Stocks finished higher yesterday, recovering some of their recent losses as the Federal Reserve signaled that it would front-load interest rate increases to tamp down inflation even as it cut its 2022 GDP forecast. Following the post monetary policy meeting presser, in a note to members we shared not only skeptical views for that forecast but the likelihood we would see stocks give back those gains as more sobering views about the duration of inflation and questions over the Fed's GDP forecast emerged.

That is what we're seeing this morning as other central banks, including the Bank of England and the Swiss National Bank, raised interest rates earlier today. This morning also brings with it the sobering realization that even as the Fed looks for inflation to first flatten then fall, which means inflationary pressures won't be licked overnight and remain a significant headwind for the economy going into the second half of 2022, and geopolitical issues can still thwart its efforts.

Helping bring that realization about, natural gas prices are vaulting higher this morning as Russia once again reduces gas volumes to Italy and Germany.


We are also increasingly concerned about disposable income prospects in the coming quarters as the Fed front loads its inflation fighting even as consumers turn increasingly to credit to make ends meet as they contend with higher prices for gas, food, and increasingly other items. With that landscape ahead of us, we are downgrading the shares of both Airbnb (ABNB) and Disney (DIS) , which are reliant on consumer spending and disposable income, to Two ratings from One. We are also cutting our Airbnb price target to $125, where there is strong technical resistance, from $200 and doing the same for Disney, reducing it to $125 from $150.

Travel Expectations

Based on the TSA passenger data and comments as recent as last week from Visa (V) and Mastercard (MA) made during investor presentations, travel activity remains positive through the current quarter. Our growing concern, however, is for travel expectations for the second half of 2022 and the likelihood for a slowdown in travel, particularly leisure travel as we start to lap the second half of 2021. During that period, TSA passenger data jumped significantly year over year as people began traveling again, in many cases going on that long-awaited vacation following time being more or less confined to their homes for the worst of the pandemic.

Should we see signs the consumer is under even greater pressure, despite Fed Powell's comments the consumer remains in a healthy position, we would look to revisit those new ratings on ABNB and DIS even further. We have more investor conference occurring this week, so we will be listening carefully for any such signs, but the next known data point for this will be the May Personal Income & Spending report due on June 30.

Portfolio Quick Hits

Chipotle Mexican Grill (CMG) announced it is piloting Mexican Cauliflower Rice at 60 restaurants in Arizona, Southern California, and Wisconsin for a limited time. The company's latest plant-based menu innovation is crafted with freshly grilled, riced cauliflower seasoned with the savory spices of Mexican rice.

Amazon (AMZN) formally announced its Prime Day 2022 will be held on July 12 and 13, clearly in the September quarter, which bodes well for favorable year over year comparisons, but also runs the risk of challenging ones when it reports the current quarter given the timing of Prime Day 2021 (June21-22).

Applied Materials (AMAT) announced it has acquired Picosun Oy, a privately held semiconductor equipment company based in Espoo, Finland. Few details were announced but Picosun should expand Applied's reach into specialty semiconductors. More importantly, the transaction tells us it is business as usual at Applied as it looks to expand its portfolio of solutions as the semiconductor capital equipment industry passes the $100 billion mark this year for the first time ever. In SEMI's latest quarterly World Fab Forecast, it sees global fab equipment spending rising 20% year over year to $109 billion, and based on strong industry backlog data is sees 2023 spending remaining strong.