Good morning. Happy Friday.
The Asian/Pacific markets did well. China and Hong Kong rallied more than 1%; Japan, South Korea, India, Taiwan, Australia and the Philippines also did well. Europe, Africa and the Middle East are currently mixed and little changed. The UK, Poland, Finland and Norway are up; Turkey, the UAE and Greece are down. Futures in the States point towards a positive open for the cash market.
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VIDEO: State of the Market
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The dollar is down. Oil and copper are up. Gold and silver are up. Bonds are up. Bitcoin is down.
Stories/News from Seeking Alpha…
‘We have a deal’
Cyclical stocks like Caterpillar (CAT) and Vulcan Materials (VMC) took the lead in afternoon trading on Thursday after President Biden announced a bipartisan deal on infrastructure spending. “We have deal,” he told reporters outside the White House. “I clearly didn’t get all I wanted. They gave more than, I think, maybe they were inclined to give in the first place. But this reminds me of the days we used to get an awful lot done up in the United States Congress.”
Breakdown: The agreement features $579B of spending above expected federal levels and a total $973B of investment over five years – $1.2T if continued over eight years. By sector: Transportation ($312B); Other Infrastructure ($266B); Roads, bridges, major projects ($109B); Power infrastructure ($73B); Passenger and Freight Rail ($66B); Broadband infrastructure ($65B); Water infrastructure ($55B); Public transit ($49B); Resilience ($47B); Airports ($25B); Environmental remediation ($21B); Infrastructure Financing ($20B); Ports & Waterways ($16B); Safety ($11B); Electric buses / transit ($7.5B); EV infrastructure ($7.5B); Western Water Storage ($5B); Reconnecting communities ($1B).
The plan wouldn’t raise taxes on middle-income Americans, nor reverse the business tax cuts passed during the Trump administration. Funding would be secured by repurposing existing federal funds, public-private partnerships and revenue collected from enhanced enforcement at the IRS. Other revenue raisers include sales from the strategic petroleum reserve and wireless-spectrum auction sales.
Passage is by no means assured: The bill excludes spending on education, health care and poverty issues, which Democrats will try to push through in a separate budget maneuver later this summer. Passing two complex measures through different procedures at the same time will present a difficult challenge and the current bill was only reached between moderate senators from each party. Biden has also repeatedly stated he won’t sign any physical infrastructure legislation without a human infrastructure bill like the American Families Plan. Don’t forget threats of tight supplies for some materials, and the companies that pave roads and build bridges appear to have made few plans to meet those needs.
Key inflation report
Dow futures retained their edge overnight as President Biden announced an agreement on a bipartisan infrastructure plan. Contracts linked to the index climbed 0.3%, though the other averages weren’t far behind, with the S&P 500 inching up 0.1% and Nasdaq ahead by 0.2%. The upward movement is a stark change from last week’s FOMC induced selloff, with all three indexes heading into today’s session up 2.4% for the week.
Stressed out? Not really. Bank shares are on the march higher after the Fed announced that the biggest U.S. lenders could easily withstand a severe recession. According to the Dodd-Frank Act Stress Test results, the 23 financial institutions that participated “would experience substantial losses under the severely adverse scenario but would remain well above their minimum risk-based requirements and could continue lending to businesses and households.” That means big payouts like dividends and stock buybacks could be on their way, with announcements coming as soon as Monday.
Investors this morning will also be watching the latest figures on personal consumption expenditures. The number is the Fed’s preferred measurement for inflation as it captures changes in consumer behavior and has a broader scope than the consumer price index. The Y/Y number for May will also be the last reading that will factor in the base-effects from the depth of the pandemic, so pay more attention to the monthly figure. It’s expected to slow to 0.6% in May, from 0.7% in April, excluding food and energy prices.
Go deeper: COVID concerns are lingering in the background due to the spread of the highly contagious Delta variant. “Six hundred thousand-plus Americans have died, and with this Delta variant you know there’s going to be others as well. You know it’s going to happen. We’ve got to get young people vaccinated,” Biden said during a trip to North Carolina. “The data couldn’t be clearer: If you’re vaccinated, you’re safe. You are still at risk of getting seriously ill or dying if you in fact have not been vaccinated, that’s just the fact.”
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Tax edge
Only weeks after ProPublica leaked the tax returns of the wealthiest Americans, the nonprofit news organization is out with a fresh breakdown on how PayPal (NASDAQ:PYPL) co-founder Peter Thiel “turned a retirement account for the middle class into a $5B tax-free piggy bank.” Theil has been a vocal opponent of higher taxes, as well as a major funder of the Club for Growth Action Fund, a heavyweight anti-tax political action committee. According to the publication, he apparently took his opposition one step further, using a Roth IRA account to accumulate a massive amount of wealth.
Backdrop: After Congress created Roth IRAs in 1997, the Clinton administration blocked higher-income folks (singles earning more than $110,000) from opening the funds and capped contributions at $2,000 a year. Theil, who was just starting out at the time, was seemingly eligible to contribute under that amount. Annual contributions to Roth IRAs are now capped at $6,000 (or $7,000 for those who are 50 or older), but there are still many ways to make these accounts grow larger.
Thiel bought 1.7M shares of PayPal in 1999 for $0.001 per share, or $1,700. Within a year, the value of his Roth jumped to $3.8M, and turned into over $30M when eBay (EBAY) bought out PayPal for $19 a share in 2002. Since then he has made highly successful investments in Facebook (FB), Yelp (YELP) and Palantir (PLTR), and by 2019, his Roth held $5B “spread across 96 sub-accounts.” The gains from all those sales are tax-free and Thiel could pull out the money in six years when he turns 59½. High-income taxpayers can also use Roth conversions, otherwise known as a “backdoor Roth,” where money is moved from a traditional IRA to a Roth after paying a one-time income tax on the transferred assets.
Need of reform? Some are skeptical about the Biden administration’s new goals of funding infrastructure plans and other initiatives via taxing the rich. More often than not, it is the ultra-wealthy who could afford the lawyers or the elaborate schemes in order to avoid paying taxes. The report from ProPublica in early June showed that the 25 richest Americans, including Warren Buffett, Jeff Bezos and Elon Musk, paid a true tax rate of only 3.4% between 2014 and 2018 (compared to the 14% in federal taxes paid by the median American household). “Billionaires are going to have to pay their fair share, every year,” said Senator Ron Wyden (D-OR), who chairs the tax-writing finance committee.
