Morning Reads








Travel was upended from coast to coast over the Christmas holiday weekend, as snow, wind and subfreezing temperatures enveloped much of the country. That derailed the plans for many a flyer, as well as the operations of airlines that saw planes freeze overnight and airports run out of space for de-icing. No one appeared to be hit as hard as Southwest Airlines (NYSE:LUV), however, with travelers complaining of long lines to rebook flights and retrieve baggage, as well as unanswered calls to customer service. LUV -4% premarket to $34.60/share.

What happened? Southwest embarked on a major expansion to new cities during the pandemic, but that left it vulnerable to disruptions when things went wrong. As opposed to flying around central hubs, Southwest planes zig-zag across the country, making it tougher to reserve pilots and flight crews when its systems can't keep up with scheduling changes. The airline has even ramped up staffing above 2019 levels, and said it would restore its quarterly dividend early next year, but it has more work to do to settle the skies.

Calling it the "largest scale event that I've ever seen," Southwest CEO Bob Jordan extended his "heartfelt apologies" following the extreme winter weather. The airline canceled 2,893 flights on Monday, or 70% of scheduled flights, after scrapping 48% of them on Sunday and canceling a total of more than 8,000 flights since Thursday. About 60% of the carrier's planned schedule for today was also scrubbed, and more are on tap for tomorrow, despite improving conditions and warming temperatures.

Under investigation: "The U.S. Department of Transportation is concerned by Southwest Airlines' disproportionate and unacceptable rate of cancellations and delays as well as the failure to properly support customers experiencing a cancellation or delay," according to a press statement. "USDOT will closely examine whether cancellations were controllable and whether Southwest is complying with its customer service plan as well as all other pertinent DOT rules." (3 comments)

End of zero-COVID

After a hard and difficult 2022, traders are keeping their eyes on the chimney to see if the so-called Santa Claus rally will take shape this year. The seasonally bullish trend typically sees equities rise over the last five trading sessions of December and the first two trading days of January. U.S. stocks rose mildly on Friday, and are turning higher premarket, as some optimism returns following fresh developments on the global stage.

Snapshot: China is dropping its quarantine requirements for inbound visitors, further easing its strict COVID controls three years after the onset of the pandemic. China's central health authority has also stopped publishing daily data on infections and deaths, as it downgraded the seriousness of COVID-19 to a "Class B" infectious disease, which requires more basic treatment and prevention. To minimize the impacts on the world's second-largest economy, some Chinese cities have said people could return to work even if they had mild symptoms.

"Most Chinese cities could recover from the first wave of the latest COVID-19 outbreak by January... this would be faster than people have expected," noted Chaoping Zhu, global market strategist at J.P. Morgan Asset Management.

Grim investing: In the meantime, the initial shockwave of infections is leading to overrun emergency rooms and hospitals, while crematoriums are filling up as the zero-COVID stance is completely abandoned. Shares of Fu Shou Yuan International Group (OTC:FSHUF), China's biggest cemetery and funeral service operator, soared another 22% in Hong Kong on Friday, taking its gains over the last two months to nearly 80%. (1 comment)

In time for Christmas

It ain't a sleigh and reindeer, but Amazon (NASDAQ:AMZN) on Friday began deliveries using Prime Air drones in Lockeford, California, and College Station, Texas. Amazon hopes to use feedback from the service to improve its operations, and eventually scale the program nationwide. To fly delivery drones in the U.S., companies have to be approved by the FAA, and the retail behemoth is one of only several firms that has received Part 135 certification.

How it works? Once onboarded, customers can see Prime Air-eligible items on Amazon. They place their order as they normally would and receive an estimated arrival time with a status tracker. For these deliveries, the drone will fly to the designated delivery location, descend to the customer’s backyard, and hover at a safe height. It will then release the package and rise back up to altitude.

"Our aim is to safely introduce our drones to the skies," commented Natalie Banke, spokesperson at Prime Air. "We are starting in these communities and will gradually expand deliveries to more customers over time."

The competition: Alphabet's (GOOGGOOGL) Wing launched commercial service just north of Dallas in April, and hopes to soon press the button on wide-scale deployment. Walmart's (NYSE:WMT) drone delivery program is also available to households in Dallas, Orlando, Phoenix and Tampa, making it possible for customers to get diapers or dinner ingredients delivered in 30 minutes or less. Meanwhile, Uber Eats (NYSE:UBER) has promised to ratchet up drone delivery operations in the near future, but until now, the technology has been mainly focused on small-scale trials. (4 comments)

The housing story

While there's not much economic data out this week, real estate watchers will be eyeing the housing market for some updates. The S&P CoreLogic Case-Shiller National Home Price Index is set to be published today at 9 a.m. ET, and will likely show the third straight month of price declines. The Pending Home Sales Index for November will also be released tomorrow following its sharpest drop on record the previous month.

Bigger picture: Activity in the property sector has been heavily influenced by the Fed's aggressive rate hiking cycle. The 30-year fixed-rate mortgage even jumped to as high as 7% in the fall, and while it recently eased back to 6.3%, monthly mortgage payments are soaring. According to the Mortgage Bankers Association, home payments at the median U.S. price are up 43% YTD.

"Coming out of the pandemic, rates were very low, people wanted to buy houses, they wanted to get out of the cities and buy houses in the suburbs because of COVID," Fed Chair Jerome Powell said in a speech last month. "So you really had a housing bubble, you had housing prices going up to very unsustainable levels and overheating and that kind of thing. Now the housing market will go through the other side of that and hopefully come out in a better place between supply and demand."

Outlook: While it may be a near-term detriment for investors, a cooling housing market is just what the Fed wants in terms of lowering inflation and economic activity. However, if things go too far, a hard landing could be in store in 2023 as the U.S. plunges into recession. In that event, Moody's Analytics forecasts that house prices will fall between 5%-10%, and in 183 overvalued areas, properties could crash 15%-20%.

Today's Markets

In Asia, Japan +0.2%. Hong Kong closed. China +1%. India +0.6%.
In Europe, at midday, London closed. Paris +0.9%. Frankfurt +0.6%.
Futures at 6:30, Dow +0.6%. S&P +0.7%. Nasdaq +0.6%. Crude +0.7% to $80.11. Gold +0.6% to $1815.70. Bitcoin +0.1% to $16,857.
Ten-year Treasury Yield unchanged at 3.75%

Today's Economic Calendar

8:30 International Trade in Goods (Advance)
8:30 Retail Inventories (Advance)
8:30 Wholesale Inventories (Advance)
9:00 S&P CoreLogic Case-Shiller Home Price Index
9:00 FHFA House Price Index
10:30 Dallas Fed Manufacturing Survey
1:00 PM Results of $42B, 2-Year Note Auction
1:00 PM Money Supply

Companies reporting earnings today »

What else is happening...

Holiday retail sales up 7.6% as deals lure consumers - Mastercard.

Disney's (DIS) 'Avatar' sequel sails to 2nd week atop the box office.

Another substation attack leaves thousands without power in WA.

Tesla (TSLA) halts production in Shanghai as part of year-end break.

Nio (NIO) CEO warns of sales challenges in first half of 2023.

Crypto deposit outflows at banks a cause for concern - S&P Global.

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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