Good morning. Happy Friday.
The Asian/Pacific markets leaned up. Hong Kong, South Korea, Thailand and the Philippines did well; China was weak. Europe, Africa and the Middle East are doing well. The UK, France, Germany, Russia, Finland,, Hungary and Spain are doing great. Futures in the States point towards a positive open for the cash market.
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VIDEO: Day Trading with MACD and Stochastic
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The dollar is up. Oil is down; copper is up. Gold is down; silver is up. Bonds are up. Bitcoin is up.
Stories/News from Seeking Alpha…
The inflation debate
A higher-than-expected inflation print in the U.S. yesterday showed prices soaring by 5% in May compared with a year ago, marking the biggest increase since the Great Recession. While it was somewhat distorted by the pandemic, dueling narratives are taking shape to what this will mean for the economy going forward. The Consumer Price Index also showed a gain of 4.2% back in April, calling into question current fiscal policies and the direction of interest rates.
The bulls: The Fed is sticking to its “transitory” inflation thesis, which maintains that supply shocks and production bottlenecks have led to recent price pressures. Many are also quick to point out that the recent inflation print was once again driven by a jump in the cost of used cars and trucks, which accounted for about a third of the CPI’s monthly advance. Meanwhile, the Biden administration argues that rising inflation is not only temporary, but it is also a feature of a rebounding economy. A broad vaccine rollout and lower COVID-19 case counts have seen Americans return to their old habits by spending months of pent-up savings.
The bears: Many Republicans and some economists acknowledge the post-pandemic supply problems and surging demand, but also flag the cost of the $1.9T stimulus package President Biden signed in March. They further point to coming proposals from the White House, like spending $4T on infrastructure, as a possible risk that could trigger a full-blown recession. While a large share of May’s CPI came from the auto market, prices are jumping for many other categories like furniture, airfare and apparel, while labor costs, transport and raw materials are also skyrocketing.
Outlook: Will inflation be here for the long haul? It could take months before it’s clear whether the current upsurge is temporary. As the economy reopens, both sides predict that rising costs will continue until supply chains and consumer demand recalibrate, but the real question is how prices will fare after that against a backdrop of massive fiscal and monetary policy support.
Shrugging it off
Something interesting happened in the stock market on Thursday. Shortly after the release of the Consumer Price Index, which showed sizzling inflation figures for May, the major averages opened higher, with the S&P 500 even setting a new record at the close. In another surprise, Nasdaq had a better day than its cyclical peers as the growth trade outperformed value. Dusting off the old textbooks, rising inflation should weigh on corporate profits, reduce purchasing power and trigger fears of higher interest rates, but that’s not being felt this time around.
What happened? Some investors may be following the “transient” camp, especially interest rate watchers that are listening to every word of Jay Powell. There is also a lot of buying power still out there and many traders are looking to ride the momentum. For others, new dynamics may be playing out in equities. Some fearful of government spending and a weaker dollar see risks in converting to cash. That could result in some sort of unconventional hedge in the stock market, especially in one that increasingly appears disconnected from the fundamentals (similar sentiment that’s boosted crypto?).
“The technical setup for the broader market remains constructive,” said Craig Johnson, technical market strategist at Piper Sandler. “Momentum indicators have improved and the majority of SPX stocks remain above their 200-day MAs and in MACE defined uptrends. We reiterate our year-end SPX price objective of 4,625.” Overnight, stock index futures inched up slightly and continue to point green ahead of the open.
From the SA comments section: “Not a surprise. Markets rarely sell off on the same news, especially when the news is well anticipated,” points out Charles Agbakwu. “Cash is trash. Park it in something that goes up,” writes nothing_lasts. “The stock market is indestructible,” adds Investing4FIRE, while calvinfroedge asks “Does anyone still think we have free markets?”
Electric flying taxis
Autonomous vehicles, supersonic aircraft, point-to-point space voyages… There are many trends in store for the future of travel and companies are sinking big bucks into many of the emerging industries. American Airlines (AAL) is the latest to join the revolution, investing $25M in Vertical Aerospace Group, a U.K.-based electric aircraft startup. The world’s largest carrier by traffic also said it would purchase as many as 250 of Vertical’s planned flying taxis, pending approval by regulators and other milestones.
Details: Called the VA-X4, the electric vertical takeoff and landing (eVTOL) aircraft can carry four passengers and a pilot. It’s also capable of flying at speeds up to 200 mph, with a range of more than 100 miles. The first test flight is planned to be conducted later this year, with certification of the zero-emissions aircraft as early as 2024.
There’s bigger news: Vertical Aerospace is combining with SPAC Broadstone Acquisition (BSN) in a transaction that’s expected to close in the second half of 2021. It values the combined company at a pro forma equity value of $2.2B and would result in gross proceeds of $394M. Vertical will be listed on the NYSE under the ticker “EVTL”, and has also received investments from Avolon, Honeywell (HON) and Rolls-Royce (OTCPK:RYCEY).
Elsewhere in the industry: Vertical Aerospace joins several other flying taxi companies that have announced SPAC deals this year, including Joby Aviation, which is going public through a deal with SPAC Reinvent Technology Partners (RTP), and Archer Aviation, which is hitting the markets via SPAC Atlas Crest Investment Corp. (ACIC).
Unemployment fraud
A new report from Axios suggests that unemployment fraud rose heavily during the pandemic, with criminals stealing as much as half of the benefits being doled out over the past year. Blake Hall, CEO of fraud-prevention service ID.me, said the U.S. lost $400B to fraudulent claims and as much as 50% of the total claims might have been stolen. At least 70% of pocketed money also left America, with a large chunk ending up with groups in China, Russia, and Nigeria, according to LexisNexis Risk Solutions’ Haywood Talcove.
The criminal plot: Data logs were stolen by crooks, or individuals would be fooled into sending their personal information to scammers. Oftentimes, “mules” (a.k.a. low-level criminals) armed with debit cards would withdraw the illicit funds from ATMs. The money was then sent abroad, most commonly via Bitcoin.
“Widespread fraud at the state level in pandemic unemployment insurance during the previous Administration is one of the most serious challenges we inherited,” said White House economist Gene Sperling. “President Biden has been clear that this type of activity from criminal syndicates is despicable and unacceptable. It is why we passed $2B for UI modernizations in the American Rescue Plan, instituted a Department of Justice Anti-Fraud Task Force and an all-of-government Identity Theft and Public Benefits Initiative.”
