellers rush to exit their positions to minimize their losses. Contrarian investors, on the other hand, attempt to predict a short squeeze and invest in stocks that exhibit a significant short interest.

Could Tupperware be more than a meme stock?: Shares reached a nine-month high on Friday following Tupperware’s announcement of a deal with lenders to restructure its debt and secure $21 million in new financing

Case Studies: Rental car company Hertz saw a 900% stock rally in 2 weeks following its 2020 bankruptcy filing and emerged from it with an unusual deal that paid off its debts and paid out to stockholders. Transportation company Yellow Corp shut down its operations last weekend and then saw stock prices rally by c.350% and is now working to secure a loan.

☕️ Quick fire happenings to note

  • Ukraine's response to Black Sea grain deal: On Friday, a Ukrainian drone strike on a naval vessel caused the temporary suspension of traffic at Russia's crucial Novorossiysk port for several hours. Last month, Russia withdrew from an agreement that had previously established a secure corridor for grain shipments from three Ukrainian ports. This move coincided with their concentrated efforts to disrupt Kyiv's grain shipping capabilities.
  • China's pledge to revitalize capital markets ignites optimism: China's commitment to rejuvenating its capital markets has generated newfound hopes among traders in the nation's $10t stock market. A rare and strong endorsement of markets by top leaders during the July Politburo meeting, promising to "invigorate capital markets and boost investor confidence," is fueling expectations that Beijing will implement measures to boost trading activity in the coming months
  • Apple's waning demand: Following Apple's outlook for the fourth quarter, concerns over lackluster demand for its handsets and other gadgets have emerged, causing the tech giant's market value to approach a dip below the historic $3t level. Apple posted its third straight quarter of declining sales and predicted a similar performance in the current period, hurt by an industrywide slump.
  • Uber posted first ever operating profit: The infamous unprofitable ride hailing company posted its first-ever operating profit due to its food delivery business. Still, stock prices fell 5.7% on the day due to slowing growth. Its 14% revenue gain last quarter was its smallest increase in over 2 years.
  • Metaversal: According to sources from the FT, Meta is actively developing a series of chatbots, each with distinct personas. This approach adds a unique and quirky selling point to their chatbots, setting them apart from competitors such as Chat-GPT. While generative AI has somewhat overshadowed the spotlight on the metaverse, there are indications that Meta CEO Mark Zuckerberg is exploring possibilities to integrate the two technologies. According to one source, the idea of granting a chatbot an avatar in the metaverse is being considered
  • Beyond Meat's China dream crushed: In 2020, Beyond Meat made a notable entry into the Chinese market. Their plant-based meat products were prominently featured in over 3,300 Starbucks coffee shops, and they successfully launched a store on JD.com's shopping site. Today, Beyond’s faux meat products are no longer listed on Starbucks’ online menus and JD.com has no Beyond products available.