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Is market correction really on the way? – Weekly Update

Every month a new report highlighting the current peaks in the market floats with the suspicion of a coming market correction. 

But is it really the case? 

Will the market correct soon? 

Should you reallocate your portfolio out to alternative investments?

Well, the answer is not that simple. Though the market is reaching an all-time high every other month, companies are putting in record profit margins.

corporate

Negating all the concerns about inflation and increase in input costs, US big companies posted another record profit margins. Let’s try to break down the possibility of increasing margins with increasing input costs.

Though the input cost is increasing, the pent-up post COVID demand is increasing at a faster pace. Thus, companies are utilizing current fixed costs to produce relatively more goods and posting net higher margins.

How does this tie to the possible market correction?

Though the market seems to be reaching an all-time high the recent numbers suggest the earnings are leveling up or exceeding the relative price increase. It would be interesting to watch how this would play out in the future. 

Would companies be able to continue over-utilizing their fixed assets to post higher margins or would they need to pass on the inflation effect to the end customer?

Global Market Update

Equity Market

Reacting to all-time high margins by big corporations, S&P 500 posted another all-time high. It would be interesting to watch if the rally would continue in the future.

S&P 500

Cryptocurrency

In the move that shook the football fans, crypto has emerged as the possibility of future payment contracts. Based on a report from Reuters, French soccer club Paris Saint Germain (PSG) said on Thursday that the wage package of its new Argentine soccer star Lionel Messi will include the cryptocurrency “$PSG Fan Tokens”.

Debt Market

This week highlighted the €180bn negative yield bond. But why are investors buying negative yield bonds and how they can make money out of it is a bit broad of a subject. 

A negative yield indicates that individuals investing in bonds would receive a net less amount than the initial investment. Many foreign investors generally invest in these bonds with the speculation that currency exchange would increase to net off the loss in the yield and have a net positive post exchange yield.

Companies In Focus

  1. SpaceX is acquiring the small-satellite data provider Swarm Technologies, scooping up the startup’s roughly 30 employees and its network of 120 tiny satellites.
  2. AMC Entertainment says it will accept bitcoin as payment for movie tickets and concessions by year-end.
  3. Indicating the FOMO,  The U.K.-based movie theater chain said today it may seek a U.S. listing to take advantage of investor enthusiasm. (AMC showcased a strong rally earlier this year)
  4. Reddit, the master of meme stocks has raised $410 million in Series F funding at a valuation of more than $10 billion led by Fidelity, with existing investors also participating. It expects to raise up to $700 million.
reddit's valuation

Thanks for Reading!

Shubham Agarwal (CFA L2 Candidate | Incoming MBA candidate at University of Cambridge, UK)

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