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  Welcome back to the MSI weekly newsletter!

The week that was:

I mentioned last week that one of the reasons for the ongoing bear market rally is the temporary absence of bad news. Every month, the Government releases inflation data for the previous month. They look at prices for essential products like milk, gas, etc and calculate increases to prices from the previous month. Data for April was released in May and appeared to show that inflation had peaked.

Data for May was released on Friday. The market had expected inflation to decrease from the previous month. However, it was found out on Friday that inflation has flown up to an all time high since 1981! This caused the market to crash a lot.

The market also hoped that if inflation starts to decrease, the Fed will not need to raise interest rates. The main reason the Fed has been raising interest rates is to decrease inflation. If inflation decreases, then the Fed's job becomes easier and they do not need to raise rates. However now that we know inflation is still rising, the Fed clearly needs to use a stronger sword to fight the war against inflation.

In this market environment, I continue to lean my portfolio towards defensive, conservative stocks like UL and DPZ. Nasdaq stocks, especially high growth tech stocks, are very risky at the moment. Defensive stocks usually go down less when there is bad news for the market. On Friday, when the news about inflation came out DPZ went down only a tiny bit, while AMZN crashed by 12% for the week.

Soon, there will be a Fed meeting to announce the next rate hike. It is expected to be a .50% hike, though it will be interesting to see if they raise it even higher.