Weekly Newsletter- Week of 11.28.2021
Covid Crashes Markets
Over the past several months, we've seen a rotation in the stock market. As vaccinations became widely available, stocks that are directly tied to the economic reopening were the ones carrying the rally. Think energy stocks, which are up over 100% this year.
Conversely, stocks that that seem to predominately benefit from a virtual environment have been getting slammed. Here’s how some of the top ‘Covid’ stocks have been performing over the last 6 months: Zoom Video: -32% Pelton Interactive: -57% Teladoc Health: -27%
All three companies set their 52-week highs during the pandemic, and each has been struggling to tread water ever since. Well, that all changed last Friday during a shortened day of trading when a massive sell-off began. With volume historically low, nobody anticipated such a massive move the day after Thanksgiving. Then the word ‘variant’ started once again getting thrown around and it was obvious what was causing the latest selloff. When news of yet another Covid related variant came out, the stock market took a nosedive on Friday.
New Variant
The world anxiously watched the news last Friday as reports of yet another Covid related variant strain began impacting areas of South Africa. We’ve already seen how quickly the virus, and its various strains, can move from country to country, and this new strain looks to reverse months of positive progress battling Covid.
New cases of the variant has already been identified in numerous other locations such as Hong Kong, Belgium, the Netherlands, Australia, and others. The European Union as well as the United States have already implemented travel restrictions for those traveling to and from South Africa. The World Health Organization has labeled this variant a ‘concern’ and the stock market has reacted accordingly.
Stocks Get Hammered
As we’ve seen over the last year, any Covid related news quickly moved overall market sentiment. This was evident last Friday as the VIX (used to track and capture overall market sentiment) spiked up to 47% representing growing fear among investors. The market took heavy losses on Friday as all three major indexes took +2% losses.
No sector of stocks got hit harder than the travel sector. As airlines and cruises took double-digit losses. Oil also tanked, getting crushed over 13%. Even Bitcoin was part of the selloff, dropping over 8% on fear alone. Previous pandemic winners such as the stocks noted above, all took large gains of 5 and 6%. Should this new Covid strain continue to cause global concerns, investors will need to tread lightly and only invest in companies that would not be directly impacted by another prolonged lockdown period.
Supply Chain Issues: Holiday Edition
We've reported extensively on the impact of the supply chain issues in recent newsletters. What started as a major shortage of semiconductors has quickly moved to many of your favorite and most common household items. Not only that, but Covid related warehouse closures, as well as staffing shortages, continue to add supply chain delays. With in-store Black Friday shopping down over 30%, it's obvious that consumers will depend on eCommerce deliveries for this upcoming holiday season. With holiday demand sky-high, this year's Christmas season will be directly clashing with a supply chain battered with disruptions. Massive retailers such as Amazon and Wal-Mart have been able to adapt, and pivot given their extensive resources available. While logistical companies have soared due to rising shipping rates. All of this equates to a potentially 20% rise in prices during this holiday season.
Additionally, the National Retail Federation is forecasting record holiday sales this year. The group is predicting consumer sales to rise nearly 11% between November and December (equating to $859B in total sales). Retailers, particularly in fashion and clothing, have been struggling to keep inventory tight. While retailers like Macys had a positive jump on earnings (up 16% this month) other retailers have been hammered by Wall Street during earnings season. Gap and Nordstrom each noted their inability to fulfill orders during the season, citing supply chain issues. Analysts continue to stress the importance of completing your Christmas shopping earlier this year, as there's just no guarantee any of those last-minute items will be available. Additionally, when attempting to trade any retail stocks during the holiday season, we should be looking for companies who have already demonstrated their ability to maintain proper inventory levels the great reopening.
Virtual Real Estate Selling in the Millions
Over the last few newsletters, we’ve talked extensively about the Metaverse. What is it? Is it already here? And what stocks should benefit the most? This week we’ve identified new winners in the craze of the Metaverse. We’ve seen numerous investors attempting to secure their own spots in the Metaverse. Though we may not truly know what the future of the Metaverse will look like at this time, that hasn’t stopped some investors from spending millions to secure future digital real estate.
Decentraland and $2.4M in Real Estate
Decentraland is one of many “Metaverses”. It’s an online space where uses can exist, purchase, meet and interact in the digital world while sitting comfortably at home. Investors have begun to make speculative purchases on the future of Decentraland and digital real estate. Much like purchasing land, investors have been forking over huge stacks of money to secure a spot in the future 3D environment. The massive $2.4M investment was purchased due to its location on "Fashion Street". A 3D location that will eventually be used to host digital fashion shows and also sell clothing for your virtual avatar. This marks the largest purchase of digital real estate yet.
Virtual Yacht Party Anyone?
It’s not simply real estate and avatar clothing that’s already selling in the Metaverse.. an entirely virtual mega yacht just sold for 149 Ethereum tokens, which equates to roughly $650,000! This virtual cruise liner is used to help players, build, create, and monetize their gaming experiences. The all-virtual yacht comes with a DJ booth, two helipads, and a hot tub among many other digital amenities. It’s becoming increasingly clear, there’s big business in the future of the Metaverse. Despite not knowing what it will ultimately look like, investors are spending millions as first movers to ensure their spot in what some are calling, the next iteration of the internet.