Here’s the weekly rundown
For those keeping count…15 days until Christmas
Weekly Summary:
Okay, it might not be quite that bad.
While last week was a pretty big smack welcoming the market into December…the S&P gave up 1.25%, the Dow gave up .91%, and the Nasdaq gave up 2.62%. This week was just the opposite, the S&P climbed 3.8%, the Dow climbed 4%, and the Nasdaq rolled higher by 3.6% ?
Why the rally though? No news is good news.
With the major holidays just around the corner and being a time when many companies come into the black for the year. The absolute last thing any investor wants to hear is Christmas and by extension, holiday spending is going to put on pause.
Listening to the media last week investors might have been wondering when the shutdowns were going to start…but then nothing came out over the weekend and new cases didn’t start rapidly showing up.
By Tuesday of this week, we learned Omicron symptoms are typically as mild as how you feel after a flu shot and that many therapeutics work well against Omicron. When the market realized this the Dow, S&P, and Nasdaq all surged.
Yes, today’s CPI number of 6.8% ? is a concern, however, the reason it did not send the market lower is that a number around what we saw today has already been factored into current valuations.
Lastly, the market is signaling continued commerce strength with transportation and banking sectors performing strongly this week.
The Major Headlines:
? November Inflation Comes in Hot at 6.8%
The thermostat is broken or at least stuck in an uncomfortable spot.
Friday, the Labor Department released its consumer price index (CPI) numbers giving everyone a glimpse of where inflation was at in November. What we saw was 6.8%, a number that hasn’t been seen since 1982 when the US was coming out of the 81-82’ Recession. At that time 10-Year Treasury rates were 10%+, today they are 1.47% which has stretched everyone’s buying power from hedge funds to main street.
Deeper look: Hmmm, call it a case study by the Fed, looks like printing massive amounts of money really does cause inflation…
While there is certainly a lot more at play than the Fed’s spending or interest rate policy. Friday’s CPI number puts more pressure on Fed Chair J. Powell to stop his current stimulus program and start increasing rates.
What nobody is talking about: The primary challenge for the Fed though, who’s in charge of controlling this, is that the real interest rate is negative…meaning people are getting paid to borrow money. For example, the real rate on a 30-year fixed-rate mortgage is currently -3.55%.
☕️ Starbucks Unionized???
Results are in…and at least one of the three Starbucks chains holding unionization votes Thursday will now have a union.
Workers at Buffalo NY’s Elmwood Avenue location voted 19 – 8 in favor of unionizing under Workers United New York. While results from the other two Buffalo locations are contested, the preliminary results were 12 – 8 against and 15 – 9 in favor.
Deeper look: No doubt this is a win for organized labor which historically hasn’t had a presence in the high turnover food-service industry. To this date, only around 2% of the food service industry belongs to unions though that could change with this vote. For unions, food-service poses a possible boon to increase money from dues as “buy-in” from shorter-term workers can be easier. Add in the pandemic backdrop of food-service workers being overworked and underpaid and we might be seeing a lot more of this.
As for corporate Starbucks, this is a first for their 9,000 shops and something they’re clearly wary of…earlier this week they were trying to postpone the vote.
Starbucks Stock Price: The market was unphased by the vote or its results, Starbucks stock price finished the week up ~4.5%.
???? Olympics and Money… US v. China
We’re not going.
The Winter Olympics in Beijing on Feb. 4th will have a few less high-profile fans. Joe Biden’s administration said Monday that it will not send an official US delegation to the 2022 Olympics because of China’s human rights abuses. Context -> forced labor of its Uyghur population.
That said, the athletes are still going since athlete’s participation is a decision of the US Olympic committee which declined to a boycott.
Regardless of athlete participation, by not sending an official delegation Biden is sending a big public snub to China.
But.. China has snubbed the US as well most recently with Chinese ride hauling company Didi. When Didi went public in the US, the company faced Chinese penalties days later leading the shares to lose 50% of their value.
Late last week Didi announced that it would delist its shares from Wall Street and instead list them in Hong Kong likely from Chinese government pressure.
A little expert analysis leads to the conclusion that the recent Zoom meeting between President Biden and President Xi didn’t resolve much. Keep in mind tension between the two countries may rise even more after the Feb. Olympics are out of the way.
?? Sen. Joe Manchin Says No to Social Spending
Write the check.
Democrat Senator Joe Manchin isn’t committing to vote for the Democrat Party’s roughly $2 trillion social spending bill, which is a big problem if Democrats are to get this bill passed. Why’s that? Because the only way they can pass the bill is if every single Democrat in the Senate votes for it…and right now that is not likely.
Manchin’s concerns: Sen. Manchin cites concerns on additional government spending effect on inflation. Given Friday’s 6.8% inflation number he may be justified in his concern. That said, Joe also represents West Virginia, i.e. deep-red Trump country, supporting social spending on that scale likely doesn’t sit well with his constituents.
Democrat leaders have set a Christmas deadline to get the bill passed.
Other Tidbits:
- Ark Invest down ~20% YTD
- American Airlines CEO Doug Parker to Step Down
- Bitcoin is now trading below $50,000
- Trafigura makes $3 billion off oil market dislocation
- Weibo shares drop on Hong Kong Exchange Debut
A Few Earnings From This Week
*Low earnings announcement volume from names of interest.
- GameStop
Earnings Miss -$1.39 vs -$.52 est
Net losses grew to $105.4 million vs losses of $18.8 million YoY.
Opening up new offices in Seattle and Boston to attract top tech talent while also exploring emerging opportunities…blockchain, NFTs, web 3.0 gaming. Main focus is on gaining market share and increasing sales. Sales grew 30% from a year earlier to $1.3 billion vs $1 billion.
- Lululemon
Earnings Beat $1.62 vs $1.41 est
Main focus of investors, Lulu cuts sales expectations for its at-home fitness device Mirror causing shares to fall.
All in, sales were up 30% YoY to $1.45 billion in large part driven by a 44% increase in Lulu’s men’s line. Same-store sales up 32%, international revenue grew 40% while US revenue grew 28%.
Workout apparel is selling very well going into Christmas.
With that, have a great weekend!