Friday Morning Reads

Friday Morning Reads







Turning around?

Equities are getting some of their momentum back at the end of a choppy week that saw a jump in inflation rattle the markets. All three major averages snapped three-day losing streaks by closing solidly in the green on Thursday, and while they're still on track for hefty weekly losses, the positive sentiment stuck around overnight. Dow and S&P 500 futures rose by 0.5% and 0.7%, respectively, while contracts linked to the tech-heavy Nasdaq, which has been hit especially hard, climbed 1.1%.

Bigger picture: Fed officials have been suggesting that the central bank has no intention to withdraw its support as the 10-year Treasury yield fell by another 3 bps to 1.63%. On Thursday, new Fed board member Christopher Waller also helped calm inflation jitters by saying the central bank would need several more months of data before assessing economic progress. Meanwhile, so-called reopening trades such as airlines and cruise companies ripped higher as the CDC eased mask guidelines (see below).

"Higher inflation is likely to remain in the spotlight as the post-pandemic recovery accelerates," said Mark Haefele, chief investment officer at UBS Global Wealth Management. "But while we expect inflation fears to generate bouts of volatility, and we continue to position for reflation, we also see such market swings as an opportunity to build exposure to structural winners."

"The corporate turnaround is strong enough to keep markets rising, even as bond yields increase in anticipation of central bank tightening," added Robert Buckland, equity strategist at Citi. "So buy any short-term dips, as we may be seeing now. There is a time to turn more cautious but that may be next year, not this."

Economic data this morning: Retail sales will provide fresh insights on the pace of the recovery, while industrial production figures will signal the extent to which supply chain bottlenecks have held back output. The University of Michigan will also publish its consumer sentiment index for May, shedding light on financial conditions and attitudes about the economy.

Masks off

"Anyone who is fully vaccinated can participate in indoor or outdoor activities, large or small, without wearing a mask or physical distancing," CDC Director Rochelle Walensky said on Thursday. "If you are fully vaccinated, you can start doing the things that you had stopped doing because of the pandemic. We have all longed for this moment when we can get back to some sense of normalcy." The shift in guidance indicates a broader return to everyday life and is a bet that any new outbreaks from relaxed guidelines won't be enough to reverse progress from inoculations.

Exceptions: The agency still recommends fully vaccinated people wear masks on "all planes, buses, trains and other forms of public transportation,” as well as in healthcare settings, homeless shelters and correctional facilities. Masks are also recommended for people who are partly vaccinated (i.e. haven't yet received their final dose), or for children who haven't gotten a vaccine.

Traders reacted to the news by selling off shares in notable mask makers. Allied Healthcare Products (AHPI) and Alpha Pro Tech (APT) closed the session down nearly 11% and 6%, respectively. On the other side of the trade, shares of Ulta Beauty (ULTA) finished the day up 3% after D.A. Davidson analyst Michael Baker said the beauty retailer was likely to be a beneficiary of the mask lifting restrictions.

Bottom line: The CDC's guidelines are recommendations and don't have the force of law. Decisions on when and where masks must be worn rest with states, local governments and businesses, which can decide whether to maintain or relax their existing mask mandates, as well as incentives or deterrents to enforce compliance. (23 comments)

House of Mouse

The pandemic dealt a heavy blow to Disney's (DIS) theme parks, but it was a boon for the company's streaming service. However, investors weren't as impressed this past quarter as Disney+ signed up another 9M users, taking its total number to 103.6M paid subs vs. expectations of 109M. Average monthly revenue per subscriber also fell 29% to $3.99 - a move the company blamed on the launch of Disney+ Hotstar - and DIS shares slid 4.2% in extended trading.

Coming up fast: While Netflix (NFLX) has double the number of subscribers than rival Disney, the latter's figures look a whole lot better when adding in its other streaming services: ESPN Plus had 13.8M subs (up 75% year-over-year), and Hulu had 41.6M subscribers (up 30%). Netflix has also reported a sharp slowdown in new signups, putting the godfather of streaming on the defensive, but CEO Reed Hastings has attributed the downturn to pandemic distortions and feels it will grow again as more shows come back in the second half of 2021.

Meanwhile, revenue at Disney's Parks, Experiences and Products segment tumbled 44% to $3.17B, and the pandemic cost the division around $1.2B in lost operating income. Similar losses were reported in each of the company's last four earnings reports, with many of its theme parks closed or operating at reduced capacity, while its cruise ships and guided tours remained suspended. Looking to get back to business, Disney reopened its two California-based parks on April 30 and has high expectations for the coming quarters.

