AMC Shares Surge Amid Pandemic Recovery
AMC Stock Hits New High
AMC Entertainment’s (AMC) shares hit a new all-time high Wednesday because of a number of factors. With strong sales at the box office during the long Memorial Day weekend, investors are betting the movie theater industry and AMC will recover.
Additionally, investors seemed enthusiastic about AMC’s sale of 8.5 million shares to the hedge fund, Mudrick Capital. AMC raised $230.5 million via the stock sale. Proceeds will be used for acquisitions, to pay down debt, and to upgrade cinemas.
AMC Rewards Retail Investors
During the pandemic, AMC was on the brink of bankruptcy as COVID-19 shutdowns halted its operations. During this period, short-sellers bet the company’s stock would plummet. Meanwhile, retail investors inspired by the WallStreetBets Reddit page and other discussions on social media, poured into AMC. These investors purchased shares in droves, sending AMC shares higher. The stock’s value has climbed more than 1,400% in the past five months.
As of March, individual investors own about 80% of AMC’s 450 million outstanding shares. To reward them, AMC created a new portal on its website. There, individual investors get access to special deals and information about the company, as well as perks like free popcorn.
AMC Eyes Expansion
Enthusiasm from retail investors may be emboldening AMC to take on more risks. Instead of using revenue from box office sales to improve finances or reduce its debt load, AMC plans to chase more growth. This bet depends on individual investors sticking with the stock.
In detailing its stock sale to Mudrick Capital, AMC said there are “highly attractive theatre acquisition opportunities” for the company. The commitment to growing through acquisitions, even during a pandemic, is typical of AMC. This kind of business model is how AMC became the country’s largest movie theater chain over the years. It will be interesting to see whether the strategy continues to pay off.
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Liz Looks at: Consumer Confidence
A Weekly Column With Liz Young
Every week, SoFi’s Head of Investment Strategy shares her economic and market insights in order to help empower readers to take a more active role in their financial futures. This week, see what Liz has to say about measures of confidence.
All the Feels
We hear a lot about the measurable economic facts--manufacturing activity, jobless claims, retail sales, the prices of goods and services--that tell us what people are doing. But what about how they’re feeling? Turns out, we can measure that, too.
For May, the Conference Board Consumer Confidence Index came in at 117.2. Although this missed expectations of 118.8, a reading above 100 is generally “good” while readings below 100 are generally “bad”. For comparison, this level is below the July 2019 pre-pandemic high of 135.8, and well above the April 2020 low of 85.7.
But what’s the predictive power? Consumer confidence measures households’ outlooks on business conditions, employment, and income. One would think the higher the better, right? Not so fast. If things get too hot they can be problematic.
The problems can be: excessive risk-taking in financial markets, inflation, tightening policy response from the Fed, consumers overspending (not saving enough or taking on too much debt)--we’ve seen different versions of this story play out and they rarely end well.
So we want it to be warm, not hot. And we need to look at other measures of risk-taking to see if consumers or investors are taking it too far. Evaluating all of them is beyond the scope of this post, but a couple encouraging signs:
The put/call ratio measures the amount of options outstanding. Importantly, how much protection (puts) investors are buying at a given time, or how much optimism (calls) they have about market direction. When this measure is at extremes, it can mean overwhelming bearish or bullish sentiment. When not at extremes, the market feels more balanced. Currently, the 10-day average put/call ratio is 0.83 and is what I would consider “comfortable” range. Investors are still being watchful and don’t appear to be complacently ignoring risks.
We can also look at household debt levels, which rose in Q1 to $14.64 trillion. This is higher than the pre-pandemic level of $14.15 trillion in Q4 2019, but much of the rise was driven by an increase in mortgage and auto loans, and was actually coupled with a reduction in credit card debt. Moreover, the average credit score of borrowers taking on these new loans edged higher over the period, which bodes well for debt quality and repayment.
Indicators like these deserve a watchful eye and a sensitive ear. This is not an exact science, and there are many variables at play. For now, I think we’re in a good spot as consumers and as an economy. Warming up, but not too hot. Let’s hope we can avoid a fever.
-Liz Young, Head of Investment Strategy at SoFi
Americans are Tapping Their Homes for Cash
The Newfound Piggy Bank: Home Equity
With home prices increasing and interest rates near record lows, more people are tapping their homes for cash. In the first quarter of 2021, Americans withdrew $49.6 billion in equity from their homes. That is a year-over-year increase of nearly 80%, andthe highest level since 2007. Tight inventory of existing homes for sale is also driving some homeowners to tap their equity. Instead of upgrading into a larger new home, they are choosing to renovate and expand their existing homes.
Whether homeowners want to fix up their houses or take advantage of lower borrowing costs, there are a few ideas they should understand before using their houses for cash. Here is a breakdown of the major ones.
How Much to Borrow?
To prevent any repayment problems, it is important for homeowners to determine how much equity they can afford to take out. This typically depends on each homeowner’s financial situation. If homeowners have job security and the money is being used to increase the value of a home, for example, then drawing down the maximum may make sense.
Homeowners need to make sure they can afford their new monthly mortgage payments, even in case of unexpected events.
The Benefits of Home Renovations
Homeowners who use the equity for renovations will want to ensure that their project adds substantial value to the home. Some remodeling projects, like modernizing a kitchen or bathroom, add more value than others. Using home equity to pay off high-interest-rate debt is another option. Homeowners won’t get a tax deduction from doing this, but they can save a significant amount of money in interest.
With home prices surging and interest rates still low, taking cash out of a home makes a lot of sense for some homeowners. However, before proceeding, it is a good idea to weigh the costs and benefits.