Friday Morning Reads

Friday Morning Reads







Blowout payrolls

Another stellar non-farm payrolls report is likely on tap this morning, with the Labor Department set to release numbers for April at 8:30 a.m. ET. Non-farm payrolls are forecast to have increased by 978,000 in April, following a 916,000 jump in March, which marked the largest increase since last August. The unemployment rate is meanwhile expected to have slipped slightly to 5.8%, from 6% last month, driven by re-opening activity, a broad vaccine rollout and financial help from the federal government.

Some are even more optimistic: A snapshot of the restaurants and bar industry over the past two months is "reminiscent" of May and June 2020 when leisure and hospitality employment led the way to record readings, said Aneta Markowska, chief economist at Jefferies. "Other COVID-sensitive sectors, e.g. retail, health and personal services, are likely to enjoy significant increases as well given the easing of distancing restrictions in many states. Net, our bottom-up estimates put total hiring at 2.1M." Nomura chief economist Lewis Alexander is also forecasting a "monster U.S. payroll number" today, due to a recovery in some of the industries hit hardest by the pandemic.

Given inflated prices, supply concerns and logistical logjams, the main economic concern right now is, ironically, enough workers to keep up with rising demand. "We know per recent qualitative data that companies are starved for employees at the moment. We can see that in both ISM reports (manufacturing and services) as well as in the Fed’s Beige Book," wrote economists at RBC Capital Markets. "Moreover, we know that continuing claims (not-seasonally adjusted) made a sizable improvement when measured between the payroll survey weeks, and that underpins our forecast."

Worries remain: "A big segment of the workers are still concerned about the pandemic. We estimate roughly 1.6M workers want a job but didn't look for a job recently because they were still concerned about contracting the virus, or other factors around the pandemic," added Bank of America U.S. economist Joe Song. "On top of that, you had some workers citing that childcare was still a big factor for their decision not to participate in the labor market." As of last month, the economy was 8.4M payrolls short of pre-pandemic levels, but if economists' estimate for April hiring proves accurate, the U.S. will be 1M jobs closer to a full economic recovery.

Financial Stability Report

The Federal Reserve painted a generally sunny picture of the financial system in its latest semi-annual Financial Stability Report, but cited particular examples that may warrant further attention. Some asset prices "may be vulnerable to significant declines should risk appetite fall," the central bank cautioned, saying that "episodes of high trading volumes and price volatility for so-called meme stocks" were among signs pointing to "elevated risk appetite in equity markets." Hedge funds were also singled out over their slightly higher-than-normal leverage, as well as their available data that "may not capture important risks" (e.g. the collapse of Archegos Capital Management).

Quote: "Vulnerabilities associated with elevated risk appetite are rising," added Fed Governor Lael Brainard in an accompanying statement. "Stock prices are high compared with earnings, and the appetite for risk has increased broadly, as the 'meme stock' episode demonstrated." Fed Chairman Jerome Powell also described parts of the market as "a bit frothy" last week. "I won't say it has nothing to do with monetary policy, but it also has a tremendous amount to do with vaccination and reopening of the economy."

Nevertheless, other parts of the financial system appear resilient. Banks remain well-capitalized and household debt is manageable, according to the report, while leverage is low among broker-dealers and businesses are better able to service their obligations as interest rates remain low and earnings recover. The COVID-19 pandemic meanwhile remains one of the biggest near-term risks to the stability of the global financial system, per the assessment, "despite substantial progress with vaccinations."

Go deeper: Many investors argue that high stock valuations aren't a problem as long as interest rates stay low and corporations continue to report strong profit growth. In fact, much of the money made in the stock market in recent memory has been from companies whose shares have elevated price/earnings ratios. The current bullish sentiment has been reflected in expectations of a rapid economic rebound from the pandemic, as well as promises by the Fed to keep rates near zero through 2023 (and $120B in asset purchases per month). Next up may be a boxing match between markets and central bankers over whether those commitments can stay intact as inflation pushes higher.

Peloton damage control

It's been a whirlwind week for Peloton (NASDAQ:PTON) and its investors. The company sells high-end exercise bikes and treadmills (think thousands of dollars) that are touted for their library of workouts and access to live classes. Things for the company really took off during the pandemic as consumers sought the convenience of at-home and on-demand workouts, sending shares of the company up 434% in 2020.

Trouble hits: Back in March, Peloton CEO John Foley disclosed that a child had died in an accident involving one of its treadmills, but challenged any recall request, saying "children, pets, and objects need to be kept away from the Tread+ at all times." That didn't last long. The U.S. Consumer Product Safety Commission subsequently issued a warning for the device, citing 39 incidents and "serious risks to children for abrasions, fractures and death." Since the notice on April 19, PTON shares tumbled about 22% to $83, and plunged even further on Wednesday after company decided to take action.

Recall: As part of the agreement with the CPSC, Foley acknowledged Peloton made a mistake when Peloton initially refuted the regulator's claims. While the recall will knock $165M off FQ4 revenues, the company has still forecast quarterly sales of $915M and an annual total of $4B (not far off previous annual guidance for $4.08B in sales). "We're going to take some short-term financial pain to be able to invest in building something that will last for decades," Foley added on yesterday's earnings call.

