Monday,
May 17, 2021

Market recap

Dow Jones

34,382.13

+360.68 (+1.06%)

S&P 500

4,173.85

+61.35 (+1.49%)

Nasdaq

13,429.98

+304.99 (+2.32%)

Amazon

$3,222.90

+$61.43 (+1.94%)

McDonald's

$231.72

+$1.95 (+0.85%)

Coinbase

$258.37

-$6.73 (-2.54%)

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Top Story

The Week Ahead on Wall Street

Economic Data

Today, the National Association of Home Builders releases its index for May. The metric measures builder sentiment for single-family homes and is viewed as an important US housing market indicator. A number above 50 means there is a favorable outlook for housing sales. It was 83 in April, driven by low interest rates and a lack of existing homes for sale. Also Monday, Empire State Manufacturing Index results for May are released.

Tomorrow, housing starts for April will be published. This index measures new residential construction projects. Housing starts climbed 19.4% in March to a seasonally adjusted annual rate of 1.739 million units. With inventory tight for existing homes, consumers are turning to new construction.

On Wednesday, the Federal Open Market Committee (FOMC) Meeting Minutes will be released. This is a report of the Fed’s policy-setting meeting held several weeks prior. Investors will be looking for any commentary about inflation and interest rates along with remarks about the general state of the US economy.

On Thursday, initial and continuing jobless claims are released. First time claims for unemployment benefits fell to a new pandemic low of just 473,000 last week. Initial claim figures have been declining steadily in recent weeks.

On Friday, existing home sales for April will be released. Existing home sales were a seasonally adjusted 6.01 million in March, with sales in all regions declining. The declines came as prices for homes hit record highs in March.

Earnings Reports

Lordstown Motors (RIDE) reports quarterly earnings today. The electric vehicle startup has had difficulties reaching its goal of delivering electric pickup trucks by September. A prototype caught fire in February and another was forced to drop out of a 280-mile off-road race. The Securities and Exchange Commission is also investigating the company, so investors will be tuning in for a handful of updates from the Lordstown, Ohio-based company.

Tomorrow, be on the lookout for Home Depot’s (HD) earnings. The home improvement retailer is expected to report strong year-over-year growth of more than 40%. Home Depot has benefited from pandemic stimulus checks and a DIY boom. It will be interesting to hear what Home Depot has to say about demand heading into the summer months.

On Wednesday, Target (TGT) reports its quarterly results. The retailer has been busy as vaccinations are driving more people into its stores. Target gained $9 billion in market share last year. As consumer habits change, the retailer is rolling out new brands and starting other initiatives to keep up this momentum.

Be on the lookout for an earnings report from Ross Stores (ROST) on Thursday. The discount retailer’s sales plummeted during the pandemic as a result of store shutdowns. With pandemic restrictions easing and consumers venturing out again, investors will want to learn if Ross Stores is benefiting.

On Friday, Foot Locker (FL) reports quarterly earnings. Foot Locker is expected to have benefited from increases in consumer spending both in stores and through ecommerce. During the pandemic, customers were eager to buy workout clothes and shoes. Analysts will be interested to see if these trends continue.

The Week Ahead at SoFi

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Entry Level Wages Rise Amid Labor Shortages

Amazon and McDonald’s Boost Hourly Pay

Amazon (AMZN) and McDonald’s (MCD) are among the major companies gearing up to hire thousands of entry-level workers as the economy reopens. Businesses are facing labor shortages and in response they are raising salaries, offering bonuses, and adding other perks to attract hourly workers.

According to the Labor Department, in April, the average hourly wage for private-sector employees increased $0.21 to $30.17. This is notable given that strong hiring trends in the restaurant and hospitality industries typically lower average earnings.

Companies in Hiring Mode

Amazon is in the process of hiring 75,000 employees and is paying $1,000 sign-on bonuses in some areas of the country. The ecommerce giant has been hiring throughout the pandemic to meet unprecedented demand. The average hourly wage for its open roles is $17 per hour, which is up from $15. Meanwhile, McDonald’s is hiring 10,000 workers at its company-owned stores. The restaurant chain plans to increase hourly pay by 10% over the upcoming months.

