MarketBites Daily Investment Commentary: How Bad Is Inflation? I Ackman & Pizza

Stock Market Commentary for 5/13/2021:
  • +Colonial Pipeline News: The crucial pipeline successfully restarted operations after a cyberattack. Gas flows should return to normal in a couple of days, across the east coast of the United States.
  • Inflation: April’s higher than anticipated inflation numbers hammered stocks. Read our top story for more.Tech’s Demise: The Technology Select Sector SPDR, is off by 5.6% this week. Investors are reassessing the group’s high valuations in the face of rising inflation.

  • Stock Talk:

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Top Investment Story #1: Inflation Across The Nation
What is Happening?

The data is undeniable: CPI rose 4.2% from a year ago, and 0.8% from March. Removing food and energy prices doesn’t make the data look any weaker. Core CPI rose 0.9% in April from March, and 3% year over year.

But is it really that bad? Digging deeper into the data shows that most of the big gain came in sectors that were most affected by the pandemic. For example, sporting event prices, plane tickets, hotels, and computers jumped 10.1%, 10.2%, 8.8%, and 5.1%. This accounts for 7% of the economy. The other 93% of the economy rose 0.3%, and in line with expectations!

So are we safe from inflation? Not really. Inflation could become a threat if the economy continues heating up, and supply shortages aren’t alleviated. 5-Year Treasury Inflation-Protected Securities, or TIPS, already price in 2.8% inflation (higher than the Fed’s 2% target).

What now? The Federal Reserve likely won’t change course from one inflation report. However, the market has already started pricing in a higher probability for a rate hike in the next 1-2 years. If that happens, expensive growth stocks and economically sensitive shares that dominate the Dow would all suffer.

The Takeaway:

Keep a close eye on the monthly inflation reports as well as any announcements from the Federal Reserve in the coming months.

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– By Raymond Kanyo

– Published in MarketBites Daily Newsletter

Meet the Authors
Top Investment Story #2: Pershing Square Takes 6% Of $DPZ
What is Happening?

At The Future of Everything Festival, hedge-fund manager Bill Ackman disclosed that his firm, Pershing Square Capital Management, acquired 6% of Domino’s Pizza ($DPZ).

Why Does This Matter?

Like Buffett, Dalio, Cohen, and other identifiable investors, when Bill Ackman speaks, people listen. Some even take action specifically based on his word, which appeared to happen today as $DPZ finished 0.73% higher. The stock rallied as high as 4% midday, but it cooled off along with the broader market later on.

Bill Ackman is best known for being a loud, flashy activist investor. Lately however, Ackman and Pershing Square have taken a back seat when they find an attractive deal. Ackman announced that Pershing sold out of its 1% stake in Starbucks ($SBUX). While holding that position, he praised the management team and was not an intrusive investor in the slightest. Ackman cited that he still believes investors can do well with Starbucks stock.

Pershing appears to be willing to take a back seat and enjoy the ride with $DPZ as well. Ackman entered the trade around $330 per share in late February and early March, after the firm’s earnings sent the stock spiraling. Shares closed at $425.44, indicating a near 30% return just months after purchase.

While pundits and analysts alike point towards pandemic tailwinds propping the stock up, Ackman believes Domino’s is a durable growth juggernaut. Many other pandemic habits have proven to be sticky in terms of consumer behavior. Ackman also pointed to colleges reopening, and the firm’s ballpark presence. Nonetheless, $DPZ has done enough to prove to Ackman that he wants to hold the firm at any point of the economic cycle.

The Takeaway:

Domino’s Pizza has been an undercover superstar so far this year, and as expected, Ackman was there to capitalize. It will be interesting to see how the firm performs moving forward, and if Pershing Square remains a silent shareholder.

By Jack Dunne

– Published in MarketBites Daily Newsletter

Raymond grew up in Budapest, Hungary, where he played tennis for the Hungarian Junior Davis Cup team. At the age of 16, he received the Davis United World College Scholarship, which was established by legendary investor Shelby Cullom Davis, allowing him to attend the Taft Boarding School in Watertown, CT. After Taft, Raymond received a Presidential Scholarship to the Robins School of Business at the University of Richmond, where he studied Quantitative Economics and Finance. Raymond is a CFA Level III Candidate. Prior to joining Taylor Hoffman, Raymond worked at various financial institutions in the insurance, asset management, and financial consulting space. Outside of the office, Raymond enjoys playing tennis at ACAC and Westwood Country Club.

Raymond Kanyo
Product Manager & Investment Analyst

Jack graduated from the Robins School of Business at the University of Richmond with concentrations in Marketing and Finance in 2019. Prior to joining Taylor Hoffman, he worked in high-growth B2B SaaS marketing; assisting Fortune 100 firms to improve their web performance experience. A Long Island New York native, Jack’s hobbies include passionately supporting the Mets and Islanders, and he enjoys skiing whenever he can.

Jack Dunne
Investor Education Specialist
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