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Daily Market Report | May 28, 2021

Stocks Climb as Investors Weigh Inflation Data – Wall Street Journal, 5/28/2021

  • The S&P 500 edged higher in the final trading day of the week, heading toward a fourth consecutive month of gains.
  • The S&P 500 added 0.2% shortly after the opening bell. The tech-heavy Nasdaq Composite gained 0.4%.
  • The Dow Jones Industrial Average gained around 77 points, or 0.2%.
  • The Federal Reserve’s preferred measure of inflation—the price index for personal-consumption expenditure, excluding food and energy—rose 3.1% from a year earlier. A surge in demand after Covid-19 restrictions were lifted, coupled with supply chain strains, likely led to a rise in prices last month.
  • Fresh data also showed that Americans extended a spending binge in April, as they continued catching up on activities they held off on during the pandemic, propelling the economy. Consumer spending rose 0.5% from March.
  • Overseas, the pan-continental Stoxx Europe 600 stock index, which contains a swath of companies that benefit from global economic growth, rose 0.7% to a fresh record high.
  • In bond markets, the yield on the 10-year Treasury note ticked down to 1.600% from 1.609% Thursday.
  • In Asia, major benchmarks largely closed higher. Japan’s Nikkei 225 advanced 2.1%, led by industrial companies.
  • Mitsubishi Heavy Industries gained 5.5%.
  • China’s Shanghai Composite Index declined 0.2%. South Korea’s Kospi added 0.7%.

Salesforce raises annual revenue, profit outlook – Reuters, 5/28/2021

  • com raised its full-year forecast for revenue as well as profit, and reported quarterly revenue that beat analysts’ estimates, following increased demand for its cloud-based software due to a pandemic-led shift to remote work.
  • Salesforce reported total revenue of $5.96 billion in the first quarter, compared with analysts’ estimates of $5.89 billion, according to IBES data from Refinitiv.
  • The company’s subscription and support revenue for the quarter rose 21% to $5.54 billion.
  • On an adjusted basis, Salesforce earned $1.21 per share, beating estimates of 88 cents per share.
  • Salesforce raised its annual revenue forecast to between $25.90 billion and $26.00 billion, above estimates of $25.76 billion.
  • The company expects full-year adjusted profit between $3.79 and $3.81 per share, beating Wall Street expectations of $3.43.

Costco’s Sales Are Rising but So Are Its Costs – Wall Street Journal, 5/28/2021

  • Costco Wholesale said demand surged in its latest quarter as the U.S. economy began to rev up, but the club-store chain warned it is facing higher costs for everything from workers to imported cheese.
  • The company on Thursday said it generated $45.28 billion in revenue for its quarter that ended May 9, up almost 22% from the same period last year. Analysts had predicted the chain would report $43.65 billion in revenue.
  • Costco’s comparable sales, or those from warehouse stores or websites operating for more than one year, were up 15% in the latest quarter after excluding changes in gasoline prices and currency fluctuations.
  • In March, the company estimated inflation was rising in the 1% to 1.5% range, but now it thinks it is up 2.5% to 3.5%, excluding gasoline sales, he said. Higher costs could put pressure on Costco’s margins.
  • The Issaquah, Wash.-based company reported a profit of $1.22 billion for the quarter. That was up from $838 million during the year-earlier quarter and beat the $1.01 billion in net income that analysts were looking for, according to FactSet.
  • Costco also plans to open, on a net basis, 21 new warehouses during its current fiscal year and 25 locations for each of the two years after that, including one store in China, Mr. Galanti said.

Gap raises 2021 forecasts as apparel shopping gains momentum – Reuters, 5/28/2021

  • Gap raised its forecast for annual sales and profit, expecting an unabated surge in demand for new apparel as more people begin to step out and socialize after a year of hunkering down at home due to the pandemic.
  • First-quarter net sales surged 89% to $3.99 billion from a year earlier, beating expectations of $3.45 billion.
  • Net income stood at $166 million compared with a loss of $932 million. On an adjusted basis, Gap earned 48 cents per share.
  • Gap expects fiscal 2021 net sales to grow in the low-to-mid 20% range from a year earlier, compared with its prior projection of mid-to-high teens rise.
  • Analysts were forecasting sales growth of 17.8%, according to IBES data from Refinitiv.
  • Gap sees diluted earnings between $1.55 and $1.70 per share, up from its prior forecast of $1.20 to $1.35.

