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Hi Finimizer, here's what you need to know for June 21st in 3:07 minutes.

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Today's big stories

  1. A lot of stock market derivative contracts expired on Friday, which might have caused an uptick in volatility
  2. Goldman Sachs has hit upon an underappreciated way to play the commodities rally – Read Now
  3. Grocery giants Tesco and Kroger announced strong quarterly updates

Seance Fiction

Seance Fiction

What’s Going On Here?

A “witching day” on Friday saw several options and futures contracts expire, and investors were looking for a sign – any sign – of what might come in the great beyond.

What Does This Mean?

Four times a year, a slew of major derivative contracts on US stocks all expire at once. That leaves investors with a decision to make: buy and keep the related shares, or “roll forward” those contracts by buying ones with a later expiry date. All investors’ subsequent buying and selling on Friday, then, risked making the US stock market extra volatile. Only problem was, analysts couldn’t tell whether all that extra activity would be a good thing or a bad thing…

Why Should I Care?

For markets: There were big scores to settle.
Goldman Sachs estimated that there were about $2 trillion worth of options and futures contracts on US stocks expiring on Friday. That’s a lot, sure, but the proportion of contracts whose agreed-upon "strike prices" were within 10% of current prices was as small as it’d been in the last 10 years. That’s important because an investor is more likely to exercise their option – that is, the right to buy or sell at a given strike price and date – if that strike price is close to the current price of the asset. So while there might be some volatility, it would be much more significant if a bigger proportion of those options’ strikes were closer to current prices.

For markets: It helps to see these things coming.
Most institutional investors will have been well aware of the potential for an uptick in volatility, but it might’ve come as a surprise to retail investors. And while the big-hitters haven’t historically paid much attention to things that unsettle their smaller counterparts, they might want to do just that: retail investors now hold 35% of all US stocks and – thanks to the recent surge in popularity of commission-free trading apps – account for one-fifth of all stock trading.

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2. Analyst Take

How To Play The Commodity Rally, Goldman Sachs Style

What’s Going On Here?

The rally in commodity prices has caught investors’ eyes lately, but the raw materials themselves aren’t the only way to turn a profit.

Just ask investment giant Goldman Sachs, which has hit upon a fresh way to play the trend.

It’s spotted an industry that’s reined in its spending, has less debt than it used to, and is better placed to benefit from the boom in copper prices than any other sector in the world.

And since it’s set to deliver its highest free cash flow in over a decade, Goldman reckons it’ll give that cash straight to shareholders.

So you might want to become one.

That’s today’s Insight: which commodity-driven industry is set to break records this year, and three companies in particular that could be the stars of the show.

Read or listen to the Insight here

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Special Delivery

Special Delivery

What’s Going On Here?

Two giants of the global grocery industry – Kroger and Tesco – reported earnings late last week, and investors canceled all their plans so they’d be in when they arrived.

What Does This Mean?

The pandemic’s generally been a boon for grocery retailers: their stores stayed open when almost everything else was closed, and even the extra costs of safety measures were partly offset by strong sales growth. That might be why Tesco – the UK’s biggest retailer (for now) – saw its revenue at existing stores come in ahead of expectations last quarter. An uptick in food sales was matched by those in the company’s clothing and wholesaler segments, probably as more people got all dressed up for real-life brunch. It was a similar story across the pond: America’s number-two grocer Kroger likewise reported better-than-expected quarterly revenue and profit.

Why Should I Care?

The bigger picture: A read on inflation.
Grocers’ earnings give you an important insight into how fast the prices of consumer goods are rising. Kroger, for its part, is anticipating inflation in the products it sells of 1-2% this year, which looks likely to be accurate (tweet this). The retailer plans to pass on those higher costs to customers, but it also stands to benefit from them: higher prices tend to incentivize consumers to switch to Kroger’s own-brand stuff – which typically delivers a higher profit margin than third-party items – as a way of saving money.

For markets: A mixed bag.
Kroger also upped its profit predictions for this quarter, which might be why share price rose 4% following its earnings report. But Tesco’s forecast stayed put, and its stock fell 4%. Then again, competition in its key UK grocery market is notoriously fierce, particularly on price. And with inflation increasing, Tesco may struggle to meet its profitability goals even if sales continue to grow.

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💬 Quote of the day

“Let’s have some new clichés.”

– Samuel Goldwyn (a Polish-American film producer)
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🤔 Q&A · RE: Green Turismo

Q: “How and why did Jaguar Land Rover ‘write down’ its research spending?”

– Ricardo in Quito, Ecuador

A: “Companies that invest in research and development are usually hoping to create an asset from it – perhaps a new product or technology that’ll help drive future growth. But Jaguar Land Rover – as part of a broader restructuring – acknowledged that the money it’d spent on research hadn’t created as much value as its books recorded, so it revalued the segment more accurately. The company’s ‘write-down’ is the difference between what that spending was previously worth and what it’s valued at now.”

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🥪 A hearty lunch

Stocks and bonds are the bread and butter of a strong portfolio. But no one wants a sandwich with just bread and butter. You want pickles, and ham, and mustard, and tomatoes, and all the good stuff. So join EquityMultiple’s CFO for How To Diversify Beyond Stocks And Bonds, and fill your portfolio with some tasty, tasty alternative investments.

🚀 How To Diversify Beyond Stocks And Bonds: 6pm UK Time, June 22nd
🤑 How To Earn A Passive Income From Crypto: 12pm NYC time, June 24th
🌿 Why Now’s The Time To Invest In Cannabis: 6pm UK time, June 28th
🍔 How To Make Money Going Meat Free: 6pm UK time, June 29th
💄 How To Give Your Portfolio A Beauty Makeover: 6pm UK time, June 30th
🤔 What Does Inflation Mean For Your Portfolio: 2pm UK time, July 15th
📈 How To Protect Yourself From Rising Prices: 6pm UK time, July 26th

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