Go deeper: States weren’t prepared for the tsunami of unemployment claims when the pandemic hit in March 2020. While fraud was likely, many chose to keep the money flowing for those that desperately needed it, rather than spending precious time on checking the veracity of the applications. On May 28, the Office of the Inspector General even found that $39B in unemployment money from the 2020 CARES Act had been misused, partly due to fraud and improper payments. President Biden also said last week that while the temporary boost in unemployment benefits had been effective thus, “it makes sense” for them to expire in September.
What else is happening…
Ultra-dovish! ECB renews pledge for faster bond-buying.
Hedge funds lose another $6B betting against meme stocks – FT.
Bipartisan group of senators reaches $1.2T infrastructure deal.
OPEC sees oil demand gaining momentum in second half of 2021.
Chinese ride-sharing giant Didi (DIDI) files to go public.
GE (GE) to freeze pension plans for 2,700 U.K. employees.
Intel (NASDAQ:INTC) said to have made a $2B takeover offer for chipmaker SiFive.
Amazon (NASDAQ:AMZN) wants returning workers in the office three days a week.
Strong demand… Corn pops as USDA forecasts shrinking stockpiles.
401(k): Is crypto a ‘proper’ part of a diversified portfolio?
Thursday’s Key Earnings
Chewy (NYSE:CHWY) -1.4% AH despite Q1 beats, guiding in line.
Dave & Buster’s (NASDAQ:PLAY) +5.6% AH seeing strong sequential demand.
Today’s Economic Calendar
10:00 Consumer Sentiment
1:00 PM Baker-Hughes Rig Count
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Good morning. Happy Thursday.
The Asian/Pacific markets leaned to the upside. China, South Korea, India, Taiwan and Indonesia did well; Hong Kong and New Zealand were weak. Europe, Africa and the Middle East are currently mixed and little changed. Poland and Greece are up; Denmark, Norway, Portugal and Israel are down. Futures in the States point towards a positive open for the cash market.
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VIDEO: Day Trading with MACD and Stochastic
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The dollar is up. Oil is up; copper is down. Gold and silver are down. Bonds are down. Bitcoin is up.
Stories/News from Seeking Alpha…
Meme madness
To the moon! The meme trade is transforming into something new as retail traders continue to make waves in the broader markets. The ability to pool together their collective research or sentiment is lending credence to a new investment strategy, generating widespread buzz that brokerages and hedge funds didn’t see coming. With more stocks being added to the category by the day, volatility is even affecting rebalancing decisions of market indexes like the Russell 2000 (NYSEARCA:IWM), which was once considered a stable benchmark for mutual funds before all the action.
The old meme list that headlined favorites AMC (NYSE:AMC), BlackBerry (NYSE:BB) and GameStop (NYSE:GME) is changing. Over the last few sessions, we’ve seen big run-ups and falls in names like Clover Health (NASDAQ:CLOV), Clean Energy Fuels (NASDAQ:CLNE), GEO Group (NYSE:GEO), World Wrestling Entertainment (WWE) and even Wendy’s (NASDAQ:WEN). The fast-food chain was added to the group on Tuesday, which marked a notable departure from the classic meme mold that featured high short interest in order to squeeze a stock.
Backdrop: The meme trade began with GameStop back in January and was partly a strategy (short squeeze), partly a gamble (remember binary options?) and partly a middle finger to Wall Street (little guy vs. the suits). The strategy was an outgrowth of the YOLO trade, which was popularized on the WallStreetBets forum to reach financial freedom overnight. Retail bros would throw all of their savings into one stock without caring about risk management or diversification. The method was compounded by waves of swarm trading, as well as gamification of stock apps and access to commission-free trading.
Remember the Hertz (OTCPK:HTZGQ) bankruptcy bid-up that occurred last summer and the Kodak (NYSE:KODK) craze that followed? What about Tesla (NASDAQ:TSLA) once being worth more than every carmaker on Earth despite a fraction of their sales? Do we dare mention Bitcoin (BTC-USD), Dogecoin (DOGE-USD) or other cryptos?
Go deeper: If meme trading is the new casino gambling, then timing is everything until the last trader is left holding the bag. Some still swear by the technicals, which have created countless day trading channels and messaging platforms. Others are quick to point to the eye-popping fortunes being posted online, but don’t forget the whopping losses that get far less coverage. It also leads one to wonder about the broader public markets, where every share is only worth as much as people are prepared to pay for it. With the meme trade spreading to new sectors and industries, will stock fundamentals still hold water? Did they ever?
Inflation information
The day has finally arrived… Investors this morning are set to get a better take on whether inflation is here to stay, or if price pressures could threaten the market rally, with major averages hovering near record highs. The consumer price index for May will be published at 8:30 a.m. ET, and is expected to show headline inflation rising by 4.7%. That would mark the biggest year-on-year increase since 2008, when energy prices went through the roof, and would follow the sizzling 4.2% advance seen in April. Core consumer inflation, which excludes food and energy, is anticipated to jumped 3.5% Y/Y, the highest level since 1993.
Quote: “It will be hot. It could be up to 5%,” said Diane Swonk, chief economist at Grant Thornton. “The worst of the heat is going to be the second quarter in terms of headline. It will be interesting to see what it looks like when you strip out the extremes. I think we’re still going to have a warm summer when you have surge pricing kicking in for everything from airfares to hotels.”
While the Fed has pledged not to hike interest rates before 2023, some economists say that is wishful thinking if these levels of inflation keep up. U.S. stock index futures were mixed before the latest CPI, with the Dow up 0.2% and Nasdaq off by the same amount (contracts linked to the S&P were flat). On the other side of the debate, the Fed believes rising price pressures will be “transitory,” and many portfolio managers are riding that train, feeling inflation fears have already been priced in.
Also on the calendar: The Labor Department will publish its latest weekly jobless claims numbers at the same time the CPI is released. The figures are expected to fall to a seasonally adjusted 370K for the week ended June 5, compared to the 385K seen last week, which marked the lowest level since March 2020. It would also be the sixth consecutive weekly decline as the U.S. economy rebounds from the coronavirus pandemic.