Something buzzing
Confirming reports from earlier in the week, BuzzFeed has inked a deal to become a publicly listed company by combining with SPAC 890 Fifth Avenue Partners (ENFA). That includes a plan to acquire youth-focused media company Complex Networks, taking BuzzFeed’s implied valuation to $1.5B. After an expected deal closing in the fourth quarter, BuzzFeed is seeking to trade on the Nasdaq under ticker symbol “BZFD.”
Many are watching: Digital media companies Bustle, Group Nine, Vice, Vox Media have all recently discussed going public via SPAC, and will be watching how Buzzfeed’s deal plays out to gauge investor appetite. Many of the firms feel they can grow in a post-pandemic world as advertisers shell out the big bucks on digital properties and less on traditional media like television. Jonah Peretti, co-founder and CEO of BuzzFeed, wants the company to be a “consolidator in the media space” and a SPAC IPO would provide the vehicle to achieve that goal.
Total unique visitors and time spent among millennials and Gen Z are said to trounce the competition, according to Buzzfeed’s investor presentation. The company generated $166M selling its own content and $196M on advertising in 2020, as well as starting an e-commerce business. Commenting on a slide in valuation from 2016, when BuzzFeed had fetched a potential valuation of $1.7B, Peretti suggested that the previous market estimate may have been “influenced by the perceptions of the time.”
Quote: “We looked at many different media businesses but none had the kind of brands, digital assets or business model that BuzzFeed does and which we believe can achieve the kind of meaningful growth and returns for our investors,” said Adam Rothstein of 890 Fifth Avenue Partners. “Jonah Peretti and team have built an incredible business. They are resilient, smart, and innovative which will be important as we move ahead.”
Lego goes green
Privately-owned Lego plans to begin selling bricks made from recycled plastic bottles after finding a suitable alternative to acrylonitrile butadiene styrene – a virgin plastic made from crude oil. The company expects to bring the prototype 2×2 and 2×4 bricks to market in 18 to 24 months, but will continue to test the material for different colors and brick types. Under the new system, a one-liter plastic bottle would yield an average of ten standard Lego bricks.
Backdrop: Almost 150 engineers and scientists have been testing different plant-based and recycled materials over the past six years. Since 2018, the Danish company has made pieces like plants and trees from bio-polyethylene that comes from sugarcane, but suitable substances for harder bricks have been more challenging. Last year, Lego said it would invest $400M over three years to research and develop sustainable materials, aiming to replace its current plastic bricks by the end of the decade.
“We are super excited about this breakthrough,” said Tim Brooks, Lego’s vice president of environmental responsibility. “We want our products to have a positive impact on the planet, not just with the play they inspire, but also with the materials we use.”
Footprint: Lego makes between 110B-120B plastic pieces per year using around 100K tons of plastic in its products. Its new patent would use safely-sourced bottles in the U.S. and Europe, while adding an additive to strengthen the bricks and increases their durability. The movement is spreading… Rival toy maker Mattel (NASDAQ:MAT), best known for its Barbie dolls, has already announced plans to manufacture its toys from recycled, recyclable or bio-mass plastics from 2030.
What else is happening…
First Solar (NASDAQ:FSLR) takes off after Chinese solar product ban.
Tesla (NASDAQ:TSLA) set to open Supercharger network to other automakers.
SpaceX won’t spin off Starlink (STRLK) for “at least a few years.”
Ride-hailing firm Didi (DIDI) plans to raise about $4B in IPO.
Google (NASDAQ:GOOGL) delays cookie removal to late 2023.
Twilio (NYSE:TWLO), Asana (NYSE:ASAN) first to dual list on Long-Term Stock Exchange.
Microsoft (NASDAQ:MSFT) finally unveils Windows 11 operating system.
Pfizer (NYSE:PFE) halts anti-smoking drug after finding carcinogen.
Hershey (NYSE:HSY) could be a takeover target of Berkshire Hathaway.
FTC Chair Khan said to appoint new antitrust chief.
Shareholders oust Toshiba (OTCPK:TOSBF) board chairman over alleged collusion.
Today’s Economic Calendar
8:30 Personal Income and Outlays
10:00 Consumer Sentiment
11:35 Fed’s Mester Speech
1:00 PM Fed’s Rosengren “Financial Stability”
1:00 PM Baker-Hughes Rig Count
3:00 PM Fed’s Williams Speech
Thursday’s Key Earnings
BlackBerry (NYSE:BB) -3.5% AH as revenues fell by double digits.
Darden Restaurants (NYSE:DRI) +3.3% as strong traffic overshadowed inflation.
FedEx (NYSE:FDX) -4.4% AH guiding for capex of $7.2B.
Nike (NYSE:NKE) +14% AH deflating China concerns with earnings smasher.
Rite Aid (NYSE:RAD) -14.5% on weaker-than-expected revenues.
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Good morning. Happy Thursday.
The Asian/Pacific markets leaned slightly down. India was up; Malaysia, Indonesia, Thailand and the Philippines were down. Europe, Africa and the Middle East are currently doing well. Poland, France, Turkey, Germany, Finland, Spain, the Netherlands, Italy Portugal, Austria and Sweden are leading. Futures in the States point towards a moderate gap up open for the cash market.
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VIDEO: State of the Market
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The dollar is down. Oil and copper are down. Gold and silver are up. Bonds are mixed. Bitcoin is up.
Stories/News from Seeking Alpha…
No more pandemic stress
Big banks could be on the verge of delivering tens or even hundreds of billions of dollars to investors following results from the Fed’s stress tests today. In March, the central bank said it will end the temporary restrictions on returning capital after June 30, assuming the institutions pass the CCAR round of tests. Plans for stock buybacks or dividends are likely to be announced on Monday after the banks tinker with their proposals following the regulatory results.
Bigger picture: Massive support from the Fed last year helped U.S. lenders fare far better than feared at the start of the coronavirus pandemic. The sector also amassed its biggest loan loss reserves since the financial crisis in 2008 as most of those losses didn’t pan out. Meanwhile, the capital cushions kept growing larger as banks were forced to suspend buybacks and freeze dividends.
