Carvana
Bankruptcy risk rises for Carvana.Co (NYSE: CVNA) as stocks closed last Friday at $8.06 per share, down 3.1%. More strikingly, the stock has fallen around 97% this year, after its biggest creditors made a deal to work together, pushing the online car reseller’s shares lower.
After previously reporting declines in revenue, profit and sales year-on-year, the firm plans to let go of 8% of its workforce following the stock plummet. These layoffs add to the mountain of cuts in tech-focused firms including at some of the largest players including Meta, Amazon, and Netflix. CEO of Carvana Ernie Garcia named upcoming tough economic conditions causing higher costs and delays in car purchasing, alongside failed predictions of these impacts, as the firm’s downfall.
The online used car dealer welcomed its rapid growth during the pandemic, as consumers transitioned online rather than visiting dealerships in person. This allowed customers to browse, and purchase used cars from the comfort of their own homes. Despite these exponential profits in 2021, the firm was not prepared for the soar in consumer demand, or the facilities and labour staff required to handle it. That led Carvana to purchase ADESA and a record number of vehicles at excessive prices as demand slowed amid rising interest rates and recessionary fears. Many car shoppers have since reverted to their usual dealerships, and total used car sales numbers are expected to drop by 12% this year compared to 2021. All in all, Carvana could be on its way to calamity…
US: S&P 500
It has been a choppy week for the S&P 500. Powell’s previous comments of the potential to reduce rate hikes seemed to have slipped under the market’s radar as the S&P500 closed lower for the fifth consecutive day on Wednesday ending at 3,933.92. Bond yields soared as markets digested the Institute for Supply Management report released on Monday, showing the continued expansion of the services sector despite the Fed’s ongoing contractionary policy. This reignited investor concern that the Fed will further increase borrowing costs to cool inflation for longer than anticipated. With Morgan Stanley laying off 2% of its workforce and Goldman Sachs potentially cutting more employees, these major layoffs indicate that a harder recession is on the horizon. Top portfolio strategists predicted that the S&P 500 will see even more drops in 2023. Nasdaq and Dow also have all suffered losses this week as Wall Street’s pessimism grows, with Facebook-owner Meta, Amazon, and Apple stocks all down. Prices of Brent crude oil were also hit by these reports.
However, all hope is not lost, and Wall Street stocks reported gains on Thursday following this week’s jobless claims report, showing an increase in unemployment claims by 4000. Markets hold their breath ahead of the central bank’s rate announcement next week.
UK: FTSE 100
FTSE 100 remains in the red this week as the fear of recession continues to loom on the markets following the Royal Institution of Chartered Surveyors showing house prices falling last month.
With the energy crisis ceasing to subside, the UK has reopened the door to coal. The first coal mine in 30 years has been approved by the government in Cumbria, met unsurprisingly with backlash from environmentalists, criticising the decision as harmful to climate change efforts and contradicting the phasing out of fossil fuel use. Michael Gove, who approved the development, stated that “the proposed development would have an overall neutral effect on climate change” and would be used to provide coking coal for the steel industry rather than fossil fuel combustion. The mine is expected to employ 500 people and decrease the UK’s dependence on coal imports. Mining companies including Rio Tinto PLC stocks (LSE: RIO), a UK-based mining and metal company, responded positively to the news, with stock prices up 2.0% to 5,729.00p.
China
Reports that China has relaxed the tightest of Covid-19 restrictions in several areas including financial hub Shanghai gave Asian equities a boost in trading last week as investors are regaining confidence in Chinese assets and currencies. Loosening of President Xi Jinping’s zero-Covid restrictions, which have proven detrimental to the Chinese economy, led to increases across equities including Hong Kong’s Hang Seng index closing 4.5% higher and China’s CSI 300 index closing 2% higher. The infrastructure industry notably benefitted from the news of the prospect of increasing growth as the market opens back up.