Keystone X-ed out
TC Energy (TRP) and Alberta’s provincial government have officially terminated the $9B Keystone XL pipeline project, a foregone conclusion after President Biden revoked a key permit on his first day in office. The 1,179-mile pipeline would have shipped over 800K barrels of crude a day to Steele City, Nebraska, from Hardisty, Alberta, giving Canadian oil companies a new route to refineries on the U.S. Gulf Coast. The decision was cheered by environmentalists who for a decade have made Keystone XL a lightning rod of broader political battles over energy and climate change.
“When this fight began, people thought Big Oil couldn’t be beat,” said Bill McKibben, the founder of environmental group 350.org. “But when enough people rise up, we’re stronger even than the richest fossil-fuel companies.” Other organizations, which targeted Keystone XL, are also putting pressure on Wall Street to take climate action and were a force behind activist investors’ recent board seat wins at Exxon Mobil (XOM).
As for TC Energy, the company said it will “continue to progress $20B of secured growth projects, $7B of projects under development, and numerous additional initiatives.” It also announced that going forward it would build out businesses that include shipping and storing natural gas, liquid fuels and power to meet rising demand for cleaner fuels. “We value the strong relationships we’ve built through the development of this Project and the experience we’ve gained,” TC Energy CEO François Poirier declared.
Outlook: While the U.S. oil industry is under pressure to slash carbon emissions, Russia and OPEC have subsequently announced production increases. Just last week, President Biden suspended oil leases in Alaska’s Arctic National Wildlife Refuge, while Michigan Gov. Gretchen Whitmer attempted to revoke a permit that allows Enbridge (ENB) to transport oil under the Great Lakes. The goal here is to wean the U.S. economy off of fossil fuels before irreversible climate effects take hold, or at least diversify the energy mix until then. Others argue that U.S. fossil fuel production needs to accelerate to satisfy ever-growing demand, and barring some technological breakthroughs, the U.S. risks once again becoming dependent on OPEC+.
GameStop turnaround?
The original meme stock, GameStop (GME), reported results after the bell yesterday, highlighting a quarter where sales rose 25% to $1.28B on the back of new PlayStation and Xbox consoles. Adjusted EBITDA meanwhile fell to -$0.7M, compared to -$75.5M a year earlier. On the balance sheet, GameStop had $771M in cash at the end of the quarter, as well as no borrowings under its asset-based revolving credit facility and no long-term debt.
Despite the news, the stock slumped as much as 12% AH to $265, after the retailer held back on issuing any formal guidance due to the pandemic. The company also filed a prospectus with the SEC to sell up to 5M shares of its stock from time to time, in “at-the-market” offerings. Looking ahead, GameStop still expects Q2 sales trends to reflect continued momentum, with May total sales increasing approximately 27% compared to last year.
Ryan Cohen’s turnaround plan: Alongside the report, GameStop announced the appointments of Matt Furlong and Mike Recupero as CEO and CFO, respectively. The two join GameStop from Amazon (AMZN), where they held senior roles and oversaw various growth initiatives during their respective tenures. GameStop has hired three former Amazon executives over the past few months, including COO Jenna Owens, CTO Matt Francis and Chief Growth Officer Elliott Wilke, as well as tapping Ryan Cohen, who helped build Chewy (CHWY) into a digital commerce juggernaut, to lead its e-commerce efforts.
Meme disclaimer: GameStop disclosed that it received a request from the SEC last month. While the letter asked for the voluntary production of documents and information concerning an investigation into the trading activity of GME shares – and the securities of other companies – the video game chain said it does not expect to be adversely impacted by the inquiry.
Gensler gets going
SEC Chairman Gary Gensler went on a media blitz yesterday to push for updated regulation on making markets “as efficient as possible.” Specific areas he and his staff are looking at include best execution, Regulation NMS, payment-for-order-flow, minimum pricing increments and national best bid and offer. It’s part of an overall thrust toward a “freshening up” of the SEC’s guidelines in light of a fast-changing market environment.
Crypto crosshairs: Gensler warned traders that Bitcoin (BTC-USD) markets don’t have the same governmental oversight as more traditional ones, like those for stocks and commodities. Referring to them at one point as “cooked-up currencies,” he said the area required more attention and called for more clarification about the regulatory regime. While Bitcoin is regulated by the CTFC and tokens fall under SEC authority, Gensler expressed concern that there wasn’t enough oversight over all aspects of the crypto market.
Gensler also highlighted two key components of the recent meme-stock revolution – gamification of trading and pay-for-order-flow business models. On PFOF, Gensler argued that an inherent conflict of interest could exist between this method of generating revenue and a broker’s responsibility to provide best execution, as well as the cheap-trading structure that has underpinned activist retail investing. “It’s not free trading,” he said bluntly, noting that someone is paying for the trader’s data and order flow.
Market movement: Shares of Virtu Financial (VIRT) slumped 7.7% after Gensler’s comments at the Piper Sandler Global Exchange and FinTech Conference. Virtu processes between 25% and 30% of retail trader order flow in the U.S., and its stock has soared during the waves of meme mania. Citadel Securities is the only wholesaler with a bigger market share, but it is not publicly traded.
What else is happening…
Facebook (NASDAQ:FB) plans two-camera smartwatch for next summer.
JBS (OTCQX:JBSAY) paid $11M in Bitcoin to resolve ransomware attack.
Moderna (NASDAQ:MRNA) talking with U.S. on vaccine doses for the world.
Will the ECB maintain a higher pace of emergency asset purchases?
Tune in… Tesla (TSLA) hosts Model S Plaid delivery event.
Billionaire space race: Richard Branson looks to top Jeff Bezos.
AMC (NYSE:AMC) reports 4.1M retail investors ahead of company meeting.
Interactive Brokers (NASDAQ:IBKR) plans to start crypto trading in coming months.
El Salvador first country to make Bitcoin (BTC-USD) legal tender.
Mega sales increase projected by World Semiconductor Trade Statistics.
Wednesday’s Key Earnings
Brown-Forman (NYSE:BF.B) -5.7% despite premium U.S. bourbon sales.
RH (NYSE:RH) +6.3% AH after earnings smasher, strong outlook.
Today’s Economic Calendar
8:30 Initial Jobless Claims
8:30 Consumer Price Index
10:00 Quarterly Services Report
10:30 EIA Natural Gas Inventory
1:00 PM Results of $19B, 30-Year Note Auction
4:30 PM Money Supply
4:30 PM Fed Balance Sheet
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Good morning. Happy Wednesday.
