Monday,
July 19, 2021

Market recap

Dow Jones

34,687.85

-299.17 (-0.86%)

S&P 500

4,327.16

-32.87 (-0.75%)

Nasdaq

14,427.24

-115.90 (-0.80%)

Netflix

$530.31

-$12.64 (-2.33%)

American Airlines

$19.79

-$0.67 (-3.27%)

Moderna

$286.43

+$26.76 (+10.30%)

Amid evolving news surrounding COVID-19 and the economic reopening, your financial needs are our top priority. For more information,click here.

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Top Story

The Week Ahead on Wall Street

Economic Data

Today, the National Association of Homebuilders Index for July is released. This measures US homebuilders’ confidence in the single-family home market. In June the index unexpectedly fell to a reading of 81 from 83. Readings over 50 mean builders have a positive view of market conditions. In June the sector was hit by increasing housing costs and supply shortages for certain materials including lumber.

Tomorrow, housing starts for June are released jointly by the US Census Bureau and the US Department of Housing and Urban Development. This data point measures the number of new residential construction projects started in the month. It is viewed as a key indicator of the economy. In June, housing starts came in at 1.57 million—lower than the 1.630 million units economists were expecting.

There are no economic data scheduled to be released on Wednesday.

On Thursday, be on the lookout for initial unemployment claims. Initial jobless claims for the week ending July 10 totaled 360,000. Although still elevated, this is a new pandemic-era low for the weekly figure. Investors are paying close attention to unemployment as a way to track the economy’s rebound. Also Thursday, existing home sales for June are due.

On Friday, Markit manufacturing and services and PMI Flash surveys for July are released. These leading indicators give investors insight into the state of manufacturing and services. For June, the manufacturing PMI rose to 62.6, the highest level since the survey began tracking manufacturing 12 years ago. Investors will be looking to see if that strength carried into July.

Earnings Reports

Today, International Business Machines (IBM) reports quarterly earnings. Earlier this month, President Jim Whitehurst announced he is stepping down from his position. Whitehurst was CEO of RedHat before IBM acquired the company in a $34 billion deal in 2019. His departure poses a challenge to IBM which is relying on sales of RedHat products for growth. Investors will be paying close attention to what IBM has to say about Whitehurst’s departure.

Tomorrow, be on the lookout for earnings from Philip Morris International (PM). The tobacco company just inked a deal to buy asthma drug maker Vectura Group for $1.45 billion. Philip Morris is focusing on the heated tobacco device market as part of its efforts to generate $1 billion in sales from non-nicotine products by 2025. It will be interesting to hear what the company has to say about the deal and its efforts to diversify.

On Wednesday, Johnson & Johnson (JNJ) reports quarterly earnings. The company’s COVID-19 vaccine just got hit with another setback after the FDA warned it could lead to a slightly increased risk of Guillain-Barré syndrome, a rare neurological affliction. In a statement, the FDA said the data “suggests an association,” but not enough “to establish a causal relationship.” This is still a blow for public perception of the vaccine. Investors will be paying close attention to what J&J has to say about its COVID-19 vaccine when it reports earnings.

On Thursday, be on the lookout for earnings from AT&T (T). The company’s HBO Max streaming service is facing stiff competition from leaders like Netflix (NFLX) to upstarts like NBC’s (CMCSA) Peacock. The latter just signed a deal to license Universal films once they are released in theaters. The deal means HBO Max and Netflix lose those films. Investors will want to hear how AT&T plans to respond.

On Friday, Honeywell (HON) reports quarterly earnings. The company was able to blow past Wall Street expectations for the first quarter with growth coming from all its units including personal protective equipment and advanced materials. Investors will be paying close attention to see if that momentum continued in the second quarter.

The Week Ahead at SoFi

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Netflix’s Next Episode: Video Games

As Competition Heats Up, Netflix Diversifies

Netflix’s (NFLX) popularity surged during the pandemic as consumers looked for ways to entertain themselves on their couches. The company recently hit 200 million worldwide subscribers, but more in-person entertainment options are now returning, drawing consumers away from their TVs. Netflix is also facing its first serious competition in the streaming space from Disney (DIS), Apple (AAPL), Amazon (AMZN), and other rivals.

As it navigates a changing market, Netflix is looking for new ways to grow and diversify. It sees video games as the next frontier and is making significant investments in building this new arm of its business.