In a report titled Save Your (CCAR) Fears for Another Day, Evercore ISI analysts led by Glenn Schorr expect trust banks to have the highest payouts, followed by universal banks, regionals & brokers, and cards/consumers. Leading their respective subsectors: Bank of New York Mellon (BK) (127%), Bank of America (BAC) (138%), Wells Fargo (WFC) (167%), Goldman Sachs (GS) (112%), and Discover Financial (DFS) (100%). Evercore sees total payout ratios rising across all subsectors with the group average at ~2x that of last year to 109%.
Go deeper: The supplementary leverage ratio may also constrain some banks like JPMorgan Chase (JPM) and Morgan Stanley (MS), points out Wolfe Research’s Steven Chubak. Even with the SLR constraint, Morgan Stanley, as well as Goldman Sachs and BofA screen best for capital return capacity. Jefferies’ Ken Usdin and other analysts additionally calculated banks’ share repurchase capacity. By total amount, JPMorgan comes out on top with $7.5B, and by percentage of market cap, Santander Consumer USA’s (SC) $347M buyback capacity amounts to 2.9% of its valuation.
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Some rotation?
While the S&P 500 snapped a two-day winning streak on Wednesday, momentum continued overnight, with futures tied to the benchmark index – as well as the Dow and Nasdaq – climbing 0.5%. It comes ahead of the latest round of jobless claims that will likely show a drop in new unemployment filings (+380K) following last week’s unexpected rise (+412K). We’ll also get the latest round of bank stress tests after the bell, as well as earnings from Nike (NKE), FedEx (FDX) and BlackBerry (BB).
How long is transitory? On Wednesday, Atlanta Fed President Raphael Bostic and Fed Governor Michelle Bowman both said that while they believed price pressures would be temporary, they now think inflation could remain higher for longer than previously anticipated. The forecast even prompted Bostic to pull forward his projection of an interest rate hike to 2022. “Temporary is going to be a little longer than we expected initially… Rather than it being two to three months it may be six to nine months,” he said in an interview on NPR’s Morning Edition.
Meanwhile, Treasury Secretary Janet Yellen asked a Senate Appropriations subcommittee to approve billions in funding earmarked for her department to support components of the $1.9T American Rescue Plan passed in March. “In order for relief dollars to effectively reach their intended targets, we have to stand up and manage new federal programs,” she told lawmakers. “Our challenge is that while our portfolio has grown to match the urgency of this moment, our annual budget has not grown in tandem, and the funding provided to administer new programs is temporary.”
Go deeper: Tech shares have also outperformed this week, with traders dipping back into the growth sector, which has underperformed YTD. While some rotation is taking place, a number of strategists are cautioning not to abandon the value trade. “They [value stocks] had a big run this year, but they’ve trailed for about 14 years, so we’ve had a long underperformance cycle,” declared Keith Lerner of Truist Advisory Services. “And the second part is, why did they underperform for so long is because we had really slow economic growth. This year and next we expect above-trend economic growth, and the earnings momentum and the earnings leverage for these areas is still positive.”
Splashy debut
Resorts World Las Vegas unlocks its doors today in what will be the biggest casino property opening on the Strip in more than a decade. The $4.3B Resorts World Las Vegas property, the most expensive property ever developed in Sin City, features 3.5K hotel rooms. It also has a large theater where Celine Dion and Katy Perry will be in residency later this year, while the timing of the opening is advantageous given the huge traffic expected on the Strip during the 4th of July weekend.
Where is it? The casino-resort is located on the north end of the Las Vegas Strip just past and on the opposite side of the street from Wynn Resorts’ Encore and Wynn Las Vegas properties.
Hilton Worldwide Holdings (HLT) partnered with Resorts World owner Genting Group (OTCPK:GEBHF) and will operate three hotels on the Resorts World property. The Malaysia-based casino operator said reservations for Resorts World are ahead of schedule and pointed to strong convention bookings for Q4. Another stated goal is for a return of Asian tourists in time for the Chinese New Year in the early part of 2022.
Sector watch: Caesars Entertainment (CZR), MGM Resorts (MGM), Boyd Gaming (BYD), Wynn Resorts (WYNN), Las Vegas Sands (LVS), Full House Resorts (FLL) and Red Rock Resorts (RRR).
McAfee found dead
Antivirus software pioneer John McAfee was found dead in his jail cell near Barcelona, Spain on Wednesday, just hours after a Spanish court approved his extradition to the U.S. on tax evasion charges. “A judicial delegation has arrived to investigate the causes of death,” according to a statement. “Everything points to death by suicide.” McAfee’s lawyer, Javier Villalba, said the 75-year-old tech mogul died by hanging as his nine months in prison brought him to despair.
Backdrop: McAfee was arrested last October at Barcelona’s international airport and had been in jail since then awaiting the outcome of extradition proceedings. The arrest followed charges the same month in Tennessee for evading taxes after failing to report income from promoting crypto and consulting services (the criminal charges carried a prison sentence of up to 30 years). In 2012, he was also sought for questioning in connection with the murder of his neighbor in Belize, but was never charged with a crime.
Getting conspiratorial… “I am content in here. I have friends. The food is good. All is well. Know that if I hang myself, a la Epstein, it will be no fault of mine,” McAfee tweeted in October 2020. His Instagram account also posted a picture of a black letter “Q” minutes after his death in jail was reported.
McAfee history: While John became a controversial character over the years, he founded the company that still bears his name in 1987, but sold off his stake in the 1990s. Intel (INTC) scooped up the business for $7.7B in 2011 and later sold a majority stake in it to private equity firm TPG. The McAfee (MCFE) company went public again last October, with shares climbing over 50% to $28 since the IPO.
Latest unionization push
While efforts to organize Amazon (NASDAQ:AMZN) warehouse workers in the U.S. have failed repeatedly, the Teamsters are now going after the retail giant. The group is one of the largest labor unions in America – representing 1.4M workers in trucking, warehousing and other logistics industries – and wants to create and fund a dedicated Amazon division to support workers and demand better working conditions. During a virtual convention on Thursday, representatives from about 500 local Teamsters unions will vote on whether to adopt the “Special Resolution; Building Worker Power at Amazon.”
Bigger picture: In 2020, the Teamsters appointed a National Director for Amazon called Randy Korgan, who refers to the retail behemoth as “enemy No. 1.” In a recent op-ed, he writes: “Amazon claims to be innovative, but its strategies of market dominance and labor exploitation are as old as capitalism itself, and were perfected by predecessors like Standard Oil, General Motors, US Steel, AT&T, Walmart and Microsoft. The Teamsters will make sure that Amazon cannot repeat a history where workers suffered acutely to make ends meet and were frequently injured or even killed on the job while company executives stuffed their pockets with the profits.”