The Asian/Pacific markets were mixed. China, Indonesia, Thailand and the Philippines closed down; Japan, South Korea, India, Taiwan, Malaysia and Singapore closed up. Europe, Africa and the Middle East are currently mixed. Denmark, Russia, Switzerland and Saudi Arabia are up; the UK, Poland, Germany, Hungary and Austria are up. Futures in the States point towards a positive open for the cash market.
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VIDEO: Day Trading with MACD and Stochastic
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The dollar is down. Oil is up; copper is down. Gold is and silver is up. Bonds are up. Bitcoin is up.
Stories/News from Seeking Alpha…
Countering China
It could be one of the last major bipartisan bills of 2021, but the Senate got it over the line. Late Tuesday, the chamber approved the U.S. Innovation and Competition Act, a $250B package aimed at challenging China’s technological ambitions. While the bill passed 68-32 in the Senate, it still needs approval in the House, which has been weighing some different approaches but is likely to see wide support. The measure is one of the biggest government interventions in industrial policy in decades, which trounced traditional party differences over economic policy.
What’s in the bill? About $190B would be directed at U.S. technology and research to better compete globally, including money for cutting-edge science and artificial intelligence via the National Science Foundation. Another $54B would increase U.S. production and research into semiconductors and telecom equipment, as well as design and manufacturing initiatives. The Commerce Department will also get $10B in funding to designate regional technology hubs for R&D and will be able to match financial incentives offered by states and local governments to chipmakers who expand or construct new factories.
According to some estimates, federal R&D spending in recent years has totaled less than 1% of U.S. GDP, as well as less than 3% of total government spending, the lowest level since the space race in the 1960s. With regards to semiconductor manufacturing, it’s been even worse. The Semiconductor Industry Association says the U.S. share of global chip-making capacity has tumbled from 37% in 1990 to 12% at the present. “We are in a competition to win the 21st century and the starting gun has gone off. We cannot risk falling behind,” President Biden declared, while Commerce Secretary Gina Raimondo said the funding could result in seven to 10 new U.S. semiconductor plants.
Response from China: While Beijing has long-embraced a top-down approach to investing in favored sectors, it expressed “strong indignation and resolute opposition” to the U.S. bill, which showed “paranoid delusion of wanting to be the only winner.” The measure also banned downloads of Chinese-owned TikTok (BDNCE) on all government devices (not only military and Homeland Security phones) and will block purchases of drones manufactured and sold by companies backed by the Chinese government. It further expanded mandatory sanctions on Chinese entities engaged in American cyberattacks or the theft of intellectual property, while reviewing export controls on items that could be used to support human rights abuses.
Meme mania
Major averages closed near the flatline on Tuesday as stocks remained range bound near record highs. Not much changed overnight, with Dow and S&P 500 futures holding steady and contracts linked to the Nasdaq inching up 0.1%. As mentioned yesterday, some traders are staying on the sidelines before the latest inflation figures on Thursday, to gauge whether higher price pressures are temporary as the economy rebounds from the coronavirus pandemic.
Others have plunged headfirst into the wild world of meme trading. Clover Health (NASDAQ:CLOV) has become the latest target of the WSB/Reddit Army, whose sentiment is rapidly expanding to those looking for some outsized gains. The stock skyrocketed 96% to $22 on Tuesday and is up another 18% in premarket trade. Those looking for some quick cash also jumped into Wendy’s (NASDAQ:WEN), which rose another 5% overnight following yesterday’s 25% advance. The latter move was notable as Wendy’s has relatively low short interest (no squeezes) and is an institutional favorite compared to AMC (NYSE:AMC), BlackBerry (NYSE:BB) and GameStop (NYSE:GME).
Quote: “It’s different than 1999. It’s different in 2008. The number of players today and the amount of capital today is massive compared to what we saw back when it was mostly professionals,” said online brokerage pioneer and options legend Tom Sosnoff. “What you’re seeing is an entire generation become engaged. So instead of waiting until they’re 50 or 60 and trying to figure out what the markets are all about, they’re doing it when they’re 22 or 23. This is a generational move.”
Other happenings: President Biden is looking for a new coalition for his infrastructure bill as talks with key Republican senators collapsed. He’ll also depart today on his first trip abroad since taking office. The eight-day mission will seek to strengthen trans-Atlantic ties, including a G7 summit and a NATO gathering, as well as visits with Queen Elizabeth and Russia’s Vladimir Putin.
Internet outage
Thousands of websites, including Seeking Alpha, went dark for nearly an hour on Tuesday morning, beginning at around 6 a.m. ET. The issue stemmed from a configuration problem at Fastly (NYSE:FSLY), a content delivery network operator that speeds uploading or streaming times for webpages. Content is basically stored across a large number of servers that are located closer to end users, cutting the time it takes for data to reach them via cloud networks.
What happened? “On May 12, we began a software deployment that introduced a bug that could be triggered by a specific customer configuration under specific circumstances,” Fastly said in a statement. “Early June 8, a customer pushed a valid configuration change that included the specific circumstances that triggered the bug, which caused 85% of our network to return errors. We detected the disruption within one minute, then identified and isolated the cause, and disabled the configuration. Within 49 minutes, 95% of our network was operating as normal.”
Investors were impressed with Fastly’s turnaround time to address the problem, sending shares of the company up 11% to $56 on Tuesday, following earlier losses after the outage. “We have been – and will continue to – innovate and invest in fundamental changes to the safety of our underlying platforms,” added Nick Rockwell, Senior Vice President of Engineering and Infrastructure. Fastly went public back in 2019, and while the company is still loss-making, revenue has increased at a rapid pace, climbing to $291M in 2020.
Outlook: Numerous companies play a pivotal role across the worldwide Internet infrastructure landscape. There are many layers to the plumbing, ranging from switching – which sends and receives packets of information from destinations all over the world – to software controls at the top of the system. Any one failure in the network can affect millions of people, which has become an area of increasing concern following the recent cyberattacks seen at JBS (OTCQX:JBSAY) and the Colonial Pipeline.
Marqeta debut
Cue the latest fintech to hit the public markets. Marqeta, the technology platform for card issuers, is slated to begin trading this morning on the Nasdaq under ticker symbol “MQ.” Two other payments-related companies – Flywire (NASDAQ:FLYW) and Paymentus (NYSE:PAY) – soared in their IPOs last week, while some other fintech listings are coming up like commission-free brokerage Robinhood (RBNHD).
