22 Mar Capital 19 Catch-Up
Wall Street Gets Great News From The Fed But Vaccine Suspensions Prove a Speedbump
All of the major indices fell slightly last week as the Fed Reserve’s call to keep rates low through to 2023 wasn’t enough to allay concerns over rising bond yields. The Dow and the S&P500 broke a two-week winning streak as they fell 0.5% and 0.8% respectively. While the Nasdaq suffered its fourth losing week in five as it also dropped 0.8%.
Wall Street started the week in an optimistic tone as economic reopenings lifted airline passenger data with airlines reporting an increase in future bookings as Americans begin to take vacations again. American Airlines rose 7.7% on the news, with rival United Airlines (UAL) gaining 8.3%. Monday was the Dows seventh straight positive session in a row but the good times were shortlived.
The first wobble came late in the Monday session as Italy joined Germany, France, Ireland, and the Netherlands in suspending the rollout of the AstraZeneca vaccine. No such suspensions here in Australia. In fact, I imagine it will make it easier for us to get our hands on some more. However, it did put a little wobble in the economic expansion excitement. I’m no expert, but from what I’ve read the pauses seem precautionary and should resume sooner rather than later.
On Tuesday the February retail numbers were released which showed sales down by 3% in the shortened month. Severe weather conditions were blamed for the poor showing, as unseasonably cold weather created snowstorms in the south of the country. The poor February result was offset by an upward revision to the January numbers which rose from 5.3% to 7.6%. The conflicting data meant the markets effectively ignored the news, with the Cboe volatility index falling below 20 for the first time since February 2020.
In the middle of the week, it was all about the Federal Reserve meeting and it was all good news for investors. Jerome Powell played all of his greatest hits – interest rates would stay near zero until 2023, they want to see inflation above 2% for a sustained period before any action is taken, and it must be real data and not just economists projections.
The Fed expects the US economy to recover quicker than expected while still being conscious of the potential dangers that lurk with the potential of the coronavirus to adapt and expand. Powell stated “We do expect that we’ll begin to make faster progress on both labor markets and inflation as the year goes on because of the progress with the vaccines, because of the fiscal support that we’re getting. We expect that to happen, but we’ll have to see it first.”
On Thursday the weekly jobless claims saw an unexpected spike to 770,000, above the 725,000 from the previous week and 70,000 higher than what the economists had expected. States such as Texas, Florida, and Mississippi have already done away with pandemic restrictions, despite objections from health officials, and many others are set to follow in April. They hope that this will boost the jobs figures going forward, especially in areas such as retail and hospitality.
The last trading day of the week saw some earnings reports from a couple of big names. FedEx (FDX) jumped by more than 6% as they smashed on both profit and revenue. The CFO pointed to an “unprecedented peak holiday shipping season” for the strong result, which came despite the poor February weather cutting operating income by around $350 million. FedEx started shipping the Johnson & Johnson (JNJ) vaccine in late March would should guarantee another successful result in the next quarter.
Nike (NKE) saw its revenue fall by 10% year on year in the last quarter, putting the blame on backlogged ports in North America and sales affected by closures of its bricks and mortar stores. The sports apparel maker also announced they would be laying off workers in an attempt to “focus on shifting resources and create capacity to reinvest in our highest potential growth areas”. Its shares were down 4% to close out the week. Visa (V) also lost 6.2% on Friday as the Department of Justice announced a probe into their alleged anti-competitive practices in its debit card business.
In the week ahead we’ll see a couple of interesting earnings reports. None more fascinating than the mythical GameStop (GME) which has enthralled Wall Street for much of 2021. The reality may hit home for many retail investors who ignored the fundamentals to send the stock soaring against short-selling hedge funds. It’s probably more likely that the results will be totally ignored and the share price of GME will keep rising and falling with total disregard for common sense. Adobe (ADBE), KB Home (KBH) and Darden Restaurants (DRI) will also report their numbers.
Data wise the important release will be the personal consumption expenditures which come out on Friday. The report measures the change in the value of goods purchased by the US consumer but excludes the more volatile food and energy prices. It is the Federal Reserve’s preferred inflation indicator and will play a large role in any Fed interest rate action in the future. We’ll also see existing home sales, durable goods orders, as well as the weekly jobless claims.
Have a great week everybody.