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Daily Market Report | May 26, 2021

Stocks Edge Up as Worries Around Inflation Abate – Wall Street Journal, 5/26/2021

  • U.S. stocks rose on Wednesday morning as investors grew more comfortable that the Federal Reserve and other central banks would maintain their economic support despite a near-term bout of inflation.
  • Investors had worried that higher inflation would cause Fed officials to dial back the monetary policy that pulled markets back from the Covid-19 selloff last year. While officials in recent days have indicated they may begin discussing scaling back measures, they have stressed that there are no imminent plans to change policy.
  • The growing comfort with the inflation outlook has calmed markets, with the CBOE Volatility Index—Wall Street’s so-called fear gauge, also known as the VIX—dropping Wednesday to 18.41, its lowest level since early May.
  • Results are due from Nvidia, Snowflake, Workday, Williams-Sonoma and American Eagle Outfitters after markets close.
  • In bond markets, the yield on the 10-year Treasury note ticked down to 1.555% from 1.563% Tuesday.
  • The pan-continental Stoxx Europe 600 stock index was down 0.1%.
  • In Asia, major benchmarks closed after a mixed performance.
  • The Shanghai Composite Index added 0.3% while South Korea’s Kospi declined 0.1%.
  • New Zealand’s central bank signaled that it might raise a key interest rate in the second half of next year, which could make it one of the first developed markets to reverse Covid-era rate cuts.
  • Kiwi government bonds sold off, with the yield on the benchmark 10-year bond rising as high as 1.901% from 1.789% Tuesday.

Inquiry Into Covid-19’s Origins Splits U.S. and China – Wall Street Journal, 5/26/2021

  • The U.S. and China staked out sharply opposing positions over how to trace the origins of the coronavirus pandemic, with Washington calling for a new round of studies to be conducted with independent, international experts.
  • Beijing, meanwhile, told an annual gathering of the World Health Organization’s decision-making body Tuesday that it considered the investigation in its country to be complete and said attention should now turn to other countries.
  • A deeper inquiry into the pandemic’s origins is “a critical priority for us,” Andy Slavitt, the White House senior adviser for the Covid-19 response, said at a briefing Tuesday. “We need to get to the bottom of this and we need a completely transparent process from China. We need the WHO to assist in that matter. We don’t feel like we have that now.”
  • Under global health regulations, China would have to give its consent for WHO to send international scientists into the country again for further studies.

U.S. bank profits rose to $76.8 billion in Q1 2021, a 29.1% jump from previous quarter – Reuters, 5/26/2021

  • U.S. bank profits rose 29.1% during the first quarter of 2021 from the previous quarter as banks adjusted expectations for future credit losses downwards, a bank regulator said on Wednesday.
  • The industry posted $76.8 billion in first-quarter profits, up from $58.3 billion a year prior and $17.3 billion in Q4 2020, the U.S. Federal Deposit Insurance Corporation (FDIC) said.
  • It added that three-fourths of all banks (74.8 percent) reported higher quarterly net income compared with the year-ago quarter and that the share of unprofitable institutions dropped from 7.4 percent a year ago to 3.9 percent.
  • Loan balances declined from the previous quarter and year driven by a reduction in credit card balances, the agency added.

Nordstrom reports bigger-than-expected loss as markdowns hit margins – Reuters, 5/26/2021

  • Nordstrom posted a bigger-than-expected quarterly loss on Tuesday, hurt by price markdowns the department store chain had to initiate due to excess holiday inventory and increasing competition in the retail sector.
  • The retailer’s shares, which have gained 17% this year, fell 7% in extended trading, as first-quarter sales declined 13% from 2019.
  • The company reported a net loss of $166 million, or $1.05 per share in the quarter ended May 1, compared with estimates of a loss of 57 cents per share, according to IBES data from Refinitiv.
  • The company reiterated its full-year revenue forecast of an over 25% increase, while rivals Macy’s and Kohl’s beat first-quarter sales estimates and raised full-year forecasts last week. read more

Michael Kors parent expects sales growth as luxury demand rebounds – Reuters, 5/26/2021

  • Capri Holdings on Wednesday forecast annual revenue and profit above Wall Street expectations, betting on shoppers returning to stores in the United States following speedy vaccinations and pent-up demand for luxury goods in Europe.
  • Fourth-quarter revenue of $1.20 billion beat expectations of $1.02 billion.
  • On an adjusted basis, the company earned 38 cents per share, surpassing the estimate of 2 cents.
  • Capri, which also owns Jimmy Choo and Versace, said e-commerce sales rose 80% in the fourth quarter, helping it beat total revenue estimates. Retail sales increased 13% from a year earlier, the company said.
  • Capri reported revenue of $4.06 billion for fiscal 2021, compared with the $5.55 billion before the pandemic.
  • The company forecast revenue of about $5.1 billion for its fiscal 2022. Analysts were expecting $4.99 billion, according to IBES data from Refinitiv.
  • The company also reinstated its share repurchase program, which has $400 million remaining.

