Thursday,
January 28, 2021

Market recap

Dow Jones

30303.17

-633.87 (-2.05%)

S&P 500

3750.77

-98.85 (-2.57%)

Nasdaq

13270.60

-355.47 (-2.61%)

Boeing

$193.84

-$8.22 (-4.07%)

AT&T

$29.15

-$0.60 (-2.02%)

GameStop

$344.99

$197.01 (133.13%)

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Top Story

Boeing Faces Setbacks

Boeing Again Delays 777X

Boeing (BA) announced a record annual loss yesterday. The airline giant attributed the loss to the coronavirus pandemic as well as the 737 MAX safety crisis that has been ongoing for two years. Boeing also shared news that it will delay the release of its new 777X for the third time. The plane, which is a larger version of the 777 mini-jumbo, is now expected to enter service in late 2023. Progress on the 777X has been slowed by falling demand as well as heightened regulation and certification requirements after the two Boeing 737 MAX jet crashes, which killed 346 people.

Chief Executive Dave Calhoun said Boeing has enough liquidity to manage the challenges it is facing, but he also warned that a rebound will be dependent on vaccine distribution and a jump in air travel. After the report, shares of Boeing fell 4.5% in premarket trading and hit a two-month low of $193. Shares of the plane maker were down 4% at the end of the trading day.

Planning for the Future Amid a Pandemic

Industry analysts expect that Boeing will have to wait until at least 2024 for aircraft deliveries to climb back to pre-pandemic levels. Still, Boeing is making plans for the future. The company expects to resume deliveries of 787s to airline customers before the end of 2021, though it will slow production on the aircraft to five 787s per month.

Boeing also hopes to produce 31 737 aircraft per month by the start of 2022, though some analysts believe this goal is overly optimistic. Despite rising tensions between the United States and China and falling demand for new jets, Calhoun said he was hopeful that plane orders from China would climb back up, which would give Boeing’s sales a lift.

737 MAX Cleared for Flight in Europe

It wasn’t all bad news for Boeing yesterday, as the European Union Aviation Safety Agency, also known as EASA, joined the United States and Brazil in lifting the ban against Boeing’s 737 MAX plane. The announcement marked the end of a 22-month ban on the aircraft after its two deadly crashes. The EASA said regulators are confident that the 737 MAX is safe, but they will continue to closely monitor the aircraft.

The EASA has also requested that Boeing work on the aircraft to make it even safer as it resumes service. That work will include electrical rewiring, software upgrades, maintenance checks, and updates to its operations manual and crew training programs.

Representatives from the EASA said the investigation was independent of Boeing or the United States Federal Aviation Administration, and regulators faced no political or economic pressure to approve the aircraft. A group of European pilots endorsed EASA’s decision.

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Hyundai Profits Today while Planning for Tomorrow

Luxury Car Sales Give Hyundai a Boost

Hyundai (HYMTF) sees electric vehicles as a key part of its strategy for the future, but the South Korean carmaker is also focusing on traditional automobiles while demand for EVs catches up to current demand for gas-powered cars. Hyundai reported a 41% jump in its operating profits last quarter compared to the year before.

Hyundai managed to grow its profits last year even though it sold fewer cars. Consumer demand for luxury car lines like the Genesis or sports utility Palisade vehicles drove Hyundai’s operating margins to their highest in over three years. Most analysts expect the rally to continue in 2021.

Hyundai Feels Market’s Push

Hyundai’s luxury car offerings have led to a short-term profit increase and this has caught investors’ attention. Hyundai’s shares have more than doubled in the past year, outperforming most other traditional carmakers. Its market value sits at $55 billion, similar to that of BMW (BMWYY) and Stellantis (STLA).

Investors thinking about Hyundai’s long-term future are also interested in the company’s electric vehicle ambitions. Hyundai stocks surged earlier this month after it announced it was in talks with Apple (AAPL) about a potential autonomous electric vehicle collaboration.

Investors Bet on Hyundai’s Future

Though Hyundai is seeing success currently, investors are largely betting on the company’s future in electric vehicles when they buy shares of Hyundai. Through a partnership with Kia , Hyundai expects to launch 23 models of electric vehicles by 2025. In 2019 Kia and Hyundai announced they would invest $35 billion in the development of electric vehicle and autonomous car technologies.

