Listen on the go! A daily podcast of Wall Street Breakfast's Alpha Talks will be available this morning on Seeking Alpha, iTunes, Stitcher and Spotify.
Stocks fell for a fourth straight day, and the S&P 500 finished its worst week since February, after St. Louis Federal Reserve President James Bullard said interest rates may need to rise next year to tamp down possible inflation. His comments came after the Fed on Wednesday added two rate hikes to its 2023 forecast and increased its inflation projection for the year, pressuring stock prices. The news led to a 3.5% loss for the week on the Dow Jones average, while the S&P fell 1.9% and the Nasdaq edged 0.3% lower. Sectors that had led the market higher all year were the week's worst performers, with the financials and materials groups each losing more than 6% and energy losing more than 5%. Commodity prices also plunged, including a 9% drop in copper.
There's never a dull day when Jerome Powell comes to town, with the market hanging on to his every word from the public square. On Wednesday, the Fed raised its expectations for inflation considerably, saying the headline figure could reach 3.4%, marking a full percentage point higher than its forecast in March. While Powell still feels the price pressures are "transitory," it may now take some comforting numbers to reassure investors.
Interest rates: The central bank also brought forward the time frame on when it will next raise rates. The so-called dot plot of individual FOMC member expectations pointed to two hikes in 2023, after Powell said in March that he saw no increases until at least 2024. Stocks slumped yesterday in reaction to the news, but rallied off their intraday lows after the Fed Chair said the projections should be "taken with a big grain of salt."
Taper talk: Powell did not issue guidance on when the central bank will begin tapering its bond-buying program, though many speculate that could come at Jackson Hole in August. "You can think of this meeting that we had as the 'talking about talking about' meeting, if you'd like," Powell said when asked about tapering. "I now suggest that we retire that term, which has served its purpose."
On the economy: Another area to contend with is the current worker shortage which is roiling many industries. Job openings soared to a record 9.3M in April as the economy reopened, according to the latest JOLTS report, but 3.5M Americans are still on weekly jobless benefits and more than 9M remain unemployed. While the numbers sound somewhat contradictory due to the ways they are collected and measured, they mean the U.S. is experiencing high unemployment at the same time as a labor shortage. There are many reasons for the hiring scarcity like shifting employment choices, though Republicans have mainly pointed to programs such as enhanced unemployment benefits, while Democrats have flagged items like childcare responsibilities, lingering COVID-19 worries and the need to raise wages. (20 comments)
Progressive tech critic Lina Khan was sworn in as chair of the Federal Trade Commission, becoming the youngest commissioner ever confirmed to the FTC. Her 69-28 approval in the Senate also points to some bipartisan agreement among legislators that Big Tech needs some tighter reins. Amazon.com (AMZN), Facebook (FB), Alphabet (GOOG, GOOGL) and Apple (AAPL) are watching closely...
Who is Lina Khan? The 32-year-old is a law professor at Columbia University, specializing in antitrust and anti-monopoly cases, and previously worked as a legal adviser to FTC Commissioner Rohit Chopra. Last year, she served as counsel to a House investigatory panel, conducting a 16-month investigation into large online platforms and recommending action against the companies' anti-competitive behavior. Coming into focus is also a paper she wrote in 2017, called "Amazon's Antitrust Paradox," which made her a well-known figure in antitrust circles.
More on the article: Khan argues that current anti-competition laws are poorly equipped to address e-commerce. This is because the usual framework for evaluating competitive harm is the popular consumer welfare standard, which is often measured based on prices. However, that harm could be discounted in the modern economy, where practices like online predatory pricing lowers costs for consumers in the short term, but equips a company to gobble up market share. Like others, she also flags problems with Amazon owning a marketplace and selling on the same platform.
"Congress created the FTC to safeguard fair competition and protect consumers, workers, and honest businesses from unfair & deceptive practices," Khan said on Twitter after her confirmation. "I look forward to upholding this mission with vigor and serving the American public." (98 comments)
It's been quite a week for Lordstown Motors (RIDE), whose stock went on a rollercoaster ride after some noteworthy headlines. Shares plunged 19% on Monday, only to rebound 11% on Tuesday, and wobbled around the $10-level over the past few sessions. Investors and analysts are still figuring out how to size up the company, which was once hyped to take market share from Tesla (TSLA) and Rivian (RIVN), as well as Nikola (NKLA) - which faced its own crisis in September 2020.
Backdrop: Lordstown Motors was founded in 2018 by Steve Burns, former CEO of Workhorse Group (NASDAQ:WKHS), and a year later scooped up a GM (NYSE:GM) plant located in Lordstown, Ohio. Lordstown later inked a deal with Workhorse for the intellectual property rights of its W-15 pickup truck by giving the latter a 10% equity stake in the company. Last October, Lordstown reverse merged with a SPAC named DiamondPeak Holdings and became listed on the NASDAQ at an estimated equity value of $1.6B (roughly around its current market cap).
But... Both Lordstown CEO Steve Burns and the CFO Julio Rodriguez resigned on Monday after a board investigation into claims made by Hindenburg Research. While the internal probe found the short-seller's report "in significant respects, false and misleading," it did flag "issues regarding the accuracy of certain statements regarding" its pre-orders. The news added to a damaging headline from last week, when Lordstown revealed it was almost out of cash, "creating substantial doubt as to our ability to continue as a going concern."