The current Teamsters resolution would push for collective action and petitions to get Amazon to the table over working conditions and other demands. It specifically references “shop floor strikes, city-wide strikes and actions in the streets,” but does not contain specifics about when the campaign would start, or how much the union would spend in the fight against Amazon. The vote comes as Amazon continues a hiring spree (it added 400K jobs in 2020) and as the company logged billions of dollars in Prime Day sales.
Outlook: Amazon has long been a target of major labor unions, including the United Food & Commercial Workers Union and the RWDSU, but it has emerged successful in many battles since its founding in 1994. While labor unions have organized some of Amazon’s workforce in Europe, no American facility has successfully formed or joined a union. Back in April, the company fought off a major unionization effort in Bessemer, Alabama, with fewer than 30% of the facility’s votes tallied in favor of joining the Retail, Wholesale and Department Store Union.
What else is happening…
Fannie (OTCQB:FNMA), Freddie (OTCQB:FMCC) plunge after Supreme Court ruling.
CDC sees ‘likely association’ of heart inflammation and COVID-19 vaccines.
ViacomCBS (NASDAQ:VIAC), ROKU soar as Comcast (NASDAQ:CMCSA) weighs next deal.
U.S. to block some solar products from Xinjiang – Bloomberg.
Visa (NYSE:V) buys fintech Tink for $2.1B after Plaid deal crumbles.
Dunkin’ (NASDAQ:DNKN) pulls Beyond Sausage (NASDAQ:BYND) sandwich from menu.
Epic fight… Apple (NASDAQ:AAPL) says App Store helps protect customers.
BuzzFeed nears merger deal to go public via SPAC.
Data-streaming firm Confluent (CFLT) prices IPO above range.
EV sector tracks higher after recent selling pressure.
Boeing (NYSE:BA) faces cloudy view to gain 737 MAX approval in China.
Today’s Economic Calendar
8:30 Durable Goods
8:30 GDP Q1
8:30 International trade in goods
8:30 Initial Jobless Claims
8:30 Corporate profits
8:30 Retail Inventories (Advance)
8:30 Wholesale Inventories (Advance)
10:30 EIA Natural Gas Inventory
11:00 Kansas City Fed Mfg Survey
11:00 Fed’s Williams Speech
1:00 PM Fed’s Kaplan Speech
1:00 PM Fed’s Bullard: U.S. Monetary and Economic Policy
1:00 PM Results of $62B, 7-Year Note Auction
4:30 PM Fed Balance Sheet
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Good morning. Happy Wednesday.
The Asian/Pacific markets were mixed. China, Hong Kong, South Korea, New Zealand, Taiwan and the Philippines did well; Japan, India, Australia, Malaysia and Indonesia were weak. Europe, Africa and the Middle East currently lean to the upside. The UK, Russia, Greece, Norway, Hungary and Sweden are up; France and Germany are down. Futures in the States point towards a slight up open for the cash market.
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VIDEO: State of the Market
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The dollar is down. Oil and copper are up. Gold and silver are up. Bonds are unchanged. Bitcoin is up.
Stories/News from Seeking Alpha…
Tales from the Crypto
Crypto shakeout or is the HODLer dam breaking? A more than 50% plunge in the price of Bitcoin (BTC-USD) since mid-April is having some in the cryptosphere panicking, while steadfast believers say the contraction is shaking out the “paper hands.” The debate follows Bitcoin’s wild ride on Tuesday, which began with a heavy drop below the $30,000 support level, before bouncing back in afternoon trade. At the time of writing, Bitcoin is still strongly in the green, up 8.3% overnight to $33,907.
The bulls: “Bitcoin is in a very rough patch now, and the technical picture in the current term doesn’t look great, but we also have to keep in mind that Bitcoin makes most of its gains over 10 days in a single year,” said Tom Lee, Head of Research at Fundstrat Global Advisors. “The idea that it’s below $30K now, doesn’t rule out the ability for this to create some really big gains before the year-end and potentially touch $100K or higher.”
The bears: “Any meaningful break below $30K is going to make a lot of momentum players to throw in the towel,” said Matt Maley, chief market strategist for Miller Tabak + Co. “Therefore, even if Bitcoin is going to change the world over the long-term, it does not mean it cannot fall back into the teens over the short-term.”
Somewhere in between: “Bitcoin is not a payment system, and it is not a currency. In the best situation, it is a financial asset, and in the worst case, it is a pyramid scam,” Bank of Israel Deputy Governor Andrew Abir said in a recent speech.
Volatility could continue for quite some time… “Globally we are seeing a much more forceful crackdown on crypto by governments,” wrote analysts at QCP Capital, a Singapore-based crypto trading firm. “China is now leading the charge, and this directive coming all the way from the top means it will continue reverberating throughout the lower levels for a few more weeks to come.”
Dovish tone
The latest comments from Fed Chair Jerome Powell are continuing to reassure markets after the major averages closed higher on Tuesday and the Nasdaq scored a fresh record. The gains held overnight, with U.S. stock index futures marginally higher and the yield on the 10-year Treasury note unchanged at 1.47%. Not only did the Fed Chair soothe investors who were worried about price pressures, but he said that fear of inflation alone would not be enough to prompt interest rate increases.
Transitory: “What we’re seeing now, we believe, is inflation in particular categories of goods and services that are being directly affected by this unique historical event that none of us have ever lived through before,” he told the House Select Subcommittee on the Coronavirus Crisis. Inflation is being caused by “extremely strong demand for labor, goods and services,” compounded by a “supply side caught a little bit flat-footed,” though it’s “very, very unlikely” the U.S. will see 1970s-style inflation.
Room for caution? “This is a precarious time – stocks have gone a relatively long period without any major sell-off, and there is heightened sensitivity to every utterance from the Fed as it attempts to transition to the start of normalization,” Invesco chief global market strategist Kristina Hooper wrote in a research note.
On the calendar today: PMI surveys of U.S. manufacturing and service firms are due to be released at 9:45 a.m. ET, while data on sales of new homes comes out at 10 a.m. Advisors to the CDC are also set to meet today and tomorrow to discuss a link between rare cases of heart inflammation and the mRNA coronavirus vaccines from Pfizer and Moderna. More than half of the 800 cases of myocarditis and pericarditis occurred in people younger than 30, including about 75 teens.