Speaking of earnings... Investors turned positive on them - after the stock initially plunged - by looking past a quarterly loss and the recall. Revenues more than doubled from a year ago to $1.26B, while connected fitness subscriptions jumped 135% Y/Y to 2.08M and paid digital subscriptions soared 404% to 891K, both exceeding analyst consensus estimates. Peloton also said delivery times for its original exercise bike have returned to pre-COVID-19 levels and "we see significant growth opportunities in a broad range of international markets." In premarket action, Peloton shares are up 7% to retake the $90 level.


There are battles being waged in the plant-based theater, driven by a shift in consumer appetite toward environmentally friendly products. However, dairy and meat plant-based items aren't the only alternative protein rage. Lab-grown meat, as well as fermentation startups, are still in the early stages, and some have been hit store shelves as they look to ramp up production.

Earlier this week, Tyson Foods (NYSE:TSN) made a second attempt at penetrating the market by expanding its Raised & Rooted brand. It had launched the product line back in 2019, offering "blended" animal meat and plant-based substitutes, but the product receives a lackluster response from consumers. Now, the American meat giant is revamping the range, launching three new completely vegan-friendly products: 100% plant-based burgers, sausages and ground beef. Some tensions have surrounded Tyson's foray into plant-based production and the company sold its stake in Beyond Meat (NASDAQ:BYND) ahead of the industry leader's IPO in 2019.

That's not all: The world's biggest meat processor, JBS (OTCQX:JBSAY), recently agreed to acquire Dutch meatless brand Vivera for €341M, with analysts cheering the company's move into the sector. JBS "is back in M&A mode," BTG Pactual wrote in a note, while Ernst & Young warned that "substantial disruption" will ensue for meat giants that fail to "consider a more diverse portfolio." Back in March, Israeli startup MeaTech (NASDAQ:MITC) also became the first lab-grown meat company listed on Wall Street, while Singapore became first country to approve lab-grown meat in December.

Don't forget about dairy: Nestle (OTCPK:NSRGY) is taking on Danone's (OTCQX:DANOY) Alpro and plant-based milk brand Oatly (OTLY), which filed for an IPO several weeks ago and is backed by TV personality Oprah Winfrey. Nestle's pea-based milk alternative, called Wunda, will be available in European markets in the coming weeks, and an expansion into other dairy-free products like yogurt could follow. Does it taste like peas? Far from it, says the company, describing the milk as having a "great neutral taste" that can be "drunk straight, poured over cereal, used in hot beverages or cooking, and much more."

What else is happening...

Dogecoin (DOGE-USD) on watch as Elon Musk hosts Saturday Night Live.

Germany's Merkel opposed to lifting IP protections on vaccines.

Norwegian (NYSE:NCLH) ships are unlikely to sail this summer.

Jeff Bezos sold $2B worth of Amazon (NASDAQ:AMZN) shares this week.

The New York Times (NYSE:NYT) has a new suitor: The Athletic.

Herbalife (NYSE:HLF) holder Carl Icahn is said to sell last of his position.

Teladoc (NYSE:TDOC) falls after Walmart (NYSE:WMT) buys telehealth provider MeMD.

Jessica Alba's Honest Company (NASDAQ:HNST) pares post-IPO pop.

Thursday's Key Earnings

AMC (NYSE:AMC) +2.7% AH seeing a favorable environment for movie-going.
Beyond Meat (NASDAQ:BYND) -7% AH weighed down by lockdown pressures.
Dropbox (NASDAQ:DBX) +2.2% AH posting a set of Q1 beats.
Energy Transfer (NYSE:ET) +5% gaining sharply from Texas freeze.
Expedia (NASDAQ:EXPE) +4.8% AH with travel demand 'roaring back.'
Kellogg (NYSE:K) +7.1% on earnings beat, raising FY2021 outlook.
Moderna (NASDAQ:MRNA) -1.4% with U.S. backing a waiver for vaccine protections.
Peloton (PTON+5.6% AH predicting only short-term effects from recall.
Regeneron (NASDAQ:REGN) +3.4% with double-digit top and bottom-line growth.
Roku (NASDAQ:ROKU) +9% doubling gross profits.
Shake Shack (NYSE:SHAK) -7.9% AH on a set of mixed results.
Square (NYSE:SQ) +2% AH with Seller GPV up 144% in April.
ViacomCBS (NASDAQ:VIAC) -2.4% despite ad and subscriber strength.

Today's Markets

In Asia, Japan +0.1%. Hong Kong +0.1%. China -0.7%. India +0.5%.
In Europe, at midday, London +0.7. Paris +0.3%. Frankfurt +1.3%.
Futures at 6:20, Dow +0.3%. S&P +0.3%. Nasdaq +0.4%. Crude +0.2% to $64.83. Gold +0.3% at $1820.90. Bitcoin -2.3% to $56620.
Ten-year Treasury Yield +2 bps to 1.58%

Today's Economic Calendar

8:30 Non-farm payrolls
9:00 Fed's Barkin Speech
10:00 Wholesale Inventories (Preliminary)
1:00 PM Baker-Hughes Rig Count
3:00 PM Consumer Credit


Known to most as Uranium Pinto Beans, Jason has more than 15 years under his belt of trading stocks, options and currencies. His expertise primarily lies in chart analysis, and he has a strong eye for undervalued stock. Because he’s got the ability to identify great risk/reward trades he usually enjoys taking the path less traveled and reaping the benefits from the adventure.

He is a co-founder of Option Millionaires, and he is best known for his weekly webinars with Scott, as well as his high level training webinars and charts found in the forums.

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