Amazon to Buy MGM for $6.5 Billion Excluding Debt – Wall Street Journal, 5/26/2021

  • Amazon.com said it has agreed to acquire Hollywood studio MGM, a deal the e-commerce giant is betting can jump-start its Prime Video streaming platform and position it to compete with industry heavyweights including Netflix and Walt Disney.
  • The purchase, which was unveiled Wednesday morning, has an equity value of $6.5 billion, people familiar with the matter said. Including debt, the value of the deal is $8.45 billion, Amazon said.
  • In MGM, Amazon will get a library of over 4,000 films, including iconic franchises such as “James Bond” and “Rocky,” and classics such as “The Silence of the Lambs,” “Raging Bull” and “12 Angry Men.” The TV catalog includes critically acclaimed shows such as “The Handmaid’s Tale,” “Fargo” and “Vikings.”
  • Besides MGM, Amazon also approached Sony Group’s Sony Pictures Entertainment about an acquisition but was rebuffed, a person familiar with the matter said.

Ford Expects 40% of Global Vehicle Volume to Be Fully Electric By 2030 – Wall Street Journal, 5/26/2021

  • Ford plans to boost spending on electric-vehicle development by billions of dollars beyond previous plans and expects 40% of its global sales to be fully electric by 2030, as Chief Executive Jim Farley bets bigger on plug-in cars.
  • Ford will spend $30 billion by 2025 to expand its electric lineup, up from the $22 billion it forecast earlier in the year, it said Wednesday.
  • That figure is a cumulative total that includes spending over the past few years, and includes capital earmarked for two future U.S. battery-cell factories with Korea’s SK Innovation.
  • The company also said it expects in 2023 to achieve an 8% operating margin, up from around 4% in recent years. It had previously pegged the 8% mark as a goal but hadn’t specified a timeline.
  • Ford said it expects to increase revenue in that space to $45 billion by 2025, from $27 billion in 2019. It plans to achieve that goal in part by adding services to help those customers do work, such as providing electric-vehicle chargers and digital tools to help them track their vehicle fleets.
  • Ford said Wednesday it has received 70,000 reservations for the new electric truck since the Lightning’s May 19 introduction.

Google Strikes Deal With Hospital Chain to Develop Healthcare Algorithms – Wall Street Journal, 5/26/2021

  • Alphabet’s Google and national hospital chain HCA Healthcare have struck a deal to develop healthcare algorithms using patient records, the latest foray by a tech giant into the $3 trillion healthcare sector.
  • Nashville, Tenn,-based HCA, which operates across about 2,000 locations in 21 states, would consolidate and store with Google data from digital health records and internet-connected medical devices under the multiyear agreement.
  • Google and HCA engineers will work to develop algorithms to help improve operating efficiency, monitor patients and guide doctors’ decisions, according to the companies.
  • Google has previously reached deals with other prominent U.S. hospital systems, including St. Louis-based Ascension, that granted access to personal patient information, drawing public scrutiny. Other tech giants have struck similar deals.

Nasdaq seeks to remove restriction in direct listing plan – Reuters, 5/26/2021

  • Nasdaq asked U.S. regulators on Wednesday to remove a restriction that limits how much money companies can raise through a direct listing on its stock market exchange, according to a regulatory filing reviewed by Reuters.
  • Direct listings allow companies to list on the stock market without a traditional and more costly initial public offering. No shares have been sold to investors in these flotations thus far, so companies have not raised any money through them.
  • Nasdaq’s move follows the U.S. Securities and Exchange Commission’s (SEC) approval last week of a Nasdaq proposal to allow companies to raise capital in a direct listing as long the shares start trading within the indicated price range set. The listing would be pulled if shares were set to trade outside that range.