HP and Dell Post Strong Profits, Point to Bullish Outlook for PCs – Wall Street Journal, 5/28/2021

  • A pandemic-fueled run on computers helped HP and Dell Technologies deliver strong financial results for the latest quarter despite a semiconductor shortage that is denting some industries.
  • Dell on Thursday reported that first-quarter revenue rose 12% to $24.5 billion from a year earlier driven by a 42% jump in consumer revenue within the client solutions group that includes desktops and notebooks.
  • Dell’s first-quarter profit rose sixfold to more than $880 million.
  • Dell plans to spin off its ownership stake in VMware in late 2021.
  • Meanwhile, VMware’s first-quarter profit rose 10% to $425 million while its revenue rose 9.5% to $2.99 billion.
  • HP’s second-quarter profit rose 61% to $1.23 billion while its revenue rose to $15.88 billion from $12.47 billion a year earlier.
  • The company now expects to generate full-year adjusted earnings per share of $3.40 to $3.50, or 25 cents above the prior projection.
  • The global semiconductor shortage, HP Chief Executive Enrique Lores said, is likely to persist throughout the year, helping extend the boom time for laptop sales into 2022, a view shared by Dell.

General Electric expects to burn less cash in Q2 than a year ago – Reuters, 5/28/2021

  • General Electric expects to burn less cash in the current quarter than it did a year earlier, continuing a year-on-year improvement in cash generation, Chief Financial Officer Carolina Dybeck Happe said on Thursday.
  • The industrial conglomerate expects to post a similar level of improvement in cash flow this quarter as it did a quarter ago, Dybeck Happe said at a Wolfe Research Transportation and Industrials Conference.
  • Analysts surveyed by Refinitiv, on average, expect the Boston-based company to report a cash outflow of $746 million in the current quarter, smaller than an outflow of $2.1 billion a year ago.
  • GE has forecast to generate $2.5 billion to $4.5 billion in free cash flow this year.

Global money market funds see massive inflows in the week to May 26-Lipper – Reuters, 5/28/2021

  • Global money market funds saw huge inflows in the week ended May 26, Refinitiv data showed, amid caution that quickening inflation could alter the direction of U.S. monetary policy and shake up asset markets.
  • According to Refinitiv data, money market funds received an inflow of $53.2 billion, the highest in four weeks.
  • According to the data, global equity funds attracted inflows of $8.84 billion, a 46% increase over the previous week, as stocks rallied somewhat, after U.S. Federal Reserve officials reaffirmed a dovish monetary policy stance. read more
  • S. equity funds received $2.87 billion, while European equity funds and Asian equity funds obtained $2.47 billion and $1 billion, respectively.
  • Among equity sector funds, tech funds attracted inflows worth $546 million after three straight weeks of outflows, while financial sector funds faced their first outflow in 16 weeks, hit by a decline in bond yields.
  • Meanwhile, global bond funds also received inflows worth $8.25 billion, a 26% increase over previous week.

Convertible-Bond Sales Are Soaring in 2021—Often at 0% Interest – Wall Street Journal, 5/28/2021

  • Publicly traded companies are selling bonds that can convert into stock at a record pace this year, with nearly a third of those issuers paying nothing in interest, as they seek to take advantage of low rates and investors’ ravenous appetite for fast-growing firms.
  • So far this year, 97 U.S.-listed companies have issued $54.3 billion worth of convertible bonds, according to Dealogic, a data provider.
  • That is the highest year-to-date volume ever—and 11% more than the amount raised at this point in 2020, which was a record-setting year for convertible-debt issuance.
  • The terms have been so good for companies selling convertible debt that 28 of them are paying no interest on the bonds, the highest number since 2001. The average interest coupon on convertible debt in 2021 is 1.41%, the lowest on record.
  • On average, this year’s crop of issuers will only need to convert bonds into stock if their share price rises 39% typically within a five-year period, the highest so-called conversion premium since 2003, according to Dealogic.

Google Nears Settlement of Ad-Tech Antitrust Case in France – Wall Street Journal, 5/28/2021

  • Alphabet’s Google is nearing a settlement of an antitrust case in France alleging the company has abused its power in online advertising, and is likely to pay a fine and make operational changes, people familiar with the matter said.
  • As part of the case, France’s Competition Authority alleged that the company’s advertising server—historically known as DoubleClick for Publishers (DFP) and used by most large online publishers to sell ad space—gave Google’s online ad auction house, AdX, an advantage against other auction operators, the people said.
  • To settle the French charges, Google has offered to improve the interoperability of AdX with advertising servers run by other companies, as well as to remove some other obstacles faced by competitors, some of the people said.
  • The settlement still must be approved by the authority’s board, which could reject the deal, the people said. If approved, the settlement could be announced in coming weeks, they said.