$2T club
Microsoft (NASDAQ:MSFT) joined Apple (AAPL) in the exclusive $2T market cap club on Tuesday – before pulling back – as investors bet on long-term growth for both earnings and revenue. The two are the only American companies to have ever reached such a valuation, though the other Big Tech names are close behind, including Amazon’s (AMZN) market cap of $1.8T and Alphabet’s (GOOG, GOOGL) $1.7T.
Putting it in perspective: While it took Microsoft three decades from its IPO to reach its first $1T in value in 2019, the next trillion only took two years.
The coronavirus pandemic helped boost MSFT shares during the stay-at-home trade of 2020. Heavy demand was seen for Microsoft’s computer enterprise software (Windows), gaming systems (Xbox) and its cloud computing platform (Azure). Microsoft is also one of the only Big Tech giants to have so far avoided the latest wave of antitrust scrutiny from American regulators (maybe it already had its turn in 2001?). That gives it more liberty to expand its products, and flexibility regarding investments and acquisitions.
Analyst commentary: “Microsoft checks all the boxes: it is in the markets that investors favor, it offers strong and sustainable growth, and it remains very well positioned to capitalize on the long-term secular trends we see in technology,” said Logan Purk of financial advisory Edward Jones. A $2T valuation “is warranted, given how it has pivoted toward the cloud, and it remains attractively valued even given the strong performance.”
Delta is spreading
“Similar to the situation in the U.K., the Delta variant is currently the greatest threat in the U.S. to our attempt to eliminate COVID-19,” White House chief medical advisor Dr. Anthony Fauci said at his latest press conference. “Good news, our vaccines are effective against the Delta variant… We have the tools, so let’s use them, and crush the outbreak.”
Stats: Delta, first identified in India, now makes up about 20% of all new cases in the U.S., up from 10% about two weeks ago. Studies suggest the variant, also known as B.1.617.2, is around 60% more transmissible than Alpha – the original strain that emerged from Wuhan, China. Delta also appears to be following the same pattern as Alpha, with infections doubling in the U.S. about every two weeks.
It’s getting some companies worried. On Tuesday, Morgan Stanley (NYSE:MS) barred unvaccinated workers from heading back to its offices in New York City and Westchester County beginning July 12. It’s also requiring all employees in the New York metropolitan area to attest to their coronavirus vaccination status by July 1. Staff who are not fully vaccinated will have to continue working remotely.
Go deeper: While some 16 states have vaccinated more than 70% of their populations, four have vaccination rates of less than 50%, with the rest falling somewhere in between. On Tuesday, the White House conceded it likely won’t hit President Biden’s goal of getting 70% of American adults to receive one vaccine shot or more by the Fourth of July. Meanwhile, the Delta strain will probably make up 50% of all COVID-19 infections in the U.S. by early to mid-July, according to William Lee, vice president of science at population genomics company Helix.
Autonomous vehicles long way off
Autonomous vehicles were always going to be a longer-term project, but it’s also understandable how the markets would discount the possibility they’d be on the roads in the first half of this decade, according to DataTrek Research. Now 2030-2040 looks more likely and that’s good from a macroeconomic perspective given the number of people employed by the traditional auto and transportation industries.
Quote: “Frankly, even when AV technology was ‘the next big thing’ we wondered if its proponents really understood its economic ramifications,” writes co-founder Nicholas Colas and Jessica Rabe. “This is not Amazon (AMZN), which crept its way into retail over a decade. That slow burn allowed the U.S. workforce to readjust; many workers who had been employed in physical retail stores moved into leisure and hospitality. Autonomous driving is more binary. When it comes, mass adoption will be fast because its benefits are obvious.”
The two feel that AVs will make the iPhone look small by comparison and a “post-pandemic world would not be able to adapt quickly enough to their reshaping of global automotive and transportation industries.” Another advantage to a longer lead time is more transition time for the traditional auto industry. It would give “marginal car companies the possibility of surviving through electrification, essentially removing an AV ‘Amazon discount’.”
DataTrek likes General Motors (GM) for its EV plans already in place and lack of European presence, where overcapacity is a problem. However, the ride-sharing sector – Uber (UBER), Lyft (LYFT) and Didi Chuxing (DIDI) – will see problems with valuations as they don’t scale as tech companies without AV. “The tech business model is 1) build a platform and 2) drive incremental revenues through that platform at little or no marginal cost or effort,” adds Colas and Rabe. “The original pitch for ride hailing companies was that autonomous driving would replace human drivers, so building a customer base in a ‘driver-ed world’ was OK because AV would eventually allow the business to scale.”
Is Tesla overvalued without AV? “Elon Musk did something amazing by creating a line of highly desirable electric vehicle, but without truly autonomous driving TSLA is really just a great car company. Not, as its valuation still implies, a technology company.” Colas and Rabe advise staying away from Tesla and ride-sharing stocks until AV adoption is truly underway. That’s certainly not the view of one of Tesla’s biggest proponents, ARK Invest’s Cathie Wood, who has TSLA as the largest holding in her flagship ARK Innovation ETF (ARKK).
What else is happening…
Peloton (NASDAQ:PTON) touts growth prospects, teases treadmill announcement.
Amazon’s (NASDAQ:AMZN) deal to buy MGM to be reviewed by FTC.
Sprinklr (NYSE:CXM) prices 16.6M-shares IPO below range at $16.
New restaurants… Shake Shack (NYSE:SHAK) is cooking up China expansion.
Krispy Kreme (DNUT) sets IPO terms in second run as a public company.
London hedge fund shuts after big losses on GameStop (NYSE:GME) – FT.
Eurozone business activity records fastest expansion in 15 years.
XPeng (NYSE:XPEV) gets green signal for up to $2B Hong Kong listing.
Facebook (NASDAQ:FB) expands Shops to WhatsApp, Marketplace.
Big oil CEOs see potential for $100 crude amid escalating volatility.
Today’s Economic Calendar
7:00 MBA Mortgage Applications
8:30 Current Account
9:10 Fed’s Bowman: “Policy Summit 2021: Pathways to Economic Resilience in Our Communities”
9:45 PMI Composite Flash
10:00 New Home Sales
10:30 EIA Petroleum Inventories
11:00 Fed’s Bostic Speech
11:30 Results of $26B, 2-Year FRN Auction
1:00 PM Results of $61B, 5-Year Note Auction
4:30 PM Fed’s Rosengren Speech
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Good morning. Happy Tuesday.
