Thursday's Headlines: Interest Hike Spooks The S&P

Thursday's Headlines: Interest Hike Spooks The S&P

Here were the biggest movers in the MyWallSt shortlist yesterday:

Moving Up ⬆️

Roku Inc. (ROKU) +11.7%

Wix (WIX) +11.0%

Pinterest (PINS) +10.9%

Stitch Fix (SFIX) +9.5%

Farfetch (FTCH) +9.5%

Moving Down ⬇️

Berkshire Hathaway (BRK.B) -9.7%

Brown-Forman (BF.B) -2.2%

ShotSpotter (SSTI) -1.9%

Trex (TREX) -1.8%

Redfin (RDFN) -1.2%

 

Here are the stories that you need to know ahead of market-open today, Thursday the 16th of June:

 

Fed Makes Largest Interest Rate Increase Since 1994 📈

The Federal Reserve, AKA the Fed, has announced a 0.75 percentage-point increase to its benchmark federal funds rate — the largest of its kind since 1994. In the face of inflation at levels not seen for 40 years, the Fed and its Chairman Jerome Powell have been forced to take this more aggressive route to battle rising prices.

By raising the cost of borrowing, the Fed will look to slow down the economy and get inflation back in check. This brings the very real risk of a recession, and while this is not the goal of Powell & Co, they have admitted that “it is not going to be easy” to find the sweet spot of slowing down the economy just enough to temper rising costs while avoiding the dreaded R-word.

The aggressive rate hikes look set to continue, with another 0.5 or 0.75 percentage increase expected at the Fed’s next meeting on July 26 too. Powell had this to say on the matter:

“The worst mistake we could make would be to fail (to bring down inflation) … It’s not an option. We have to restore price stability.”

While the market reacted positively to the announcement yesterday, with the S&P 500 (VOO) jumping 1.5%, today’s futures tell a different story, with the benchmark index down over 2% at the time of writing. The promise of a stricter economic policy, higher costs of capital, and more pressure on the consumer are already manifesting themselves amongst many tech companies, with lay-offs and other cost-cutting measures in full swing. It all paints a grim macroeconomic picture that will cast a long shadow on Wall Street.

 

Revlon Files for Bankruptcy 💄

The cosmetics brand Revlon filed for Chapter 11 bankruptcy on Wednesday. The company, owned by private equity magnate Ronald Perelman, has been on the ropes for quite some time, barely avoiding bankruptcy in 2020 with pandemic-induced lockdowns bringing revenue to a standstill. While sales have rebounded, the company now has debt obligations to the sum of $3.3 billion on its balance sheet. Filing Chapter 11 will allow Revlon to restructure, alleviate some of its leverage, and continue operating.

Increased competition from celebrity brands like Kylie Jenner Cosmetics, as well as recent supply chain bottlenecks, have led to the demise of the beauty brand as it lost market share to rival Coty. The company listed assets worth between $1 and $10 billion in New York Bankruptcy Court, and houses brands such as Elizabeth Arden, as well as Britney Spears and Christina Aguilera Fragrances.

Perelman — who has owned Revlon since 1985 and currently commands an 85% controlling share through his firm MacAndrews & Forbes Inc. — has long since come to the rescue of the company through emergency loans and cash infusions. However, he could now face losing control of the company through this bankruptcy process. To add another wrinkle to the mix, his daughter Debra Perelman is currently CEO.

 

Spotify Set To Slow Down Hiring 🎧

Streaming giant Spotify (SPOT) has announced that it plans to slow down hiring by 25%. An email circulated around the company yesterday from CEO Daniel Ek informed employees of the news.

This comes as the latest blow to a tech industry currently reeling from widespread economic uncertainty. A mass rotation away from high-growth stocks has seen companies like Spotify hit hard, joining the likes of Meta and Amazon in slowing down expansive hiring. Ek stated in his message that the company would “continue to still hire and grow, we are just going to slow that pace and be a bit more prudent with the absolute level of new hires over the next few quarters.”

Spotify was initially launched in 2006 and has experienced a meteoric rise to become the largest music streaming service in the world. A first-mover advantage in the industry allowed it to grow to over 400 million monthly active users across the globe. However, music streaming is a difficult business to make money from, so recently Spotify has been looking to generate revenue through alternative methods.

Podcasts, audiobooks, live sports broadcasts, and educational content form the backbone of Spotify’s future as it looks to utilize its high brand value and phenomenal user retention to transition customers to some of these more lucrative segments.

Despite Spotify being around for over 15 years, the streaming industry is still relatively new and, as such, related businesses are subject to significant volatility — evidenced by Spotify currently being down almost 57% this year so far.

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