What does Marqeta do? Most of its business comes from interchange fees – the cost a merchant pays whenever a customer uses a card to make a purchase – as well as offering APIs that let companies build out virtual and physical card programs. Marqeta mostly targets high-growth tech companies as its clients, like Square (NYSE:SQ), Affirm (NASDAQ:AFRM), Uber (NYSE:UBER) and DoorDash (NYSE:DASH). That differentiates it from established players like Global Payments (NYSE:GPN) and Fiserv (NASDAQ:FISV), which cater to banks and traditional credit card companies, as well as emerging providers like Stripe (STRIP) and Adyen (OTCPK:ADYYF).
By the numbers: Marqeta priced shares at $27 late Tuesday, well above its original $20 to $24 range. With 45.5M Class A shares, that would raise $1.2B and value the company at more than $14B. A boost in processing volumes saw Marqeta bring in $290.3M in revenue during 2020, more than double its 2019 numbers, though the firm is still not profitable. Net losses have narrowed in recent years, but the company still lost $47.7M in 2020, compared to $58.2M in 2019.
Go deeper: Marqeta has gained remarkably from the accelerated shift to the digital economy brought on the coronavirus pandemic, with processing volumes reaching $60B in 2020, up from $21.7B in the prior year. The platform even processed $24B last quarter, though much of that business has come from Square, which made up 73% of its net revenue. While Marqeta’s agreements with Square’s Card and Cash App last until 2024, terms of the future relationship could change, and it could signal a need to diversify. Morningstar analyst Brett Horn sees risk in the customer concentration, but also anticipates opportunities like the “secular trend toward electronic payments, which would act as a tailwind to card payment volumes.”
Explainer: ETFs vs. Mutual Funds
Exchange traded funds and mutual funds are two different investment vehicles that share certain similarities as well as some fundamental differences. While they both have key parallels and disparities, the two have a pretty different outlook as investors look to the future.
Examining first the similarities between ETFs and mutual funds, investors will see that both pool money together into a collection of securities to diversify risk. Furthermore, they each have fund managers who oversee the portfolio to ensure investment objectives are being met. Both can also track a market index, and they have expense ratios where market participants pay a portion of their investment to the issuing fund company.
Regarding differences, there are six essential things to note: How they are transacted, pricing, investment minimums, commissions, tax considerations and what the future holds for both markets.
How are Mutual Funds & ETFs purchased? Mutual Funds are purchased directly from a fund company, while ETFs are bought and sold on a market exchange through a broker just as a stock is transacted.
How are both ETFs and Mutual Funds priced? ETFs fluctuate in price throughout the course of the trading day, just as a stock would. On the other hand, mutual funds are priced once a day at 4:00 PM EST, and the NAV determines the price.
What are the investment minimums for both types of funds? From an exchange traded fund standpoint, there typically is no minimum. The minimum amount would be the trading price of an ETF. Mutual funds can have ranging investment minimums anywhere from $1K-$5K.
How are trading commissions charged from transactions? Mutual fund companies tend to not charge a commission for transacting a mutual fund, while ETFs face commissions that the broker charges, typically a standard stock trade.
What are the tax considerations for both Mutual Funds and exchange traded funds? ETFs usually only face tax implications when an investor sells his or her shares, and mutual funds may face capital gains taxes if cash outflows exceed cash inflows for a mutual fund regardless of whether shares are sold.
What does the future hold for ETFs & Mutual Funds? According to Citigroup, the $21T mutual fund space can consist of predominantly exchange traded funds within the next ten years. Market participants continue to be enticed by ETFs with their tax advantages and notably lower fees. Per Bloomberg Intelligence data, since the end of December and into 2021, ETFs have attracted +$387B of investor money while mutual funds have only seen +$87B. The largest exchange traded fund from an asset under management standpoint is SPDR S&P 500 Trust ETF (NYSEARCA:SPY) with AUM of $367B, while the biggest mutual fund is the Vanguard 500 Index Fund Admiral Shares (VFIAX) with AUM of $739B.
What else is happening…
Ohio looks to have Google (NASDAQ:GOOGL) declared a public utility.
Chipotle (NYSE:CMG) lays out the math for the chain’s price hikes.
Digital Ally (NASDAQ:DGLY) gains on report of new DOJ body cam policy.
How the wealthiest Americans have avoided income tax – ProPublica.
Apple (NASDAQ:AAPL) in talks with CATL, BYD over EV battery supplies.
Lordstown Motors (NASDAQ:RIDE) slides after ‘going concern’ warning.
Robinhood (RBNHD) IPO slips to next month after targeting June.
Ford’s (NYSE:F) Maverick hybrid pickup starts at $19,995.
Boeing (NYSE:BA) hikes price tag for Air Force One contract – WSJ.
Today’s Economic Calendar
7:00 MBA Mortgage Applications
10:00 Wholesale Inventories (Preliminary)
10:30 EIA Petroleum Inventories
1:00 PM Results of $38B, 10-Year Note Auction
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Good morning. Happy Tuesday.
The Asian/Pacific markets were mixed and little changed. Malaysia and the Philippines were up; China and Indonesia closed down. Europe, Africa and the Middle East currently lean up. The UK, Denmark, Greece Switzerland and Sweden are up; Poland and Austria are down. Futures in the States point towards a positive open for the cash market.
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VIDEO: Day Trading with MACD and Stochastic
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The dollar is up slightly. Oil and copper are down. Gold is up; silver is down. Bonds are up. Bitcoin is down.
Stories/News from Seeking Alpha…
Memorable approval
The FDA cleared the first new treatment for Alzheimer’s in nearly two decades on Monday, sending shares of maker Biogen (BIIB) up 38% and adding $16.5B in market value. The company claims that Aduhelm, which has the molecular name aducanumab, slows down the memory-robbing disease by breaking up clumps of plaque formed on the brain called amyloid. The approval came just in time for Biogen, which is dealing with declining sales and the loss of patent protection for its top-selling drug, Tecfidera, which is used to treat multiple sclerosis.
Wall Street sees a blockbuster: Despite the drug’s questionable efficacy, Biogen said it would charge about $56,000 a year per patient (and wouldn’t hike prices for four years). Clinical trials also included people suffering from only mild to moderately severe Alzheimer’s, though the drug will be available to anyone that has been diagnosed with the disease. The global Alzheimer’s treatment market is meanwhile forecast to grow at a compound annual growth rate of 12.8% between 2020 and 2027, reaching more than $5.6B by 2027, according to Acumen Research and Consulting.