Resetting course? While breaking into a competitive and capital-intensive field like EVs is not easy, Lordstown's new chairwoman feels it can be done. "It's a new day at Lordstown and there are no disruptions, and there will be no disruptions, to our day-to-day operations," Angela Strand said in a statement. She also confirmed that the company remains on track to begin limited production in September and there was enough interest from potential buyers to support factory output through the end of 2022. (87 comments)
In a 7-2 ruling, the U.S. Supreme Court upheld the constitutionality of the Affordable Care Act on Thursday, marking the third time the High Court has upheld the law that went into effect in 2010. Justices Samuel Alito and Neil Gorsuch were the two dissenters, who accused the majority of ducking constitutional issues. "In all three episodes, with the Affordable Care Act facing a serious threat, the court has pulled off an improbable rescue... it follows the same pattern as installments one and two."
Backdrop: The case was brought by Texas and other Republican-leaning states, which had sought to strike down the law on technical arguments after Congress reduced the penalty for failing to buy health insurance to zero. The decision, written by Justice Stephen Breyer, concluded that none of the plaintiffs were hurt from eliminating the fine and thus lacked legal standing to bring the lawsuit in the first place. The decision largely left aside addressing the core of the law.
"A big win for the American people," President Biden tweeted after the ruling. "With millions of people relying on the Affordable Care Act for coverage, it remains, as ever, a BFD. And it's here to stay."
Statistics: According to a report last month from the Department of Health and Human Services, 31M Americans had health coverage through the Affordable Care Act, including 11.3M people enrolled in the Obamacare exchanges and 14.8M who received coverage under the law's expansion of Medicaid. Another 1.2M Americans chose policies this year during a special enrollment period that Biden launched in mid-February to expand coverage to the uninsured (it runs until August). (127 comments)
Just before the weekend, President Biden signed a bill into law to make Juneteenth a national holiday after the measure passed the Senate unanimously and was approved 415-14 in the House. The day commemorates the 1865 date when Union General Gordon Granger arrived with federal troops in Galveston, Texas, and issued an order freeing the last of America's slaves. "Great nations don't ignore their most painful moments," President Biden said during a ceremony at the White House. "They embrace them."
Corporate action: Spurred by the George Floyd protests in 2020, many companies already marked Juneteenth last year, expanding awareness of the holiday. Some 200 firms made the day a paid holiday, including Twitter (TWTR), Square (SQ), Nike (NKE) and Spotify (SPOT), as well as Adobe (ADBE), Altria (MO), Lyft (LYFT) and Uber (UBER). JPMorgan Chase (JPM) also closed its bank branches early, while the Detroit Three - GM (GM), Ford (F) and Chrysler Stellantis (STLA) - held moments of silence.
The new federal law will prompt many other American employers, which peg their holiday schedule to the federal calendar, to decide whether to give their workers a paid day off. Many of those decisions will take place next year, given the last-minute signing of the bill. U.S. stock and bond markets will also remain open today due to the advanced notice needed to coordinate holiday closures.
Outlook: It took 15 years for the major exchanges to close in observance of Martin Luther King Jr. Day, which was the last federal holiday passed in 1983. However, many are expecting quicker decision-making this time around. SIFMA and CME Group (NASDAQ:CME) have already incorporated the holiday into their schedule next year, while the New York Stock Exchange (NYSE:ICE) and Nasdaq (NASDAQ:NDAQ) will rely on input from the financial industry - like banks, broker-dealers and regulators - on whether to close for Juneteenth in 2022. (119 comments)
U.S. Indices
Dow -3.5% to 33,290. S&P 500 -1.9% to 4,166. Nasdaq -0.3% to 14,030. Russell 2000 -4.1% to 2,241. CBOE Volatility Index +32.3% to 20.7.
S&P 500 Sectors
Consumer Staples -2.9%. Utilities -3.2%. Financials -6.2%. Telecom -1.1%. Healthcare -0.8%. Industrials -3.8%. Information Technology +0.1%. Materials -6.3%. Energy -5.2%. Consumer Discretionary -0.1%.
World Indices
London -1.6% to 7,017. France -0.5% to 6,569. Germany -1.6% to 15,448. Japan +0.1% to 28,964. China -1.8% to 3,525. Hong Kong -0.3% to 28,753. India -0.3% to 52,344.
Commodities and Bonds
Crude Oil WTI +0.7% to $71.4/bbl. Gold -6.1% to $1,764.3/oz. Natural Gas -1.9% to 3.232. Ten-Year Treasury Yield -1.% to 132.4.
Forex and Cryptos
EUR/USD -2.01%. USD/JPY +0.53%. GBP/USD -2.11%. Bitcoin +0.1%. Litecoin -3.5%. Ethereum -6.5%. Ripple -4.2%.
Top Stock Gainers
Alfi (NASDAQ:ALF) +127%. Torchlight Energy Resources (NASDAQ:TRCH) +101%. RAPT Therapeutics (NASDAQ:RAPT) +87%. KnowBe4 (NASDAQ:KNBE) +70%. Clearside Biomedical (NASDAQ:CLSD) +61%.
Top Stock Losers
United Time Technology (NASDAQ:UTME) -61%. Urban One (NASDAQ:UONE) -52%. Inhibikase Therapeutics (NASDAQ:IKT) -51%. Washington Prime Group (NYSE:WPG) -48%. ReShape Lifesciences (NASDAQ:RSLS) -45%.
Where will the markets be headed next week? Current trends and ideas? Add your thoughts to the comments section.