Senate Republicans Prepare $1 Trillion Infrastructure Offer – Wall Street Journal, 5/26/2021

  • Senate Republicans are crafting a nearly $1 trillion infrastructure offer to present to the White House later this week, preparing a substantial increase to their original $568 billion plan in hopes of sustaining bipartisan talks that hit hurdles last week.
  • Sen. Roger Wicker (R., Miss.), the top Republican on the Commerce, Science and Transportation Committee, said President Biden told the GOP lawmakers during a private meeting earlier this month that he would support a $1 trillion plan over eight years.
  • While Republicans increasing the overall size of their plan will close the gap between the two sides, the negotiators will still face major differences in the talks, including how to categorize certain forms of spending.
  • For example, Mr. Wicker said the new Republican figure would include money dedicated to research and technology in separate legislation currently before the Senate, while the White House removed that funding from the top-line number in their latest offer.
  • The Republican negotiators, who are led by Sen. Shelley Moore Capito (R., W.Va.), said Tuesday that their new plan would call for repurposing Covid-19 aid for infrastructure spending.
  • Sen. Joe Manchin (D., W.Va.), a key centrist who has been participating in the talks with Mr. Romney, said that any infrastructure agreement should be tailored to traditional infrastructure like roads and bridges.
  • Lawmakers have already reached bipartisan agreement on some elements of infrastructure, including a $304 billion Senate bill to reauthorize federal transportation programs, though they must still decide how to pay for the legislation and how it might fit into a broader infrastructure deal.

U.S. mortgage applications tick down as refinance activity declines -MBA – Reuters, 5/26/2021

  • Mortgage applications decreased last week as fewer homeowners sought to refinance their loans, offsetting a modest rise in applications for loans to buy homes.
  • The Mortgage Bankers Association (MBA) said on Wednesday its seasonally adjusted Purchase Index decreased 4.2% in the week ended May 21 from a week earlier, reflecting a 7.2% decline in applications for refinancing.
  • The purchase index increased 1.7% from a week earlier.
  • The average contract interest rate for traditional 30-year fixed-rate mortgages increased to 3.18% last week from 3.15% the prior week.

In Tight Housing Market, Thousands of Homes Are Reserved for Certain Buyers – Wall Street Journal, 5/26/2021

  • Real-estate agents are selling more homes to select customers while bypassing the public market, a move that squeezes supply tighter for many buyers when inventory is already near record lows.
  • In the vast majority of transactions, an agent lists a home for sale on a local database and markets the property widely to drum up interest and get the best price. But in certain cases, a broker will show an unlisted property to a small circle of potential buyers more exclusively, often in hope of getting a deal done quickly.
  • These private sales are known as pocket listings, or whisper listings. They have been around for many years. But they are on the rise now even though the National Association of Realtors adopted a rule last year aimed at discouraging their use following complaints from some of its members.
  • Pocket listings accounted for 3% of sales on average in the year ended in March, up from 2.6% of sales in the year ended in March 2020 and 2.5% in the year ended in March 2019, according to an analysis by brokerage Redfin.
  • That 3% represents roughly 169,000 homes a year sold through this sometimes controversial practice.

Sweeping bill to counter China introduced in U.S. House – Reuters, 5/26/2021

  • U.S. efforts to address competition with China progressed on Tuesday when the chairman of the House of Representatives Foreign Affairs Committee introduced sweeping legislation to boost economic competitiveness and push Beijing on human rights.
  • Representative Gregory Meeks introduced the “Ensuring American Global Leadership and Engagement Act,” or EAGLE Act, as the U.S. Senate separately heads toward a vote on its own legislative package seeking to counter China.
  • The 470-page bill introduced by Meeks addresses a range of issues, including increased investment to promote U.S. manufacturing, trade, work with allies and partners, re-engagement in international organizations, and recognition of the treatment of China’s Uyghur Muslim minority as genocide.
  • The House bill includes provisions to increase U.S. support for Taiwan and pro-democracy activists in Hong Kong. And it mandates a review to assess Chinese companies listing on U.S. financial markets, including whether they have contributed to human rights violations.

