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Investors Show Irrational Optimism in the Face of Inflationary Fears, Pushing the Stock Market Higher Today
All three market indices dipped mid-day but finished in the green.
While inflation fears have yet to subside, it seems investors may be ready to return to the market. Today Consumer Price Index numbers were released, showing the fastest consumer prices jump since 2008. The inflation rate came at 5%, near the 4.7% expected rate. Despite this, the market pulled through to the finish on a positive note.
One reason for unexpected optimism is the decline in the number of new jobless claims that the Bureau of Labor Statistics reported today, as is customary on Thursdays.
Jim Cramer of CNBC speculated that perhaps investors were becoming impatient with staying put and waiting out the scare. It appears they may be getting back in the market.
Overall, today's reaction to the Consumer Price Index is a reminder that the market's reaction to facts and information is never easy to predict.
RH (RH) Releases Promising Earnings and Jumps in Price
From the list of winning stocks of the day, RH (RH) grabbed my attention. Formerly known as Restoration Hardware, it is a well-known luxury furniture retailer. Earnings released yesterday showed net revenue increased 78%, reaching $861 million from last year’s $483 million. It's not that surprising to see such a jump. Last year this time, COVID-19 was still raging across the world and all retail stores were closed. Comparatively, the revenue jump is quite expected. Nevertheless, investors pushed the stock up 15% today.
If you visit the company’s Stock Card, it’s clear that RH has high growth potential, strong operations, and outperforms the market quite consistently. With the inflation rate going up and consumers recovering from pandemic restriction, it’s not too difficult to see RH continue to grow. This is not my typical investment but watch for the stock's valuation at 69 times the price-to-earnings ratio if you are investing now.
Gamestop (GME) Upward Trend Reversed Over Seemingly Irrational Investors
The original meme stock, GameStop (GME), is all over the news once again! People say that even bad PR is good PR, but what happens when good PR has the opposite effect? Yesterday, Gamestop announced the appointment of two veteran Amazon leaders to serve as the company's new chief executive officer and chief financial officer, as well as their earnings report.
The new executives' expertise gained while working at the eCommerce giant will undoubtedly prove helpful, yet investors have reacted differently than expected. Over today’s trading day, we saw GameStop shares drop -27%. This seems irrational in the face of higher-than-estimated earnings in yesterday’s report.
Many factors are at play in the world of meme stocks. Traditional market fundamentals apply only loosely at times of intense volatility, and “YOLO” plays. Many retail investors who bought GME shares were there for a quick buck, and they may be growing tired of waiting for chairman Ryan Cohen to present a drastically different game plan and business plan.
This irrationality can also stem from having such a large amount of the float owned by retail investors. Most hedge funds are less prone to switching their strategy short-term, but I expect that members of Wallstreetbets are mostly short-term oriented.
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