Video Game Spending Expected to Surge

Netflix could face significant hurdles as it works to break into the video game industry. Developing content for video games is often a more complicated process than developing content for shows. But Netflix believes that video games are a booming industry and it is willing to take some risks as it works to enter the space.

Consumer spending on video games around the world is expected to reach $175.8 billion this year and surpass $200 billion by 2023. Much of that spending is expected to come from mobile games, an area where Netflix is focusing. Mobile games are generally less expensive and complicated to develop than computer and console games. They are also easier to stream without lags.

Netflix’s Strategy

To start out, Netflix plans to make video games available on its existing app. It will not charge customers extra for video games in the initial phase of the initiative.

One goal of Netflix’s plan is to encourage customers to spend more time on its platform. It’s easy to watch a TV series in less than a week, but people can spend months or even years engaging with a video game.

The pandemic dramatically changed consumer habits. Companies across industries, from entertainment to fashion to food, are working to adapt to these new trends. Netflix’s investors will be on the edge of their seats to see if the streaming giant’s bet on video games pays off.

Airlines Face Pilot Shortages

Demand for Travel Is Back

Demand for travel is roaring back after it ground to a halt during the pandemic. Domestic leisure travel has returned to 2019 levels for most airlines. Business travel is still slightly behind, but is also beginning to rebound.

Last week, Delta Air Lines (DAL) posted a profit of $652 million after five quarters of losses. This was thanks to federal aid which offset some of its costs, but the company predicts that it will be profitable during the second half of the year without government funds. Other airlines are also seeing their balance sheets recover. But as airlines rush to respond to increasing demand, many are facing a shortage of pilots.

Pilot Training Takes Time

Training pilots to fly new types of planes can take a few weeks, and annual retraining takes several days. Additionally, there is a general labor shortage across industries. For these reasons, airlines are having trouble ramping up offerings quickly enough to meet demand.

Since March 2020, airlines received $54 billion in federal aid for not laying off employees. With that said, airlines were working to conserve cash during the pandemic. Many encouraged pilots to take early retirement or leaves of absence. Now they are having trouble bringing these employees back.

Looking Ahead

Airlines are struggling with the combination of surging demand and a limited workforce. They have also been hit with technology difficulties and bad weather in June and July.

A shortage of pilots means that when something goes wrong, like a plane needs to be fixed or a storm hits, airlines are less nimble. To deal with this, some carriers, like American Airlines (AAL), are reducing their flight offerings until they have sufficient staff. The company would rather bring in less revenue from ticket sales than deal with logistical difficulties caused by labor shortages.

It was a challenging year and a half for the airline industry. Though consumers are flocking to airports to travel again, airlines are now up against another challenge. Investors will be closely watching to see how various companies deal with pilot shortages in the coming months.

Not-So-Breaking News

  • Chinese smartphone maker Xiaomi (XIACF) became the world’s second-largest smartphone provider in the second quarter, pulling ahead of Apple (AAPL). Xiaomi had a 17% market share, Apple had 14%, and global leader Samsung had 19%.

  • Crypto exchange Binance announced that it will stop selling “stock tokens,” crypto assets pegged to the value of certain stocks like Tesla (TSLA) and Apple, due to increased scrutiny from regulators around the world.

  • Just days after its high-profile US listing, shares of DiDi (DIDI) tumbled as regulators in China announced a cybersecurity review of the ride-hailing company. The Cyberspace Administration of China accused DiDi of illegally gathering data from users.

  • Paytm, an India-based digital payments company, has filed for an IPO and plans to raise up to $3.22 billion. Paytm has about 333 million users who use the service to pay for utilities, groceries, mobile phone service, and more. As competition in the digital payments space heats up, the company plans to use the funds to stay ahead of rivals.

  • Moderna’s (MRNA) shares climbed after the vaccine maker joined the S&P 500 Index. Its stock price has more than tripled over the past year. This was one of the most high-profile additions to the index since Tesla (TSLA) became a member last year.

  • How does rising inflation affect interest rates? The two tend to move in tandem, affecting the cost of buying a home and refinancing an existing mortgage. Learn more about what inflation means for home buying or mortgage refinancing at SoFi Learn.

Financial Planner Tip of the Day

“Whether you rent or own, housing is the largest expense the average US consumer must deal with every month. And if you can reduce your payment, you’ll likely have a bit more flexibility in choosing where to allocate your money—whether that’s spending it, paying down debt, or saving for a future goal. Along with reducing small indulgences, cutting your rent can be an effective way to free up more cash in your budget.”

Brian Walsh, CFP® at SoFi

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