The Asian/Pacific markets did well. Japan, China, South Korea, Australia, Indonesia and the Philippines posted solid gains; Hong Kong was weak. Europe, Africa and the Middle East are currently mostly up, but gains are very small. Futures in the States point towards a flat open for the cash market.
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VIDEO: How to Play Bottoming Patterns
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The dollar is up. Oil is down; copper is up. Gold and silver are down. Bonds are down. Bitcoin is down.
Stories/News from Seeking Alpha…
Prime Day
Consumers continue to fill up their shopping carts on Amazon (NASDAQ:AMZN) Prime Day, with under 24 hours to go for the two-day event. Discounts are available on more than 2M items for shoppers in 20 countries, including “Lightning Deals” that sell out fast or expire in just a few hours. While Amazon never discloses the full financials of Prime Day, market research firm e-marketer forecasts sales from the shopping bonanza will grow 19% to $11.8B versus a year ago.
Y/Y comparison: While that figure marks significant growth, it would be less than the exponential rate seen in years past. The date shift into the third week of June this year also puts Prime Day in Amazon’s second quarter, which was a period in 2020 that saw sales surge due to pandemic spending (Prime Day usually takes place in October). Company guidance has already factored in the site-wide sale, calling for $110B-116B in revenue for the June quarter, with operating income ranging from $4.5B-$8B (with $1.5B in COVID-19 related costs).
Prime Day is usually a non-event for investors, given the lack of real financials. It even dented sentiment last year – and triggered some panic selling – when Amazon failed to claim it was the largest shopping event in company history. While Amazon’s stock climbed 4% last week, it’s only up 7% in 2021, compared to the 11% gain for the S&P 500. Shares are still only 1.3% below their all-time peak reached in September 2020.
Supply chain disruption: Amazon sellers aren’t likely to catch a break this year as the retail industry grapples with widespread supply chain issues. The bottlenecks are making it more challenging to stock distribution facilities and warehouses, while demand soars due to padded wallets from stimulus checks and the economic reopening. Many businesses have even attempted to stock up on as much inventory as they could ahead of Prime Day, but “most sellers don’t have the cash to bring in the inventory three months before,” declared Freightos CEO Zvi Schreiber, adding that 70% of Amazon’s third-party sellers are anticipating inventory shortages.
Awaiting Powell
Following a big day for U.S. equities on Monday, where the Dow took back its lead to close nearly 2% higher, stock index futures are debating their next direction. The wary atmosphere comes before Powell makes his next appearance, this time testifying in front of Congress at 2 p.m. ET. He’s set to reiterate job growth will pick up in the coming months and price pressures should ease, but may invite fresh talk about interest rate hikes or the Fed’s bond-buying program.
Bigger picture: “The market is in a very fragile, emotional state,” said Altaf Kassam of State Street Global Advisors in Europe. “It will be a rocky road, it will be bumpy and pronouncements from central bankers are going to get very quick, knee-jerk responses.”
Over in Washington, President Biden held separate infrastructure talks on Monday with two key Democratic senators – Joe Manchin and Kyrsten Sinema. While he was encouraged by the proposal, Biden “still has questions about the policy as well as the means for financing the bipartisan group’s proposal,” according to the White House. Manchin and Sinema have been noncommittal when asked if they would support a reconciliation bill, which could pass parts of the broader infrastructure package via a simple majority.
Don’t forget Bitcoin: The crypto has formed a death cross, meaning its average price over the last 50 days fell below that of its 200-day moving average. Overnight, Bitcoin (BTC-USD) slipped another 2.8% to $31,652, spooked by renewed crackdowns from China. Beijing even summoned officials from its largest banks and Alipay (BABA) to reiterate a ban on providing crypto services, a day after cracking down on mining operations in Sichuan. “It basically says now OTC transactions are not legitimate… we are not allowed by the banks to transfer money for cryptocurrency purchases and sales,” said Bobby Lee, formerly CEO of BTC China, China’s first Bitcoin exchange.
Solar in America?
The broader solar industry is coming off a record year of installations, but the potential threat to supplies could hurt the supply chain that is already slowing projects and raising costs. According to a report from Politico, the Biden administration is considering barring imports of polysilicon from Xinjiang, China, which produces about 45% of the world’s supply of solar-grade polysilicon. A ban could also undermine Biden’s aggressive goal of placing the U.S. on a path to eliminate carbon dioxide emissions from the power grid by 2035.
Backdrop: Just before leaving office, the Trump administration announced an import ban on all cotton and tomatoes produced in Xinjiang over allegations that they are made with forced labor from detained Uighur Muslims. Since then, a group of bipartisan lawmakers has pushed President Biden to impose import restrictions on polysilicon, allowing Customs and Border Protection to seize at U.S. ports any imports it suspects of being made with forced labor. Western companies have also wrestled with what to do in Xinjiang, with Nike (NKE), H&M (OTCPK:HNNMY) and Burberry (OTCPK:BURBY) recently facing backlash over statements they made about practices in the region.
Could solar be made in America? First Solar (NASDAQ:FSLR) just committed to building a new $680M panel factory in Ohio. It’s seeking to “reshore” manufacturing that has moved outside the United States, bolstered by President Biden’s clean energy goals. While solar wasn’t yet named as a manufacturing priority by the administration, it supports extending tax credits for solar panel purchases or to require federal contractors to purchase many solar panels from U.S. suppliers.
It won’t be easy: First Solar also backs tariffs to fight low-priced goods from abroad. Economists and industry specialists say hefty subsidies via tax breaks would be needed in addition to the tariffs, but even then it might be a long shot to get the sector off the ground. “China heavily subsidizes whatever strategic industry it chooses to focus on,” First Solar CEO Mark Widmar declared. “How does any American company ever compete?”
Rattling supply chains
Plagued by the coronavirus pandemic, as well as the Suez Canal blockade, the shipping industry was just getting back on its feet before being dealt another blow. One of the biggest ports in the world called Yantian, was recently shut down because of a COVID-19 outbreak (the Chinese port also happens to export 90% of the world’s electronics). It’s causing massive headaches across the maritime shipping world, as well as complicating efforts to reopen the global economy.