“We ultimately decided to use the Accelerated Approval pathway – a pathway intended to provide earlier access to potentially valuable therapies for patients with serious diseases where there is an unmet need, and where there is an expectation of clinical benefit despite some residual uncertainty regarding that benefit,” said Patricia Cavazzoni, Research Director for the FDA Center for Drug Evaluation.
Additional details: Unlike other Alzheimer’s drugs that come in pills, Aduhelm requires monthly infusions. Before prescribing the drug, doctors will first make sure their patient’s brain has amyloid buildup, which typically requires an imaging scan or spinal tap. Patients will also need to be monitored with MRIs, to guard against small brain bleeds, hemorrhages, or an accumulation of fluid. About 6M people are suffering from Alzheimer’s in the U.S., and as many as 1.4M could be eligible to take Aduhelm, per estimates from Cigna. (116 comments)
Memeing around
There wasn’t much movement from U.S. stock index futures overnight following a mixed session on Monday that saw heavy volumes once again migrate to meme stocks. Shares of AMC (AMC), BlackBerry (BB) and GameStop (GME) all popped by double-digits, and are edging up again in premarket trade. Meanwhile, the SEC is watching the ongoing volatility in the market for “disruptions, manipulative trading or other misconduct” and “vowed to protect retail investors.”
Other traders are staying on the sidelines before the latest inflation figures on Thursday. Economists expect the CPI to surge by another 4.7% Y/Y in May after rising by 4.2% on an annual basis in April. The latter figure marked the fastest expansion in the index since 2008, as analysts debate whether inflation will stick around and its related impacts on the economy.
The good: The current spike is being driven by “the unprecedented role of outliers,” wrote Jan Hatzius, chief economist at Goldman Sachs. “All this suggests that Fed officials can stick with their plan to exit only very gradually from the easy current policy stance.”
The bad: “In their March forecasts, the Fed projected that, despite clearly achieving all of their long-term economic goals by the end of 2023, they did not foresee any increase in the federal-funds rate before 2024,” said David Kelly, chief global strategist at J.P. Morgan Asset Management. “If, after reassessing their forecasts for the economy next week, the Fed maintains this extraordinarily dovish stance, then the risk of a boom-bust recession will have increased to a substantial degree.”
The ugly: “Never before have we seen such coordinated expansionary fiscal and monetary policy. This will continue as output moves above potential,” added David Folkerts-Landau, Deutsche Bank’s chief economist. “It may take a year longer until 2023 but inflation will re-emerge. And while it is admirable that this patience is due to the fact that the Fed’s priorities are shifting towards social goals, neglecting inflation leaves global economies sitting on a time bomb. The effects could be devastating, particularly for the most vulnerable in society.”
Share your Internet
Amazon’s (NASDAQ:AMZN) Sidewalk project goes live today without asking your permission. The “neighborhood network” pools local Internet connections from millions of Amazon Echo smart speakers and Ring devices to let smart devices have a wider range of operation. While users have not been asked to opt-in, they could still turn the capability off, though their devices won’t be able to access the network.
How much data will it use? “The maximum bandwidth of a Sidewalk Bridge to the Sidewalk server is 80Kbps, which is about 1/40th of the bandwidth used to stream a typical high definition video,” according to Amazon. “When you share your Bridge’s connection with Sidewalk, total monthly data used by Sidewalk, per account, is capped at 500MB, which is equivalent to streaming about 10 minutes of high definition video.”
How does it work? Signals from all of Amazon’s neighborhood devices join together to create what’s called a mesh network. The low-bandwidth wireless grid can stretch half a mile to connect hard-to-reach areas across urban and suburban America. Amazon isn’t charging for Sidewalk, though “standard data rates from Internet providers may apply.”
Outlook: Plenty of concerns abound, like helping Amazon build a network likened to Big Brother or the potential hacking into private connections. However, Amazon says Sidewalk is built with three layers of encryption to “secure data traveling on the system and keep customers safe and in control.” There are also many positive uses for the project. Besides extending the range of connected devices, Amazon Sidewalk is partnering with CareBand to track people with dementia, and is adding smart lock-maker Level and Bluetooth lost-item tracker Tile to the project.
Future of work
Many parts of the economy, like consumer-facing industries or trade-related fields, have returned to the workplace long ago. Other companies are re-establishing themselves in the wake of the coronavirus pandemic, which sped up a world that was in the midst of a digital revolution. Employers are weighing two important forces – the need for in-person creativity and connections, as well as the flexibility and efficiency in working from home – and that’s creating some interesting dynamics when it comes to the future of the office.
Stay at home: Despite mega real estate investments in recent years, including the 61-floor Salesforce Tower in San Francisco, CEO Marc Benioff feels that there’s no return to the pre-COVID days. “The past is gone,” he declared. “We’ve created a whole new world, a new digital future, and you can see it playing out today.” Salesforce (NYSE:CRM) expects 50% to 60% of employees will continue to work from home, up from around 20% before the pandemic, and even bet big on the new way to work by shelling out $27.7B for Slack Technologies (NYSE:WORK). As for all the unused office space, Benioff suggested it will be used for training facilities and cultural engagement centers.
Get back to the office: “I’m about to cancel all my Zoom meetings,” JPMorgan’s (NYSE:JPM) Jamie Dimon said last month. “And everyone is going to be happy with it, and yes, the commute, you know people don’t like commuting, but so what.” Citing business lost to rivals, the bank is setting a goal of having 50% of workers rotating through offices by July and believes its buildings will be full by the fall. Dimon isn’t the only one in financial services to castigate WFH culture. Goldman Sachs (NYSE:GS) CEO David Solomon recently called the arrangements an “aberration” that needs to be quickly corrected.
Hybrid model: Apple (NASDAQ:AAPL) has circulated a memo saying most employees will be asked to come into the office three days a week from early September, with the option of working from home on Wednesdays and Fridays. Staff will also be able to work remotely for up to two weeks a year, though managers will need to approve those requests. Last month, tech rival Alphabet (GOOG, GOOGL) notified employees of its hybrid work plans, with “60% of Googlers coming together in the office a few days a week, another 20% working in new office locations and the last 20% working from home.”
