Capital 19 Catch-Up

Wall Street Wobbles On Inflation Concerns As Delta Rages On and Biden Mandates Vaccines Across Workplaces

There weren’t a lot of bright spots for the market last week as the Dow and the S&P500 fell in every session, and the Nasdaq in all but one. It was a shortened week of course, with the labour day weekend seeing trading closed on Monday. However, that didn’t stop the sentiment from the poor nonfarm payroll result from the previous Friday impacting the new week. Concerns mainly centred on inflation as well as the impact the highly contagious Delta variant would have on economic growth in the next quarter.

The Dow fell the most for the week dropping 2.2% over the four sessions. It was held back by Boeing (BA) who announced they will experience further delays in deliveries of the 787 Dreamliner, paintmaker PPG Industries who warned sales would fall due to logistics issues and rising commodity costs, and Apple (AAPL) who lost their court case with Epic Games on Friday over in-app purchasing. The S&P500 fell 1.7% for the week, and like the Dow has now experienced five straight losing sessions in a row. While the Nasdaq couldn’t escape the negativity either, falling 1.6% for the shortened week.

The Federal reserve’s beige book report on Wednesday seemed to highlight what the markets had been thinking, pointing out that businesses were experiencing rising inflation which was being intensified by a shortage of goods. And it’s likely that these costs will be passed onto the consumer in the near term. They were also concerned that growth had “downshifted slightly to a moderate pace” as the delta version of the coronavirus continued to spread. The report stated, “The deceleration in economic activity was largely attributable to a pullback in dining out, travel, and tourism in most districts, reflecting safety concerns due to the rise of the delta variant, and, in a few cases, international travel restrictions.”

The good news for us as shareholders is that we know that the rise in new covid infections is only temporary as vaccinations ramp up in the US and across the globe. President Biden on Thursday hardened his line on vaccinations for Americans with plans to mandate covid vaccines for all Federal employees as well as companies with more than 100 employees. Clearly frustrated with vaccination rates the President declared “Despite having an unprecedented and successful vaccination program, despite the fact that for almost five months, free vaccines have been available at 80,000 different locations, we still have nearly 80 million Americans who have failed to get the shot.”

Biden knows that the US needs a fully functioning workforce to lift economic growth. And that won’t happen until almost everyone is vaccinated. If they won’t do it for themselves he’ll damn well force them to do it for their country. “What more is there to wait for? What more do you need to see? We’ve made vaccinations free, safe and convenient. the vaccine has FDA approval, over 200 million Americans have gotten at least one shot,” Biden said. “We’ve been patient, but our patience is wearing thin, and the refusal has cost all of us. so please do the right thing.” The tougher stance is music to Wall Street’s ears.

The Fed meets on September 21-22 and I’ll be surprised if they begin tapering bond purchases with all of these concerns about growth spooking markets. It could make for a nice little rally to end the month. The August producer prices index was up at 8.3% year on year, which was its biggest advance since at least 2010, and up 0.7% for the month. The Consumer price index for August comes out on Tuesday and is a greater indicator of inflation than the PPI so will be closely watched by the Fed. A number that’s in line with the estimates will be great for markets.

In other data news, we saw the Job openings for July hit 10.9 million. That’s 2 million more than the number of people looking for work. It’s an interesting dichotomy, with business owners complaining they can’t find enough employees. Especially in the hospitality industry which has been so heavily impacted by the pandemic. Workers have realised that these jobs can’t be relied upon for their livelihoods and businesses may have to increase rates of pay to attract more employees. This has the potential to increase inflation, of course, so needs to be closely watched. However, there are still 5 million fewer jobs now than there were before the pandemic began. Unemployment assistance will start to dissipate in the current month and that will likely get people back out into the workforce.

In stock news, Catch Up favourite Lululemon (LULU) continues to go from strength to strength. After a 5% drop at the end of December, we suggested it had been an overreaction and would continue to be a long term hold. An opinion we’ve had for a few years now. Since then the share price has risen from around $344 up to $425 after Friday’s sessions, following a 10.5% jump on Thursday after its latest earnings announcement. Earnings per share hit $1.65 while revenue came in at $1.45 billion, up 61% from the same period last year. Analysts had been looking for $1.19 and $1.34 billion respectively. The guidance also easily beat estimates and management now expect to surpass 2023 revenue targets by the end of this year. Two years ahead of schedule.

Meme stock and Reddit darling GameStop (GME) also announced earnings this week, and as with everything GameStop, nothing was normal about the outcome. The video game retailer narrowed its losses on a year on year basis, and it was better than what analysts had expected. However, management refused to offer any sort of guidance or even take questions during its conference call which initially had investors heading for the exits. The stock was down by more than 10% at one stage on Thursday before finishing in the green after yet another crazy day of trading. It’s now up 957% year to date, even though it is well below its highs of January. It’s now a hefty $14.565 billion market cap. Not bad for a company that doesn’t make a profit and has few prospects. Let the good times roll.

In the week ahead all eyes will be on the CPI and core CPI numbers that come out on Tuesday. Other reports will include retails sales, consumer sentiment and manufacturing numbers. Oracle (ORCL) is one of the few earnings reports to come out as the September quarter draws to a close. However, we will get to see Apple’s special streaming event on Tuesday where it will unveil the new iPhone 13, and Apple Watch Series 7 and potentially other new products.

Have a great week.