Monthly markets recap: Rivian roars, oil falls, Fed lift off?

Here’s a quick look back at some of November’s top market stories.

November 2021 markets recap

Fed lift off soon?

US inflation reached its highest levels for 30-years, prompting markets to ask if a rate hike was on the way.

Federal Reserve Chairman Jerome Powell kept his place after a reshuffle. Lael Brainaird will be taking the Deputy Chair spot. However, that’s not what we’re interested in, although important. Markets want action on high inflation and a tight labour market.

There are indicators that the inflation alarm bell is ringing. As per the Fed’s last FOMC minute releases, policymakers said: “Various participants noted that the Committee should be prepared to adjust the pace of asset purchases and raise the target range for the federal funds rate sooner than participants currently anticipated if inflation continued to run higher than levels consistent with the Committee’s objectives”.

Inflation is positively scorching: Month-over-month deflator at 0.6%, up 5% year-on-year, hottest since 1990 and up from 4.4% in Oct. Core up 0.4% m-o-m, up 4.1% y-o-y from 3.7% in Oct, also the highest in 31 years.

The US labour market is tight too. US jobless claims are at their lowest levels since 1969. Jobs are out there, but it looks like there is no one to fill them. With a US nonfarm payrolls print coming, the latest job stats will make for very interesting reading indeed.

Still, markets are now waiting to see what will happen with the Fed when it meets again in mid-December.

Oil takes an Omicron-shaped beating

Crude oil started to slide at the start of November, but towards the end of the month fell off a cliff – all thanks to the newest COVID-19 strain.

The Omicron variant is currently wreaking havoc on global oil markets. WTI and Brent Crude started the week of 30th November on the backfoot after taking a huge tumble on Friday 26th upon the new strain’s detection. At the time of writing, both benchmarks are down around -3.9%.

Traders are now feeling uneasy about oil demand in 2022.

The new COVID-19 strain has also caused a split in OPEC+. The cartel may have to alter or pause its monthly 400,000 bpd production increases upon these lower oil prices. Their passage below $70 is ringing alarm bells for some OPEC members and their allies.

Saudi Arabia and Russia, the cartel’s largest producers, are expected to call for a halt at the December OPEC-JMMC meeting. The UAE, however, is the loudest voice of those member states calling for production to keep going.

Adding to OPEC+’s woes is the fact President Biden has sanctioned some 55 million barrels to be released from the US Strategic Petroleum Reserves. Biden is doing this to cool down rising gasoline prices, which are up over 60% across the year. The UK, Japan, China, India, and South Korea have also dipped into their reserves, bringing the total number of new barrels on the market up to 66m.

A lot of pressure is being exerted on oil right now. It may increase. All depends on the world’s response to the Omicron variant.

Rivian becomes 2021’s largest IPO

California EV start-up Rivian hit the track at high speed when its IPO launched in early November. The carmaker beat expectations by reaching a valuation in excess of $100bn upon its stock market debut on November 11th.

What makes this all the more impressive is the fact vehicle deliveries are exceptionally low at present. Rivian claims it has the capacity to deliver 150,000 vehicles annually, but so far deliveries are less than a third of that.

Rivian also has yet to make any substantial revenue. The company posted net losses of over $1bn in 2020, although much of this can be attributed to the construction of a factory in Normal, Idaho. According to its third quarter results, Rivian said losses for 2021 will come to $1.28bn.

None of this seems to have put off investors. Rivian shares began trading at $106.75 per share – some 37% higher than initial IPO price estimates. The electric vehicle marque was reportedly looking at a $72-74 initial public offering share price before going public.

In the weeks following its public launch, Rivian shares continued an impressive upward trajectory. On the 16th of November, for instance, Rivian reached a high of $179.08. A general slump in EV stocks followed, by the price is still healthy. At the time of writing, Rivian was trading for roughly $120.17.

Where next for Rivian? Tesla is the benchmark, but it will be some years before Rivian can match Elon Musk’s market leader if it ever can. With over $11bn in capital generated from its float, Rivian can now plough on with vehicle manufacturing and factory construction.

Markets spy an $8 trillion metaverse opportunity

You may have heard of Facebook’s parent company changing its name to Meta? This may herald the dawn of a new era – one where the digital and physical worlds begin to blur with the mass adoption of new technologies.

According to Morgan Stanley, the metaverse represents an $8 trillion investment opportunity. Canny tech-savvy stock traders and investors should perhaps be on the lookout for opportunities within this sphere.

But what is the metaverse really? A very quick description would be integrating the digital and the physical through augmented and virtual reality technology. It’s basically a blurring of the internet with everyday life; a highly immersive virtual world where people gather to socialise, play and work.

Morgan Stanley identified several stocks it believes holds the key to the metaverse’s development.

“We remain positive FB primarily because of the still under-appreciated core business growth durability and free cash flow into ’22,” Nowak said. “This is even through an estimated $13.6bn of investment in the metaverse in 2022 to build the next generation version of social networking.”

In addition to Meta/Facebook, Morgan Stanley also earmarked the below stocks, each with an overweight rating, as potential metaverse inroads:

  • Roblox
  • Alphabet
  • Snap
  • Unity Software