Need for speed
What if the military could deliver supplies and equipment across the world in under one hour via quick trips through space? What if that technology could eventually be leveraged to enable point-to-point commercial space travel anywhere on the globe? Those realities may be possible in the future, with the U.S. expanding a small development program that wants to use reusable rockets for a program called Rocket Cargo.
“The Department of the Air Force seeks to leverage the current multi-billion-dollar commercial investment to develop the largest rockets ever, and with full reusability to develop and test the capability to leverage a commercial rocket to deliver AF cargo anywhere on the Earth in less than one hour, with a 100-ton capacity,” according to the latest budget proposal from the Pentagon. “The Air Force is not investing in the commercial rocket development, but rather investing in the Science & Technology needed to interface the capability with DoD logistics needs, and extend the commercial capability to DoD-unique missions.”
Who would vie for the contract? SpaceX (SPACE) would be the likeliest candidate, but others that competed under NASA’s Commercial Lunar Payload Services program may also be looking for some business. Those include Blue Origin (BORGN), Firefly Aerospace, Lockheed Martin (NYSE:LMT), Masten Space Systems and Sierra Nevada Corporation. Nearly $50M was allocated to the Rocket Cargo concept, but it could be years and billions of more dollars until things finally take off. Example: The Commercial Crew program for NASA took almost a decade to come to fruition, and it’s currently only launching a handful of astronauts to the International Space Station.
Go deeper: Point-to-point space travel is something out of the science fiction theater, though it’s increasingly being looked upon as an emerging industry. The space tourism market, like the one being pursued by Virgin Galactic (NYSE:SPCE), could be a precursor that could bring costs down, though other challenges would need to be overcome. Flying over land masses presents problems, as well as the logistics, infrastructure and last-mile travel to proposed spaceports. Safety concerns would additionally need to be addressed and customers would need to feel that trips through space are routine as aviation transportation.
What else is happening…
WWDC: Apple (NASDAQ:AAPL) takes aim at Zoom (ZM) with FaceTime updates.
DOJ recovers half of Bitcoin paid for Colonial Pipeline ransomware attack.
Bezos to fly on first Blue Origin (BORGN) human test flight.
Tesla (NASDAQ:TSLA) veteran, head of heavy trucking, is leaving the company.
Google (NASDAQ:GOOG) settles French antitrust case over ad practices.
AWS (NASDAQ:AMZN) could count as separate company under G7 tax deal.
Options traders betting on $100 oil – WSJ.
Federal judge overturns California ban on assault weapons.
JNJ (NYSE:JNJ) faces steep decline in demand for COVID vaccine in the U.S.
Facebook (NASDAQ:FB) won’t take revenue cut from creators until 2023.
Mark Cuban-backed banking app Dave going public via SPAC.
Monday’s Key Earnings
Marvell Technology (MRVL) +4.6% AH on Q1 beats after closing Inphi acquisition.
Today’s Economic Calendar
6:00 NFIB Small Business Optimism Index
8:30 Goods and Services Trade
8:55 Redbook Chain Store Sales
10:00 Job Openings and Labor Turnover Survey
1:00 PM Results of $58B, 3-Year Note Auction
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Good morning. Happy Monday. Hope you had a good weekend.
The Asian/Pacific markets leaned down. India and Singapore did well; Hong Kong, New Zealand, Malaysia and the Philippines were weak. Europe, Africa and the Middle East currently lean up. Turkey, the UAE, Hungary, Spain, Italy and Austria are up. Futures in the States point towards a flat open for the cash market.
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VIDEO: Day Trading with MACD and Stochastic
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The dollar is down slightly. Oil and copper are down. Gold and silver are down. Bonds are down. Bitcoin is up.
Stories/News from Seeking Alpha…
Global tax deal
G7 nations reached an agreement on a global minimum tax over the weekend after years of discussions at the OECD. At a basic level, the framework would prevent companies from shifting profits to low tax jurisdictions and ensure the biggest multinationals pay more tax in the countries in which they operate. In return, the U.S wants European nations and others to drop their Digital Service Taxes that target American Big Tech companies, but many negotiations still await.
Bigger picture: In its current form, the deal would require that companies pay at least a 15% tax on income, regardless of where they are based, making it less advantageous to relocate operations to countries with lower tax rates. The rules would apply to multinationals that have a profit margin of at least 10%, while governments would share the right to tax 20% of profits above that threshold. For example, an online company that has no physical presence in a country, but has significant sales there via digital advertising, would be obligated to pay some taxes to the government of that nation.
The debate touches on the ongoing friction in international taxation: whether to tax companies based on the location of their income or the location of their headquarters. While administration officials like Treasury Secretary Janet Yellen said the new framework will halt a global “race to the bottom” on corporate taxes, others feel that it could be hard to enact and enforce on an international scale. The fine print is also in question, such as accounting rules, subsidies and exemptions for R&D and capital investment.
More hurdles: The new tax rules would have to apply globally, meaning the support from other large economies like China and India. Treasury chiefs are hoping for breakthroughs at the G20 and OECD by mid-year, as well as the backing of over a hundred countries that have been negotiating the new rules as part of the so-called Inclusive Framework. Some big obstacles also lie ahead, like in Ireland, which has a low tax rate to encourage foreign investment, and in China, which wants to retain control over its tax policy, but if the effort picks up speed it may be hard not to bow to the pressure.
Go Deeper: The new tax approach could run into opposition in the U.S., where Janet Yellen needs to sell the deal to Congress. The changes could require the U.S. Senate to alter existing tax treaties, which would take a two-thirds vote and at least some GOP support. Republicans have already expressed opposition to any rise in taxes, while some lawmakers have condemned the idea of ceding taxing authority to other governments. Business groups have also complained that higher taxes could threaten the economic recovery as American companies navigate their way out of the coronavirus pandemic.
#WWDC21
Going virtual again this year due to COVID-19, Apple (NASDAQ:AAPL) will kick off its annual Worldwide Developer Conference at 1 p.m. ET. The event is catered to software developers, so don’t expect any hardware announcements, though they are a possibility (new MacBook Pros or silicon chips?). WWDC will also be an opportunity for Apple to address its developer community following two contentious disagreements with app makers, including a legal battle with Epic Games over its App Store fees and a feud with Facebook (NASDAQ:FB) over its new privacy policies.