Boeing Dreamliner Deliveries Face New Delays – Wall Street Journal, 5/28/2021

  • Boeing has halted deliveries of its 787 Dreamliners, adding fresh delays for customers following a recent five-month suspension in handing over the aircraft due to production problems, people familiar with the matter said.
  • Federal air-safety regulators have requested more information about Boeing’s proposed solution to address the previously identified quality lapses, these people said.
  • It wasn’t clear how long the halt might last, these people said. American Airlines was slated to receive a new Dreamliner this week, but that delivery isn’t expected until next week at the earliest, one of these people said.
  • Deliveries are on track to fall short of expectations set by Chief Executive David Calhoun last month, when he told analysts the manufacturer planned to hand over 10 to12 Dreamliners to customers each month.

Meme stocks AMC, GameStop poised to end strong week on a high – Reuters, 5/28/2021

  • Shares of AMC Entertainment and GameStop gained on Friday, on track for a strong end to a spectacular week, which has already seen the movie theater chain’s market value double as retail traders stormed back into meme stocks.
  • AMC’s shares were up 17.3% to $31.11 in U.S. premarket trading on Friday, while those of video game retailer GameStop were 2% higher. GameStop, which was at the heart of the so-called “stonks” retail trading mania this year, is set for its best weekly gain since mid-March, up more than 43% so far.
  • Investors shorting meme stocks GameStop, AMC and private spaceship company Virgin Galactic are estimated to have lost $2.8 billion so far this week, data from financial analytics firm Ortex shows. They lost $1 billion on Thursday alone.

Americans’ Boost to Spending Is Adding Fuel to Economic Growth – Wall Street Journal, 5/28/2021

  • Americans extended a spending binge in April as they continue to catch up on activities they held off on during the pandemic, propelling a broad economic recovery.
  • Consumer spending rose by 0.5% in April the Commerce Department said Friday—a solid increase, though slower than the 4.7% gain the prior month, which was fueled in part by federal stimulus checks.
  • Friday’s report showed a 13.1% drop in household income—a decline that is likely temporary, and due to earlier stimulus efforts by the government.
  • The Commerce Department’s measure, the price index for personal-consumption expenditures, rose 0.6% in April from March and climbed 3.6% from a year earlier.
  • The so-called core index, which excludes food and energy, rose 0.7% in April from March and 3.1% over the prior 12 months.

U.S. consumer sentiment declined in May – Reuters, 5/28/2021

  • S. consumer sentiment deteriorated in May as consumers grew more concerned about a pickup in inflation, a survey released on Friday showed.
  • The University of Michigan’s Consumer Sentiment Index fell to a final reading of 82.9 from April’s final level of 88.3, though it was little changed from May’s preliminary reading of 82.8.
  • The survey’s barometer of current economic conditions fell to 89.4 from April’s 97.2, and also down from May’s preliminary reading of 90.8.
  • The survey’s gauge of consumer expectations slid to 78.8 in May from April’s 82.7, but up modestly from the mid-month reading of 77.6.
  • The survey’s one-year inflation expectation remained unchanged from May’s preliminary reading of 4.6 percent, while the survey’s five-to-10-year inflation outlook eased to 3.0 percent from 3.1 percent.

U.S. Goods-Trade Deficit Narrows as Exports Surge to Record – Bloomberg, 5/28/2021

  • The U.S. merchandise-trade deficit narrowed for the first time this year as the value of exports surged to a record and imports fell from an all-time high.
  • The deficit shrank to $85.2 billion from $90.6 billion in March, according to Commerce Department data released Friday.
  • The median estimate in Bloomberg survey of economists had called for a $92 billion shortfall last month.
  • Imports fell 2.2% to $229.9 billion, while exports climbed 1.2% to $144.7 billion.
  • The value of inward-bound consumer-goods shipments dropped from a record high, falling 4.2% to $63.6 billion.
  • Overall, the value of U.S. exports plus imports surged to $374.6 billion in April, signaling a rebound in trade as the world recovers from the pandemic.
  • The value of automotive-vehicle imports declined to $29.4 billion. Vehicle exports decreased 8%, the most since May 2020, to $11.9 billion.
  • Wholesale inventories climbed 0.8% after posting the largest gain since February 2012 in the prior month.
  • Retail inventories retreated 1.6%, the biggest decline since June 2020.