Other fast-food chains planning to hire tens of thousands of employees include Chipotle Mexican Grill (CMG), Applebee’s (DIN), and KFC (YUM). Chipotle is increasing the average hourly wage to $15 at all its restaurants.

Consumers Could See Restaurant Price Increases

The National Owners Association, a trade group which represents franchisees in the US, is encouraging its members to raise prices for consumers, arguing that sales are booming as consumers venture out again. Chipotle is one of the restaurants to take the advice to heart, recently raising prices on delivery orders.

Restaurants have experienced a volatile and challenging market during the pandemic. As consumers return to pre-pandemic habits, restaurants are rushing to meet their needs with larger labor forces.

Buying Real Estate in a Red-Hot Market

Inventory Is Limited

With scarce inventory of existing homes for sale and bidding wars shutting out even wealthy buyers, it can be tough to figure out what price makes sense for a home. Recently, stories of buyers willing to pay $100,000 over the asking price are becoming more common.

It is understandable why homebuyers are willing to pay such high prices. In March 2021 the available inventory of existing homes for sale dropped 28.2%. At the same time, interest rates remained near record lows. These trends are spurring demand and subsequent bidding wars. The average existing-home sale price stood at $329,100 in March, a record-breaking 17.2% year-over-year increase.

Determining What Is a Reasonable Mortgage Payment

Striking a balance between making a competitive offer and an irrational one can be difficult. To prevent buyers from overpaying, analysts say a mortgage payment should usually not be more than 35% to 45% of monthly gross income.

From there, homebuyers need to determine how much their mortgage payment will fit into their larger spending habits and financial health. A large mortgage payment could require certain sacrifices or lifestyle changes. Potential homebuyers should also consider their motivation for buying a home during this time to make sure they are not making a big financial decision just because they feel like everyone else is buying homes at the moment.

Is it Worth Waiting?

Depending on the location, it may be worthwhile to wait to buy a home until the overheated real estate market cools down a bit. Home prices are not expected to increase forever. Once the pandemic mortgage forbearance program expires, there may be more inventory available.

There are some caveats to this option. For homebuyers looking in areas such as Austin, Texas, which has job growth and large numbers of people moving in, it could be more expensive to purchase in the future. Buying a home amid unprecedented demand is a balancing act. Keeping a cool head and asking for advice will be helpful in navigating this process at a complex time in the housing market.

Not-So-Breaking News

  • Coinbase’s (COIN) first-quarter revenue and net income surged, driven by an increase in crypto prices. Most of the company’s revenue gains were attributed to transaction fees from trading. Coinbase’s net profit in Q1 was more than four times greater than in the fourth quarter.
  • Disney’s (DIS) stock came under pressure Friday after the company reported lower-than-expected signup numbers for its streaming service. Disney+ had 103.6 million paid subscribers in the first three months of the year, but analysts expected 109 million.
  • DoorDash’s (DASH) first-quarter loss was wider than Wall Street expected as it dealt with a shortage of drivers. The company said demand was better than anticipated and called the driver shortages a short-term issue. DoorDash also raised its forecast for the year.
  • Kansas City Southern (KSU) accepted Canadian National Railway’s (CNR) $33.6 billion buyout offer. Kansas City Southern had been ready to sell to Canadian Pacific Railway (CP) for $29 billion before Canadian National swooped in with a higher offer.
  • General Mills (GIS) is paying $1.2 billion to acquire Tyson Foods’ (TSN) pet food business. With the deal, General Mills will add the brands Nudges, Top Chews, and True Chews to its portfolio. This is not General Mills’ first foray into the pet food market. In 2018 it spent $8 billion to acquire the brand Blue Buffalo.
  • Dealing with money isn’t always easy, but it doesn’t have to drive a wedge in your relationship. Here are a few strategies to employ with your partner to make talking about finances fun, not a fight.

Financial Planner Tip of the Day

“It’s not glamorous, and it is that last thing that so many people want to do on their precious weekends, but tracking spending is essential to financial wellness. There is real truth to the saying ‘What gets measured gets improved.’ There’s no way to fix problems like overspending without understanding exactly what goes in and what goes out.”

Brian Walsh, CFP® at SoFi

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