Cue the keynote: CEO Tim Cook and other executives will take the stage for a two-hour presentation. The introduction of iOS 15 will include scores of new updates and features, as well as iPadOS 15, watchOS 8, macOS 12, and tvOS 15. Another product of interest is iMessage, which might get a social media makeover to better compete with WhatsApp. On the privacy front, Apple will also reportedly unveil “a control panel that provides in-depth detail on what data are being collected by each third-party app installed on a user’s device” (echoes of Privacy Dashboard in Android 12?).
“We expect data privacy and security to be a main focus and theme of Cook’s keynote as Apple solidifies its privacy policy with the iOS 15 unveil,” Wedbush’s Dan Ives wrote ahead of the conference. The notable analyst also predicted that Apple’s highly rumored and anticipated products will arrive in the coming years. “We continue to believe next summer in 2022 Apple will unveil its long awaited Apple Glasses and will be a flagship new product introduction followed by the Apple Car (2024 target release date, expect more news/partnerships this summer on this front) with WWDC laying the groundwork for the software/services driven evolution in Cupertino.”
Price movement: Apple shares have been struggling since hitting a peak in late January, and they remain in correction territory. The stock is down 12% from the top seen on Jan. 26, while from a momentum point of view, it’s fighting its 200-day simple moving average. Morgan Stanley analyst Katy Huberty is also pulling out the history books, saying in a research note that WWDC hasn’t been a great catalyst for Apple over the past decade. In both the week and two weeks following the event, the stock on average has underperformed the S&P 500 by a little over a percentage point.
Higher rates a ‘good thing’?
Closing out the prior week near record highs, U.S. stock futures pulled back on Monday as it became more likely that the Fed could raise interest rates earlier than expected. Fresh off her return from the G7 finance minister meeting in London, Treasury Secretary Janet Yellen went on Bloomberg News with a message that Biden should push ahead with his infrastructure plans valued at $4T, even if that pushes inflation into 2022. While the Fed is “operationally independent” from the Treasury, their roles have been becoming more enmeshed since the coronavirus crisis (and even before), and the central bank would have to respond to any economic changes the heavy spending would bring. Dow -0.1%; S&P 500 -0.3%; Nasdaq -0.5%.
Quote: “If we ended up with a slightly higher interest rate environment it would actually be a plus for society’s point of view and the Fed’s point of view. We’ve been fighting inflation that’s too low and interest rates that are too low now for a decade. We want them to go back to a normal interest rate environment, and if this helps a little bit to alleviate things then that’s not a bad thing – that’s a good thing.”
“I will not give up on the next packages,” Yellen continued. “They’re not meant as stimulus, they’re meant as investments to address long-standing needs of our economy.” For his part, Jerome Powell – who took the reigns at the Fed from Yellen in 2018, has tried to assure investors that he wouldn’t waver on easy monetary policy anytime soon. He has also pledged to keep interest rates near zero through 2023 as the American economy comes out of the COVID-19 pandemic.
What else to watch: Friday’s jobs report showed 559K jobs were added in May, while the unemployment rate fell to 5.8% (from 6.1%). The non-farm payrolls figure – which missed expectations – appeared light enough to keep the Fed from acting, but strong enough to maintain investor confidence in the economy. Also keep an eye on memeland. Volatile plays like AMC (AMC), BlackBerry (BB) and GameStop (GME) are marginally higher this morning, but anything can play out in the regular session.
Bitcoin legal tender
El Salvador President Nayib Bukele made a surprise appearance during Jack Mallers’ talk at the Bitcoin 2021 Conference on Saturday, promising to send a bill to the legislature next week to make Bitcoin (BTC-USD) legal tender in his country. Bukele’s party’s control over the legislature makes passage nearly certain. The move would also make El Salvador the first sovereign nation on the planet to recognize Bitcoin as legal tender.
Bigger picture: Mallers is founder of the lightning payments network Strike that is working in partnership with El Salvador. Well more than 50% of the country’s citizens are unbanked, and remittances from overseas account for more than 20% of GDP. Legacy players charge 10% or more fees on those remittances, and several days can go by before the money becomes available. Those same remittances via Bitcoin would be instant and the fees would be microscopic.
Fine print: Mallers additionally took note of the most important part of Bukele’s proposed bill: “Central banks are increasingly taking actions that may cause harm to the economic stability of El Salvador… In order to mitigate the negative impact from central banks, it becomes necessary to authorize the circulation of a digital currency with a supply that cannot be controlled by any central bank.”
Seeking Alpha’s Stephen Alpher was in Miami this weekend to cover the conference. Check out more headlines from the event: Focusing on adoption, not the price and Bitcoin’s trillion-dollar issue: ESG takes the stage.
Vaccine policies
Ever since the coronavirus vaccine rollout, companies have been debating whether to require staff to get vaccinated against COVID-19 or incentivize workers to get the jab. States and cities are also targeting Americans who might be reluctant to get the vaccine with pot, beer and savings bonds. The Biden administration has even set a goal of having 70% of American adults receive at least one vaccine dose by July 4 as demand for the jabs slow across the nation.
The latest? United Airlines (NASDAQ:UAL) will require external candidates with job offers made after June 15 to confirm they have been fully vaccinated by their start date, following a similar move by Delta Air Lines (DAL).
“As we welcome new employees to the company, it’s important we instill in them United’s strong commitment to safety,” tweeted aviation specialist Brian Sumers, who uploaded a company memo. “Those who are unable to be vaccinated for medical or religious reasons will have access to a reasonable accommodation process to evaluate their circumstances.”
Outlook: While United is not requiring current employees to be vaccinated, it’s adding some policies that encourage it. Last month, the carrier reached an agreement with its pilots’ union that does not make the jab mandatory, but provides extra pay and vacation days to those who receive it. The deal also restricted unvaccinated pilots from working on trips to destinations that require them to get vaccinated.
What else is happening…
‘Just so good’… Tesla (NASDAQ:TSLA) cancels the Model S Plaid+.
Biden infrastructure plans imperiled by labor, material shortages.
Policygenius planning IPO sooner rather than later.
Biogen (NASDAQ:BIIB) surges before FDA decision on potential Alzheimer’s therapy.
U.S. to weigh COVID-19 shots for children after vaccine milestones.
Beige Book sees lending starting to revive as credit remains solid.
Overdraft fees likely to come under pressure – Jefferies.
Private equity consortium agrees to buy Medline for more than $30B.
Charts make the historical case for an S&P 500 summer rally.
Today’s Economic Calendar
12:30 PM Investor Movement Index
3:00 PM Consumer Credit
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