The impact? While it’s difficult to compare the two latest incidents – one is a port, the other is a chokepoint – the amount of cargo that was affected at Yantian was even larger than the Suez obstruction seen in March. The fallout could be another rise in the price of goods, which have already been significantly impacted by inflation in recent months. Container shipping companies have also needed to conduct massive logistical exercises to re-adjust their routes.
As shipping costs skyrocket, so have the stocks that are dominant in the industry. Shares of Danaos (NYSE:DAC), Global Ship Lease (NYSE:GSL) and ZIM (NYSE:ZIM) are up 1,700%, 370% and 278% over the past year. Other shares that have set sail: Navios Maritime Partners (NYSE:NMM), Matson (NYSE:MATX) and Mærsk (OTCPK:AMKBY).
This also comes before the shipping industry enters its peak season, with retailers stocking up before the return to school and year-end holidays. “The ripple effects of this slowdown in Yantian will be felt in about four weeks’ time in the United States,” said Mirko Woitzik of Everstream Analytics. “Depending on how quickly the West Coast ports can clear the current vessel backlog, the congestion will only get even worse when the Yantian exports start arriving.” With ships from Asia taking two weeks to unload, domestic freight like Union Pacific (NYSE:UNP) and FedEx (NYSE:FDX) have even accelerated peak season surcharges by months.
Outlook: “The supply chain disruption issues, especially the congestion affecting our key maritime ports, are causing significant challenges for America’s retailers,” the National Retail Federation wrote to the Biden administration last week. The group is calling for action on port challenges, with 97% of retailers having been impacted by shipping delays. “As the administration undergoes supply chain reviews for critical sectors, including transportation, addressing the current state of our nation’s ports and freight movement needs to be a critical component of the strategy. As trade continues to grow, we need to make sure we have truly 21st century ports and freight movement.”
What else is happening…
EU expands Google (NASDAQ:GOOGL) antitrust probe to digital ad brokering.
Surprise partnership? Steven Spielberg is making movies for Netflix (NASDAQ:NFLX).
Microsoft (NASDAQ:MSFT) hits all-time high ahead of Windows 11 event.
ContextLogic (WISH) surges again as meme stock rally continues.
Exxon Mobil (NYSE:XOM) plans to cut office workforce by up to 10% a year.
COVID recovery… Delta (NYSE:DAL) planning to hire 1,000-plus pilots.
Sanderson Farms (NASDAQ:SAFM) rallies on report of sale interest.
Lordstown Motors (NASDAQ:RIDE) looks at strategic options to raise funds.
Tesla (NASDAQ:TSLA) to hold artificial intelligence event this summer.
Apple (NASDAQ:AAPL) has $20 per share overhang from antitrust – Wedbush.
Today’s Economic Calendar
8:55 Redbook Chain Store Sales
10:00 Richmond Fed Mfg.
10:00 Existing Home Sales
1:00 PM Results of $60B, 2-Year Note Auction
1:00 PM Money Supply
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Good morning. Happy Monday. Hope you had a good weekend.
The Asian/Pacific markets were weak. China did well, but Japan, Hong Kong, South Korea, Taiwan, Australia, Malaysia, Singapore and Thailand posted moderate losses. Europe, Africa and the Middle East are currently mixed. Germany, Hungary, Portugal, Sweden and Saudi Arabia are up; Poland, Russia and Greece are down. Futures in the States point towards a down open for the cash market.
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VIDEO: How to Play Bottoming Patterns
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The dollar is down. Oil and copper are down. Gold is up; silver is down. Bonds are down. Bitcoin is down.
Stories/News from Seeking Alpha…
Reflation trade in focus
Opening lower to start the week, U.S. stock index futures are now in the green, up 0.6% in overnight trade. The move higher comes after some investors were quick to dismiss the “reflation trade,” a bet on companies that do best in an environment of solid economic expansion and rapid inflation. Meanwhile, the yield on the 10-year Treasury fell another 2 bps to 1.43%, marking its lowest point since early March.
Quote: “I would tend to tilt towards the message communicated at the FOMC, rather than a sole Fed governor,” said John Woods, Asia Pacific chief investment officer at Credit Suisse. “I do think the reflation story – from the fundamentals perspective – remains firmly in play. It seems to me only natural that we would anticipate moderately higher bond yields from current levels and clearly that has an impact on a whole range of risk assets. My sense is the Fed continues to focus more on the labor market than inflation – right here right now.”
Credit Suisse was one of several Wall Street banks predicting the Fed would move in 2023, even before its announcement last Wednesday. It still forecasts a period of choppy sideways trade, given the volatility associated with the Fed debate, but it is also a big believer in the Fed’s “transitory” theme, expecting price pressures to moderate in the coming quarters. Once that happens, concerns about yields and inflation will likely calm down. Woods also expects the U.S. to grow at “China levels” this year, with GDP expanding at a whopping 7% pace, in which it is almost inevitable for inflationary pressures to take place.
Stark warnings: Not everyone is on board with Credit Suisse’s thesis. “The headwinds are building for the equity market,” Moody’s Analytics Mark Zandi declared, expecting a more hawkish Fed to spark a 10% to 20% pullback. ‘Big Short’ investor Michael Burry has also recently warned of the “mother of all crashes,” with “#MainStreet losses approaching the size of countries,” given the FOMO for unsustainable asset prices, meme stocks and crypto. Robert Kiyosaki, the author of Rich Dad Poor Dad, is on that train as well. “Biggest bubble in world history getting bigger,” he tweeted on June 19. “Biggest crash in world history coming.”
Mining crackdown deepens
The volatility in the crypto market is showing no signs of abating. At the time of writing, Bitcoin (BTC-USD) is off 7.7% to $32,641, continuing a selloff that ensued following the Fed’s surprise hawkish turn last Wednesday. That means Bitcoin is down by more than half of its April peak of nearly $65,000, but has still gained over 10% YTD.
Latest bear catalyst: China has intensified its crackdown on crypto mining, with authorities in Sichuan ordering projects to close following similar developments in Inner Mongolia and Yunnan. The Sichuan southwest province hosts China’s second-largest mining community, according to data compiled by the University of Cambridge, with miners shifting production there in the rainy summer season to take advantage of hydropower resources. Last month, China’s State Council pledged to clamp down on Bitcoin mining as part of a series of measures to control financial risks and energy consumption.
It’s big… The latest ban means that more than 90% of China’s Bitcoin mining capacity (which accounts for 75% of the world’s capacity) is estimated to be offline, according to the Communist Party-backed newspaper Global Times.