Chicago PMI soars in May to highest level since 1973 – MarketWatch, 5/28/2021

  • A measure of business conditions in the Chicago region had another strong reading in May, reaching its highest level in 47 years, a trade group said Friday.
  • The Chicago Business Barometer, also known as the Chicago PMI, jumped to 75.2 in May from 72.1, which was the highest since December 1983.
  • Economists polled by the Wall Street Journal forecast decline to a 68 reading.
  • Readings over 50 signal expansion.

Biden Is Expected to Unveil $6 Trillion Spending Plan – Wall Street Journal, 5/28/2021

  • The White House is expected to release President Biden’s first budget proposal Friday, offering new details on how the administration would implement plans over the coming decade to spend $4.5 trillion and increase taxes.
  • The president is proposing a $6 trillion budget for fiscal year 2022, which begins Oct. 1, according to people familiar with the plans.
  • Under the proposal, debt as a percentage of annual gross domestic product would within a few years exceed the level at the end of World War II and climb to 117% of GDP by the end of 2031, according to people familiar with the matter.
  • That would be up from about 100% this year.
  • President Biden’s budget plan would raise discretionary spending in fiscal year 2022 by 8.4%, or $118 billion, from the $1.4 trillion authorized last year, excluding emergency measures to combat the Covid-19 pandemic, according to a preliminary proposal released in April.
  • Nondefense spending would rise 16% next fiscal year to $769.4 billion.
  • Spending on defense would increase 1.7% to $753 billion—much less than what Republicans are likely to support but more than what has been called for by progressives, who pushed for cuts during the Trump administration.

Senate Nears Approval of Bill to Keep U.S. Lead in Technology – Wall Street Journal, 5/28/2021

  • The Senate appeared poised to pass legislation aimed at helping the U.S. maintain its lead in technology amid rising competition from China and other nations.
  • The Senate bill—which has emerged as one of the few big bipartisan legislative efforts so far this year—began moving toward final passage after a 68-30 vote to proceed Thursday afternoon.
  • While final details were subject to change, it would authorize about $190 billion in spending to strengthen U.S. advanced technologies to better compete globally, according to a recent Congressional Budget Office analysis, although not all of that money would represent new spending.
  • The bill also has become a vehicle for a number of other tech-related initiatives. One would authorize about $52 billion for encouraging more semiconductor production in the U.S.
  • Another provision would ban downloads of the Chinese-owned social media app TikTok on all government phones. Previous bans included military and Homeland Security devices.

U.S.’s $795 Billion Rescue Saved Jobs. No One’s Sure How Many – Bloomberg, 5/28/2021

  • It’s been a lifeline for millions of U.S. small businesses during the pandemic, or a bloated bureaucratic nightmare, depending who you ask — and maybe a bit of both.
  • The U.S. government’s sprawling Paycheck Protection Program officially wraps up its 13-month existence on Monday. Economists will be studying PPP for far longer than it was operating to figure out how many jobs it saved.
  • One of the most cited studies, led by a Massachusetts Institute of Technology economist David Autor, pegged the jobs saved by PPP’s first round at a fairly low 2.3 million — at a high cost of $224,000 per job.
  • At the other end of the spectrum, two Federal Reserve economists estimated in January that PPP preserved 13 million jobs at a more modest $43,000 each.


IATA chief pours cold water on Airbus jet output increase – Reuters, 5/28/2021

  • The airline industry’s most senior representative on Friday cast doubt on plans by Europe’s Airbus for sharp increases in jetliner production, saying they appeared overly optimistic.
  • Willie Walsh, director general of the International Air Transport Association, voiced scepticism a day after Airbus published proposals to almost double single-aisle production to as high as 75 jets a month by 2025. read more
  • “Let’s wait and see, because obviously there is a huge disconnect between what the manufacturers say they’re going to produce and what the airlines decide to buy,” he told Reuters.
  • Leasing company executives and some suppliers have responded more cautiously, amid what industry sources described as a standoff between Airbus and some suppliers over who should pay for investments needed to get output to pre-crisis levels.

Factmonster – TODAY in HISTORY

  • Robert Gould Shaw, leading the first northern all-black regiment, leaves Boston for the Civil War. (1863)
  • Linda Finch completed Amelia Earhart’s attempted around-the-world flight. (1997)
  • Pakistan staged nuclear tests in response to India’s nuclear tests two weeks earlier. (1998)
  • Pres. Bush signed a $350 billion tax cut into law; the third largest tax cut in U.S. history. (2003)

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