September 24, 2020

Market recap

Dow Jones


-525.05 (-1.92%)

S&P 500


-78.65 (-2.37%)



-330.65 (-3.02%)



-$2.34 (-1.69%)



-$1.15 (-0.87%)

Johnson & Johnson


$0.18 (0.12%)

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Top Story

The Fastest Growing Ecommerce Segment

Even More Room for Growth

Online grocery shopping is one of the fastest growing segments of ecommerce. The number of customers buying groceries online has surged during the pandemic and there is still an enormous amount of room for growth. Recent data shows that online grocery sales will account for 4% of overall grocery sales this year, which represents a 60% year-over-year increase.

The grocery industry in the US is worth $900 billion. Analysts noted that the vast scope of the industry, and the fact that it has so much runway space for gains, could mean that there is space in the market for numerous companies to benefit from the online grocery shopping boom.

An Expanding Customer Base

As of May 2020, about half of US consumers had done some form of online grocery shopping. 43% of those people did so for the first time during the pandemic. It is expected that many of these people will grow accustomed to the convenience of online grocery shopping and will stick to habits formed during this period even after the pandemic subsides.

Before the pandemic, many analysts did not think of baby boomers and members of the silent generation as potential ecommerce customers. However, because this population is particularly vulnerable to COVID-19, 28% of them have done online grocery shopping during the pandemic, adding a new, somewhat unexpected customer base.

Companies to Watch

Companies are well aware of the huge potential for online grocery gains and are vying for customer loyalty. On September 15, Walmart (WMT) launched Walmart+, a competitor to Amazon’s (AMZN) Amazon Prime. About 55% of Walmart’s sales already come from groceries and the company hopes that its new membership service will build customer loyalty. Target (TGT) is also ramping up its ecommerce operations and added 10 million new digital customers during the first half of the year.

Some food brands are also launching direct-to-consumer platforms for people to buy their products online. For example, PepsiCo (PEP) launched, a service offering bundles of the company’s products like SunChips and Gatorade.

More traditional grocery stores like Kroger (KR) and local grocers are having an easier time offering online sales because the market for these services is growing, which brings the cost per online order down for grocers. Investors have already been closely following the online grocery boom and they will be eager to see if the industry continues its rapid growth.

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CME and Nasdaq Create Water Futures Contract

Betting on the Price of H20

Water is arguably the most important commodity in the world, and a new market will soon allow farmers, manufacturers, speculators, and others to bet on its price. Investors have long wagered on the price of materials like crude oil, soybeans, and copper, and soon they will be able to do the same with water.

CME (CME) and Nasdaq (NDAQ) are launching a water futures contract later this year, which will be the first of its kind. Water futures will be able to help industries that use large amounts of water to hedge against price changes.

How Water Futures Will Be Structured

The water futures will be tied to the price of water in California. The state has a large population and a robust agriculture industry, both of which use large amounts of water.

Water futures contracts will be priced in terms of dollars per acre-foot. This is equivalent to about 325,851 gallons, or the amount of water needed to cover an acre with water one foot deep. Last week, the price of an acre-foot of water was $526.40.

Looking Ahead

Water scarcity is a growing risk for agriculture and other industries. By some estimates, almost two-thirds of the world’s population will experience water shortages by 2025.

CME and Nasdaq’s water futures will be launched toward the end of the year’s fourth quarter after a regulatory review. Hopefully, the new initiative will help align supply and demand of a critically important resource.

Tea Prices Are Heating Up

Demand For Tea is Rising

Tea is the most popular beverage in the world after water. Each day, about 3.7 billion cups of tea are consumed worldwide. On any given day, roughly half of people in the US drink the beverage either hot or cold.

Though the pandemic has reduced demand for tea from cafes and restaurants, tea consumption at home has surged as people work remotely and seek out ways to destress. This trend, combined with tea production conditions, has led the price of tea leaves to spike.

Tea Producers Face Challenges

Most tea grows in mountainous regions with tropical or subtropical climates. China, India, Kenya, and Sri Lanka lead the world in tea production, though Argentina supplies much of the tea sold in the US.

Sri Lanka, the third-largest tea exporter, experienced a severe drought earlier this year, which caused its tea production to drop by 15% during the first seven months of the year compared to a year earlier. In India, tea production fell by 22% during the same period as the country battled COVID-19. Tea production has mostly recovered in Sri Lanka and has stayed strong in Kenya and other countries, but the shortage has impacted tea prices significantly.

Tea Prices Rise

Due to the combination of supply chain strain and rising demand, the price of wholesale tea leaves has gone up by 50% since March. When the pandemic first set in, supply chain issues and oversupply caused prices to drop to their lowest levels in over 10 years. Since then, they have picked up steam and reached $3.16 per kilogram, or $1.44 per pound—levels last seen in November 2017.

The rise in the price of tea leaves caused the price of liquid tea, which is usually sold as a bottled concentrate, to rise 9.6% from a year earlier. The price of packaged tea, sold in tea bags, is up 1.7%. As much of the world looks ahead toward cooler weather, demand for tea could become even stronger. Investors will be watching closely to see how this, and other factors, impact the price of tea.

Not-So-Breaking News

  • Johnson & Johnson (JNJ) began a phase three clinical trial of its potential COVID-19 vaccine, which will involve 60,000 volunteers in 215 places in the US and in other countries. Moderna (MRNA), Pfizer (PFE), and AstraZeneca (AZN) have also entered late-stage vaccine testing with funding from the Federal Government’s Operation Warp Speed program.
  • KKR (KKR) is acquiring 1-800 Contacts from AEA Investors LP for about $3 billion. When lockdowns in the US were at their height, 1-800 Contacts saw a 100% year-over-year increase in new and returning customers as contact-wearers avoided brick-and-mortar stores and bought their lenses online. KKR believes that the rise in ecommerce across many industries will help 1-800 Contacts see even more growth.
  • Yesterday, California Governor Gavin Newsom tweeted, “CA is phasing out the internal combustion engine. By 2035 every new car sold in CA will be an emission free vehicle.” This could have a significant impact on EV makers like Tesla (TSLA), General Motors (GM), and Ford (F).
  • Walmart (WMT) announced it will hire 20,000 seasonal employees to help with packing and shipping products during the holiday shopping season. This is the first time in five years the retailer has ramped up hiring for the holidays. Walmart also said it will spread Black Friday deals throughout the season instead of packing them all in one day because there will likely be far less in-person shopping on the day after Thanksgiving than most years.
  • Earlier this week, connected fitness company Echelon Fitness announced it would be offering a stationary bike called the “Prime Bike.” Echelon said the bike was “developed in collaboration with Amazon,” but Amazon (AMZN) said it had nothing to do with the bike’s creation. Amazon asked Echelon to stop selling the Prime Bike until it is rebranded. The confusion surrounding the product sent shares of stationary bike maker Peloton (PTON) down 6% on Tuesday, but then the company’s shares hit record highs on Wednesday.
  • If you’re a total newbie, the stock market can be intimidating. There’s lingo to learn and a steep learning curve: What exactly does it mean to “buy shares,” and how do you do it? Get the answers to that and more at Investing for Beginners: Basic Strategies to Know at SoFi Learn.

Financial Planner Tip of the Day

"Let’s say that back in 2010, you took a one-dollar bill and stuck it under your mattress. Today, that same dollar wouldn’t buy you as much as it would back when Bruno Mars was just exploding onto the scene—in fact, it would be worth 19% less, thanks to inflation."

Brian Walsh, CFP® at SoFi

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