Stocks traded slightly higher this morning as earnings season continued. Up next are tech earnings, which many analysts expect could reveal blowout quarters following Netflix’s impressive Q3 “beat.”
“Rising tide of earnings is lifting all the boats and adding fuel to the bull market fire,” said Commonwealth Financial Network’s Anu Gaggar.
“The [Q3] earnings season is off to a strong start despite concerns about supply bottlenecks and labor shortages.”
Facebook (NASDAQ: FB), Google-parent Alphabet (NASDAQ: GOOG), Microsoft (NASDAQ: MSFT), Amazon (NASDAQ: AMZN), and Apple (NASDAQ: AAPL) will release earnings this week alongside a large chunk of Dow companies.
In short, it’s “showtime.” And the market could absolutely erupt in response if earnings skew positive once more. Thus far, 84% of the S&P companies that have reported managed to exceed their EPS (earnings per share) estimates. That bodes well for this week’s batch of earnings as the S&P lingers near its all-time highs.
But the bigger story this morning was the market’s reaction to Sunday’s debate between Treasury Secretary Janet Yellen and Twitter (NASDAQ: TWTR) CEO Jack Dorsey.
“Hyperinflation is going to change everything. It’s happening,” Dorsey tweeted.
“It will happen in the US soon, and so the world.”
To which Yellen responded:
“I don’t think we’re about to lose control of inflation. On a 12-month basis, the inflation rate will remain high into next year because of what’s already happened. But I expect improvement by the middle to end of next year […] second half of next year.”
Yellen continued, explaining that supply chain issues and the ongoing labor shortage in the US will eventually end.
“As we make further progress on the pandemic, I expect these bottlenecks to subside. Americans will return to the labor force as conditions improve,” she said.
Major cargo carriers don’t see these issues resolving any time soon, though, and a group representing several air freight companies recently issued a warning that Biden’s December 8th vaccine mandate deadline could trigger utter supply chain chaos.
September’s Consumer Price Index (CPI) reading showed that consumer price inflation is near a 30-year high, too. The Producer Price Index (PPI), meanwhile, showed that producer prices are rising faster than ever before on an annual basis.
Yellen thinks inflation will slow.
But Graeme Pitkethly, Unilever’s CFO, recently said that “we expect inflation could be higher next year than this year.” To be fair, Yellen claimed that inflation should improve in the second half of next year, which lines up with Pitkethly’s prediction.
That means, however, it may even get worse until then.
Procter & Gamble (NYSE: PG) has already started to increase prices on some of its products.
“We announced price increases to retailers in the US on oral care, skin care, and grooming,” said CFO Andre Schulten in a conference call. “It’s item by item.”
It seems most analysts and industry leaders agree that high inflation will be sticking around until at least Q3 2022. Even Yellen admitted it.
In response, traders may want to load up on inflation hedges like precious metals, precious metal-related stocks, and, according to billionaire investor Paul Tudor Jones:
“Clearly, there’s a place for crypto. Clearly, it’s winning the race against gold at the moment,” he said last Wednesday. Jones also said that he owns some Bitcoin and sees it as a good inflation hedge.
With Bitcoin trading near its all-time high, that may be a bit of a tough sell for anyone who doesn’t already own some. But given the current economic conditions, the stage is set for Bitcoin to make another, larger run.
Especially now that tech CEOs aren’t just predicting higher inflation, but hyperinflation for the near future.