Jerome Powell photo

Investors' inflation fears weren't soothed by Federal Reserve Chairman Jerome Powell’s statements this week, which resulted in a broad selloff of stocks and bonds.

Every week, Madison Business Review contributor Bryce Roth provides a recap of what happened in the business world and stock markets.


"March Madness" has officially begun. 

The tech-focused Nasdaq Composite lost all its 2021 gains and turned negative for the year at -1.28%. The S&P 500 and Dow Jones Industrial Average are almost negative for the year with the indices only positive 0.33% and 1.04%, respectively, for the year.

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Concern about markets being in a bubble has been around for some time now, with stock markets hitting all-time highs and the actual economy not in as good of a state. CNN Business author Matt Egan wrote the following as GameStop surged in late January: “None of this is normal. Rock-bottom interest rates are forcing investors to take extraordinary risks — and for some, this will end badly.”

The evidence for this conclusion is backed up by all-time highs in markets, unprofitable start-ups steadily increasing, special purpose acquisition companies soaring and even Tesla being more valuable than any other auto manufacturer despite nowhere near the sales of competitors like Ford, General Motors or Toyota.

An aggressive army of Redditors took Wall Street hedge funds by storm with wild speculative bets in a massive investing mania that’s quickly becoming one of the most fascinating investing case studies ever. Here’s a detailed breakdown of what’s behind the out-of-control speculation as well as a look at the emotions — greed, fear, euphoria and panic — fueling the Wall Street bloodbath.

 

With markets recently taking a fall, maybe the so-called “bubble” has burst, and investors will now be more cautious with investments.

Fed Chair Powell’s comments can’t comfort investors

Just like last week, Treasury yields and inflation have been a major concern of investors, and Federal Reserve Chairman Jerome Powell’s statements today haven’t made anything better. Markets had already been acting erratically in the past few weeks, and this news worsened the effects.

“We expect that as the economy reopens and hopefully picks up, we will see inflation move up through base effects … that could create some upward pressure on prices,” Powell said during a Wall Street Journal conference.

February saw choppy market moves despite plenty of reasons for optimism, including vaccine rollouts underway, fiscal stimulus on the horizon and pent-up consumer demand pending. Are inflation fears enough to deflate what bears have called a stock market bubble?

Industry experts were quick to criticize Powell’s speech, including Adam Crisafulli, founder of Vital Knowledge, a market commentary subscription service.

“This was a minor negative, as he failed to provide the type of reassuring comments investors were hoping for,” Crisafulli said. “He was vague about what actions specifically would be taken if the Fed felt yields were rising to excessive levels — he was given a few opportunities to endorse a change in QE [quantitative easing] duration but never did.”

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The Fed has done well in the past year in countering the economic impact of COVID-19, so its current decision-making and Powell’s word choice may still be what’s best for markets at this moment.

Manufacturing heats up as vehicle sales slow

As noted before, markets aren’t in the best shape, and neither is the economy. TrueCar, an automotive pricing and information website for new and used car buyers, forecasts total new vehicle sales will fall 7.6%

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“New vehicle retail sales are expected to be flat for February, which is a good result given the expansive and prolonged nature of the winter storms throughout many parts of the country, including southern states, which do not typically experience snow storms of this caliber,” Nick Woolard, lead industry analyst at TrueCar, said. 

This can be attributed to lower overall demand and the shortage of semiconductor chips in the market. This is currently a major issue in the automotive industry, and updates regarding this situation will be noted in future articles.

Slowdowns in global trade and business investment crippled chipmakers in 2020 as the pandemic spread, but the industry has proved resilient. This comprehensive research report introduces the semiconductor industry and breaks down its structure, firm conduct, performance and trends to watch going forward.

 

Now, onto the good news. With Johnson & Johnson’s vaccine being approved by the Food and Drug Administration, the outlook for the manufacturing industry is positive.

U.S. manufacturing activity increased to a three-year high in February amid a massive influx in new orders. Thanks to nearly $1 trillion in additional aid from the government, strong demand for electronics and furniture and a drop in new COVID-19 infections leading to more workers being available, the beaten down manufacturing industry seems to be on the rise.

Oil prices volatile, clean energy gains ground

For those who haven’t noticed yet, oil and gas prices have drastically increased since the deep freeze that occurred in Texas. 

Oil prices tanked in 2020 but have rallied more than 25% in 2021 alone. Lingering effects from the deep freeze will most likely impact commodity markets in the coming weeks and months.

“Elevated price levels will incentivize the cartel to taper their output cuts, but given the uncertainty, the market is likely to be on edge heading into tomorrow’s meeting,” Bart Melek, TD Securities commodity strategist, said. 

With oil in a rough situation, clean energy is taking a win with Petaluma, California, after the city council unanimously voted to become the first city in the U.S. to ban both the construction of new gas stations as well as the addition of more gas pumps to existing stations.

Petaluma only has 61,000 residents and 16 gas stations; however, a trend in this direction is very interesting to see. If more cities in California put these rules into place and an infrastructure package focusing on clean energy comes from the government, then clean energy stocks will do very well. 

M&A, IPO market latest

In this week's mergers and acquisitions news, shareholders of Acacia Communications, a communication equipment manufacturer for cloud infrastructure operators, voted on the buyout by networking hardware giant Cisco on March 1.

Cisco’s long-awaited acquisition of Acacia is official now that a majority of Acacia’s stockholders voted “yes” for the transaction. This acquisition helps with Cisco's Internet for the Future strategy, which consists of one simple operating system, reduced cost, and capability for high-speed networks.

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As for the initial public offering market, Oscar Health, a technology-driven health insurance company founded in 2012, went public after pricing its shares at $39 per share for a $9.5 billion valuation, though the stock has since dropped to around $32 for a decrease of roughly 17%. 

The company is said by TechCrunch to have succeeded on two fronts: valuation and fundraising. The valuation aspect comes from the drastic increase from its previously estimated $3 billion private valuation. As for the funding, Oscar Health has raised more than initially expected which paints a bright picture for the company.

Bryce Roth is a junior finance major. Contact Bryce at rothbc@dukes.jmu.edu.

Disclaimer: I'm a long-term investor in Tesla. Madison Business Review editor James Faris is a long-term investor in Tesla. I wrote this article myself, and it expresses my own opinions. I’m not receiving compensation for it, and I have no business relationship with any company whose stock is mentioned in this article.