Go deeper: Smaller rival Ether (ETH-USD), the second-biggest cryptocurrency by market cap, dropped 7% to below $2,000 for the first time in nearly a month. Ripple (XRP-USD) also tumbled, down 6% to $0.68.
New era
Gone are the days when epidemiologists poured over COVID-19 case numbers, as well as new infections and related deaths. As a broad vaccine rollout in the U.S. has brought much of the pandemic to a heel, the focus has now turned to learning how to live with variants and what measures the population can take against them. The real test of the current immunization campaign will be whether hospitalizations and deaths stay low, which can make the virus more manageable long-term.
Next stage: Some public health officials and infectious disease experts have said there is a high likelihood that COVID-19 will become an endemic disease, meaning it’ll always be present in the population – but circulating at lower rates – while others think we may have to “live with the virus forever.” “It’s possible we’ll get to a stage of only monitoring hospitalizations,” declared Jennifer Nuzzo, an epidemiologist at Johns Hopkins University’s Coronavirus Resource Center, which created one of the most comprehensive platforms in the world to track the disease.
Following the vaccine rollout, comparing the prevalence of COVID to the flu (which kills around 650K people globally each year, including about 36K in the U.S.), could become an important barometer in the fall and winter. That could impact policy decisions like lockdowns and school closures, as well as other preparations generally announced before flu season. The comparison of data may also be helpful when assessing new variants of the disease, like the rapidly spreading Delta variant.
Boosters? Even if current COVID-19 vaccines are found to be less effective in stopping the transmission of future variants, they still could prevent hospitalization and death (similar to a flu vaccine that helps block severe disease). That could also afford hospitals the ability to deal with an influx of patients, or be coupled with renewed mask mandates during the cold and flu season. People may still need to get vaccinated against COVID-19 annually over the next several years, Johnson & Johnson (NYSE:JNJ) CEO Alex Gorsky predicted back in February, meaning the jabs could become like seasonal flu shots.
Travel is back
Travel has returned with a vengeance as airlines struggle to rebuild networks that were ravaged by the COVID-19 pandemic. Nearly 50M U.S. airport passengers were registered in May – up 19% from April – and so far in June, the TSA has recorded nearly 35M travelers. But that’s causing some disruptions, with carriers and transportation operators struggling to keep up with the ramp up in demand, especially with the lifting of travel restrictions.
Case in point: American Airlines (NASDAQ:AAL) canceled about 120 flights on Saturday and 176 on Sunday (about 6% of its mainline operation that day). While some were called off a few days in advance, about half of those were because of “unavailable flight crews.” Other reasons included maintenance and other disruptions, like inclement weather.
“The bad weather, combined with the labor shortages some of our vendors are contending with and the incredibly quick ramp up of customer demand, has led us to build in additional resilience and certainty to our operation by adjusting a fraction of our scheduled flying through mid-July,” American Airlines spokeswoman Sarah Jantz said in a statement. “We made targeted changes with the goal of impacting the fewest number of customers by adjusting flights in markets where we have multiple options for re-accommodation.”
Fixing the situation: The Allied Pilots Association, which represents American’s roughly 15,000 pilots, said the carrier should offer more overtime in advance to cover staffing shortages. The current situation is also daunting given that American Air has taken an aggressive approach throughout much of the pandemic to fly much more than its closest competitors – United (NASDAQ:UAL) and Delta (NYSE:DAL). All the while, it has been racing to train the aviators it furloughed after the two federal coronavirus aid packages that prohibited layoffs, as well as its pilots who are due for periodic training.
SPACkman
Many had eyed hedge fund billionaire Bill Ackman’s special-purpose acquisition company since its launch last year as the SPAC rage reached record heights. Word of a deal finally came several weeks ago as Pershing Square Tontine Holdings (NYSE:PSTH) announced an approach for Universal Music Group (UMG), the world’s largest music company. The tie-up would see it take a 10% stake in the company from owner Vivendi (OTCPK:VIVHY) for $4.1B, though Ackman had more details to share about its complicated structure over the weekend.
After all is said and done, PSTH shareholders will receive publicly traded securities in three separate companies: UMG, PSTH, and SPARC. UMG will be publicly listed on Euronext Amsterdam in September 2021, with shares expected to be distributed to PSTH shareholders before year-end 2021. PSTH will meanwhile continue to seek another business combination under a unit called RemainCo, which will have $1.5B in cash and $1.4B of an unexercised forward purchase agreement. Lastly, investors will receive warrants to purchase shares in another acquisition company called Pershing Square SPARC Holdings, which will soon file a registration statement with the SEC.
Will the details help allay investor concerns? Shares of PSTH were trading firmly around the $25 level before word of the deal broke on June 3. Since then, the stock has tumbled 10%, trading at levels last seen in November 2020. Ackman was quick to highlight that UMG will be one of the largest companies on the Euronext Amsterdam exchange and will become a member of several major global indices. The statement also emphasized UMG’s operating profit growth of more than 20% per annum since 2017, as well as “powerful endorsements” from investors like Tencent (OTCPK:TCEHY), which own a fifth of the company.
Pershing Square Tontine’s prospectus from 2020: “We believe that our unique structure and our willingness to acquire a minority interest in a company will help facilitate the completion of a transaction on attractive terms. We are willing to accept a high degree of situational, legal, and/or capital structure complexity in a business combination if we believe that the potential for reward justifies this additional complexity, particularly if these issues can be resolved in connection with and as a result of a combination with us.”
What else is happening…
Sector Watch: Tech stocks hit a crossroads after the FOMC meeting.
What banks will stand out on Thursday’s stress test results?
Fed’s Kashkari wants to kill the dot plot, opposes rate hikes through 2023.
CDC warns Delta variant could become dominant in U.S. this summer.
Energy transformation may ‘feel like a slog’ before gains – NextEra.
The red-hot housing market loses some steam in May.
Legislation may make it easier for consumers to sue health insurers.
CNH Industrial (NYSE:CNHI) to acquire Raven Industries (NASDAQ:RAVN) for $2.1B.
Out-of-home leads ongoing ad rebound, though magazines lagging.
Facebook (NASDAQ:FB) trade is crowded, but Apple (NASDAQ:AAPL) isn’t – Alpha Tactics.
Today’s Economic Calendar
8:30 Chicago Fed National Activity Index
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I am out. No longs no shorts. Pure dry powder.