Outlook: "We're pleased to see more encouraging signs of recovery across our businesses, and we remain focused on ramping up our operations while also fueling long-term growth for the company," said CEO Bob Chapek. "This is clearly reflected in the reopening of our theme parks and resorts, increased production at our studios, the continued success of our streaming services, and the expansion of our unrivaled portfolio of multiyear sports rights deals for ESPN and ESPN Plus." (49 comments)

No credit score needed

Wells Fargo (NYSE:WFC), JPMorgan Chase (NYSE:JPM), and U.S. Bancorp (NYSE:USB) are among a group of banks that will start providing customer deposit account information as part of a government-supported initiative to give more people access to credit cards, WSJ reports. The idea is to use alternative data, such as bank account information, to determine credit risk for those people who don't have a traditional credit score. The pilot program is expected to start later this year and about 10 banks have agreed to exchange data.

Backdrop: In recent years, some big U.S. lenders have developed risk models - based on their own customers' bank account activity - to approve financing for applicants with limited or no credit histories. The move resulted in credit-card approvals for about 700K additional customers at JPMorgan alone over the last five years. In 2018, FICO also announced a scoring system that factored in how consumers manage their bank accounts, but few lenders (and no banks) signed up for the program.

The average FICO score in the U.S. rose to 711 in 2020, marking an eight-point increase from 2019 and the most significant spike since 2016. However, some 53M adults in the U.S. still don't have traditional credit scores, according to Fair Isaac (NYSE:FICO), the creator of FICO credit scores. More often than not, they are limited to payday loans and other costly forms of credit.

Go deeper: The effort comes as loan growth at banks weakens with consumers wary of taking on debt and stimulus payments giving them the ability to pay down credit card balances. In the absence of lending, extra deposits can be costly for banks, putting pressure on their regulatory ratios and eventually requiring them to hold more capital. Banks like JPMorgan and Citigroup (NYSE:C) have even been recently advising large corporate clients to move their savings into money market funds given their cash-flooded balance sheets. (67 comments)

What else is happening...

Colonial Pipeline paid $5M ransom to DarkSide hackers amid fuel crunch.

Worker shortage? McDonald's (NYSE:MCD) boosts pay at company-owned stores.

Amazon (NASDAQ:AMZN) hiring 75K fulfillment and logistics workers in N. America.

Pinterest (NYSE:PINS) to test live streams with creator event this month.

EV news... Fisker (NYSE:FSR) inks deal with Foxconn for vehicle production.

'To be clear, I strongly believe in crypto' - Elon Musk.

Cryptocurrency exchange Binance reportedly under DOJ investigation.

Latest buys and sells? ARK ETFs sit out the market rally.

AMC Entertainment (NYSE:AMC) soars after completing 43M-share equity offering.

Biden's cyber order means new boon for enterprise cloud stocks - Wedbush.

Corn futures plunge in 'long overdue correction in overbought market.'

Thursday's Key Earnings

Airbnb (NASDAQ:ABNB) -1.8% AH posting a disappointing Q1 bottom line.
Alibaba (NYSE:BABA) -6.3% on mixed Q1 results with a profit miss.
Coinbase (NASDAQ:COIN) +0.5% AH tripling revenues from last quarter.
Disney (NYSE:DIS) -4.1% on slowing Disney+ subscriber growth.
DoorDash (NYSE:DASH) +7% AH on a big sales beat, strong guidance.
XPeng (NYSE:XPEV) -4.9% predicting another quarter of chip shortages.

Today's Markets

In Asia, Japan +2.3%. Hong Kong +1.1%. China +1.8%. India +0.1%.
In Europe, at midday, London +0.6%. Paris +0.7%. Frankfurt +0.6%.
Futures at 6:20, Dow +0.5%. S&P +0.7%. Nasdaq +1.1%. Crude +1.1% to $64.49. Gold +0.5% at $1833.80. Bitcoin +2.8% to $50577.
Ten-year Treasury Yield -3 bps to 1.63%

Today's Economic Calendar

8:30 Retail Sales
8:30 Import/Export Prices
9:15 Industrial Production
10:00 Business Inventories
10:00 Consumer Sentiment
1:00 PM Baker-Hughes Rig Count
1:00 PM Fed's Kaplan Speech

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.

More Posts by UPB: View All | Private Twitter Feed: Access Now! (For Diamond Members)