While last year battery-powered electric vehicles made up 3% of Hyundai’s sales, Credit Suisse (CS) forecasts that they will comprise 11% of sales by 2025. Hyundai is among the largest investors in hydrogen fuel cells, which gives it another leg up in the EV market. Though Hyundai has seen an increase in profits from traditional vehicles recently, many investors hope the carmaker will see even more gains in the coming years as a result of its position in the EV market.

Ant Group’s Restructuring Plans

Fintech Firm to Become Financial Holding Company

After facing pressure from Chinese regulators, Ant Group, the fintech company controlled by Jack Ma, is planning to restructure itself as a financial holding company. Ant has tried to position itself as an internet-technology company in recent years rather than a financial services provider. This helped its valuation soar but raised concerns from financial regulators.

Ant executives were called to a meeting with Chinese regulators in December 2020. At the meeting, authorities accused Ant of “engaging in regulatory arbitrage.” The Chinese government had a list of demands for Ant, which included securing user data, changing corporate governance, and restructuring as a financial holding company.

A Change of Plans

Last year Ant Group was hurtling toward a public offering valued above $300 billion—higher than many of the world’s largest banks. That IPO was called off in November. Ant said in its listing prospectus that it planned for one of its multiple subsidiaries to be designated as a financial holding company. That holding company would control Ant’s licensed financial businesses like asset management and consumer lending. The decision to restructure the whole of Ant Group as a financial holdings company comes as a bit of a surprise for many. This was not something Ant’s executives and stakeholders envisioned just a few months ago.

Post-restructuring, Ant will be subject to the same stringent regulations that govern banks. This could impact its profits and plans to expand. Ant’s restructuring plan will require a sign-off from regulators, but it could be finalized by the start of the Lunar New Year holiday in mid-February.

Overhaul Could Diminish Future Revenue

The overhaul of Ant’s structure could significantly cut the company’s revenue and profit growth. To meet regulatory requirements, Ant may be forced to raise more capital. Already, Ant is lowering borrowing limits for individuals on its lending platform—an early signal that the company could be downsizing for regulatory approval. These shifts could potentially diminish Ant’s valuation, which was based in large part on the firm’s potential for growth and future profitability.

What is not yet apparent is how Ant’s nonfinancial business will be impacted by the restructuring. Ant is involved in developing blockchain technology, digital-lifestyle services, and artificial intelligence. These aspects of the business have previously been pointed to as drivers of growth, and it is uncertain how they will fit into a financial holdings structure.

Not-So-Breaking News

  • For the fourth day in a row, GameStop (GME) and AMC Entertainment Holdings (AMC) stocks surged and many hedge funds saw large losses. Retail traders have piled into these stocks and have encouraged one another to keep buying through discussions on Reddit and other social media platforms.
  • AT&T (T) reported stronger-than-expected earnings for its fourth quarter, as well as an 11.7% spike in revenue from HBO Max as the streaming platform gained more subscribers than expected.
  • French drug company Sanofi (SNY) will partner with BioNTech (BNTX) and Pfizer (PFE) to produce 125 million coronavirus vaccines to be administered in the European Union.
  • Allstate (ALL) will sell much of its life insurance business to Blackstone Group (BX) in a $2.8 billion deal as life insurers around the world wrestle with how to handle payouts resulting from the coronavirus pandemic. The acquisition will likely close in the second half of 2021.
  • Belk, a 190-year-old department store chain based in North Carolina and owned by Sycamore Partners, will file for Chapter 11 bankruptcy in order to shed roughly $450 million in debt.
  • Do you want to be successful with money? The key is to develop good financial habits. Here are 7 steps you can take to do just that.

Financial Planner Tip of the Day

"A bond is basically loaning someone—a government, company, or municipality—money. Bonds can provide a steady stream of income, which includes interest payments and initial investment. However, bonds are riskier than cash. Bond issuers can default, and the yields in the long-term aren’t as high as other investments."

Brian Walsh, CFP® at SoFi

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