U.S. Initiates Trade Dispute Against Canadian Dairy Industry – Wall Street Journal, 5/26/2021

  • The Biden administration initiated a dispute process against the Canadian dairy industry, triggering the formal dispute mechanism of the new U.S.-Mexico-Canada Agreement for the first time.
  • The U.S. alleges that Canada has used a complex system of tariff-rate quotas that sets aside a share of the dairy market exclusively for Canadian dairy processors, and that the system is in violation of what Canada agreed to in 2018.
  • The complaint predates the Biden administration—in December of 2020, the Trump administration filed the initial complaint, and the U.S. and Canada discussed the complaint in December, but failed to resolve the issue.
  • The U.S. is now escalating the dispute by requesting the creation of a formal dispute settlement panel. The panel would hold hearings to understand the issue and release a report later this year. If the U.S. prevails, Canada would then have to bring its practices into compliance. If they didn’t, the U.S. would eventually be able to impose tariffs.

EUROPE & WORLD

Japan Looks to Extend Covid-19 State of Emergency – Wall Street Journal, 5/26/2021

  • Japanese leaders moved to extend a state of emergency in Tokyo and other major cities for several weeks into June, citing persistently high coronavirus infections with the Summer Olympics set to start in less than two months.
  • Local media said the extension is likely to go through June 20, which would be just 33 days before the scheduled day of the Olympic opening ceremony.
  • The slow progress has fueled domestic opposition to the Olympics including by leading CEOs. On Wednesday, the newspaper Asahi Shimbun—itself an Olympics sponsor—called on Prime Minister Yoshihide Suga to cancel the Games.

Xiaomi revenue surges 55% in Q1, fills market gap left by Huawei – Reuters, 5/26/2021

  • Chinese smartphone maker Xiaomi reported first-quarter revenue growth of 55% on Wednesday, exceeding analyst expectations as it nabbed market share from one-time sector leader Huawei Technologies.
  • Revenue rose to 76.88 billion yuan ($12 billion) in the quarter ended March 31, from 49.70 billion yuan a year earlier.
  • Analysts expected revenue of 74.5 billion yen, according to Refinitiv data.
  • Revenue from smartphone sales jumped 69.8% year-over-year to 51.5 billion yuan, while revenue from internet services increased 11.4% to 6.6 billion yuan.
  • Adjusted net profit rose to 6.1 billion yuan, versus market estimates of 3.97 billion yuan.
  • This quarter, Xiaomi also announced it would formally begin producing electric cars, with a new division to be led by Xiaomi founder Lei Jun.

Huawei plans to launch new operating system for phones in June – Reuters, 5/26/2021

  • China’s Huawei Technologies said it will launch its new Harmony operating system for smartphones on June 2, its biggest move yet aimed at recovering from the damage done by U.S. sanctions to its mobile phone business.
  • The use of its own operating system will mean it will no longer be reliant on Android.
  • U.S. sanctions banned Google from providing technical support to new Huawei phone models and access to Google Mobile Services, the bundle of developer services upon which most Android apps are based.
  • It was not immediately clear if it will be launching new smartphones at the same time or if there will be updates for existing phones or how fast the rollout might occur.

Shell Ordered by Dutch Court to Cut Carbon Emissions – Wall Street Journal, 5/26/2021

  • A Dutch court on Wednesday ruled that Royal Dutch Shell RDS.A +0.74% PLC is partially responsible for climate change and ordered the company to reduce its carbon emissions, a first-of-its-kind ruling that adds fresh pressure on oil-and-gas companies already facing heightened scrutiny from governments and investors.
  • The ruling, issued by the district court in The Hague, ruled Shell must curb its carbon emissions by 45% by 2030, compared with 2019 levels. This is in line with United Nations guidance for member states aimed at preventing global temperatures rising more than 1.5 degrees Celsius above preindustrial levels.
  • Lawyers said the ruling, which Shell can appeal, could set a precedent in other Western jurisdictions, particularly in Europe, opening oil companies to a new legal jeopardy over their carbon emissions. The court didn’t stipulate how the ordered reductions should be met, or how it might monitor or enforce its ruling.

Factmonster – TODAY in HISTORY

  • President Andrew Johnson avoided conviction for impeachment charges of “high crimes and misdemeanors” by one vote. (1868)
  • Allied troops began the massive naval evacuation of troops from Dunkirk, France, during World War II. (1940)
  • George Willig, “the human fly,” scaled the World Trade Center in New York City by attaching himself to the window washer mechanism and walking straight up until falling into police custody when he reached the top. It took Willig three and a half hours to make the climb, and $1.10 in fines—a penny per floor. (1977)
  • Rwandans voted to approve a new constitution that instituted a balance of power between Hutu and Tutsi. (2003)

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