The Week Ahead on Wall Street
Today, new home sales for June are released by the Commerce Department. This data point measures the number of newly constructed homes which were purchased in the month. For May new home sales fell 5.9%, hitting a one-year low amid rising home prices thanks to rising construction costs.
Tomorrow, durable goods for June are released. This tracks the sale of big-ticket items manufactured in the US. In May durable goods increased 2.3% driven by demand for commercial aircraft. Investors will be paying close attention to see if orders continued to grow in June or if the recovery is starting to slow. The Consumer Confidence Index for July is also released.
On Wednesday, the Federal Reserve publishes the minutes from its Federal Open Market Committee meeting for July. With inflation continuing to rise and with the Delta variant spreading throughout the country, investors will be parsing the Fed’s commentary to see what it means for inflation and monetary policy.
On Thursday, initial and existing unemployment claims for the previous week are released by the Labor Department. The number of Americans filing first-time unemployment claims increased last week. Additionally, there are fears the Delta variant will result in more restrictions and shutdowns, pushing the number higher. The number of new claims last week was 419,000, up from 368,000 in the week earlier.
Finally, on Friday look for consumer spending numbers for June. This tracks the value of goods and services purchased by consumers in a given month. For May consumer spending activity was unchanged from April. Inflation and rising consumer prices is an issue, which may impact June’s reading. Personal income and core inflation for June are also released Friday.
Today, Lockheed Martin (LMT) reports quarterly earnings. The defense contractor is facing opposition to its $4.4 billion deal to buy Aerojet Rocketdyne (AJRD), a maker of rocket motors. US Senator Elizabeth Warren called for the FTC to apply more scrutiny to mergers in the defense industry, including Lockheed’s deal. The senator is worried Lockheed will gain an unfair competitive edge once the transaction is complete. With the deal Lockheed controls the engines used in most US missiles. Investors will be looking for an update on the transaction when Lockheed reports.
Tomorrow, be on the lookout for quarterly earnings from United Parcel Service (UPS). The delivery company has seen unprecedented demand since the onset of the pandemic, with people working and staying home. Even with the economy reopening, concerns about the Delta variant are raising the chances of more restrictions, which may impact demand for UPS services. Investors will be paying close attention to what UPS has to say about demand, the Delta variant’s impact on its business, and how it is luring workers its way.
On Wednesday, Pfizer (PFE) reports quarterly earnings. The drugmaker has benefited from its COVID-19 vaccine which recently was proven to be effective against the new Delta variant. Pfizer and vaccine partner BioNTech (BNTX) also inked a deal with a South African pharmaceutical company to manufacture their vaccine in South Africa. The move is expected to greatly enhance the availability of the vaccine across Africa in 2022. Investors will be looking for an update on those efforts as well as how sales are tracking at one of the country’s largest drug makers.
On Friday, Procter & Gamble (PG) reports quarterly earnings. The consumer products company posted earnings surprises for two quarters in a row and investors will be paying close attention to see if it can get a third under its belt. The company is seeing huge demand, but rising costs and supply chain issues are making manufacturing more expensive. As a result, P&G and other companies are raising the prices they charge customers. It will be interesting to hear what P&G has to say about the supply chain, demand, and the cost of materials when it reports earnings Friday.
The Week Ahead at SoFi
This week’s topics: all about student loan refi, how to go back to work after you’ve had a baby, and Your Next Dollar—LinkedIn, Twitter, and Zoom live. Register to these events and more in the SoFi app!
Electric Vehicle Sales Surge in First Half of 2021
EV Sales Increase Outpaces Industry
Electric vehicle sales rebounded in the first half of 2021, with EVs selling at a faster rate than the industry average. For the first six months of the year, EV sales more than doubled while total vehicle sales increased 29%. Tesla (TSLA) was the main driver of the uptick, with its US sales increasing 78% through the end of June. Tesla’s Model Y crossover SUV, which debuted last year, is particularly popular among consumers. Also driving the growth were Ford (F) and Volkswagen (VWAGY) which saw brisk sales of their EVs during the first six months of 2021. EVs accounted for 3% of the US vehicle market in both May and June—a record for the industry.
Auto Companies All In With EVs
Auto companies are doubling down on the electric vehicle market, collectively spending more than $300 billion in the next five years to develop more EVs. Last week Daimler (DMLRY) said it is spending $47 billion to prepare for all EVs by 2030. The vehicle manufacturers are betting that longer ranges between charges, a variety of vehicle types, and different price points will spur more interest in EVs.
Industry executives also point to the Biden administration’s plans to invest in charging stations and provide consumer incentives to purchase EVs as other drivers of growth. A lack of charging stations is one of the biggest hurdles the EV market needs to overcome.
EVs Nearing a Tipping Point
EVs still make up a tiny portion of total US sales but the shift is gaining speed as consumers become more comfortable with the technology and worry more about climate change. A recent survey of US consumers found 37% would buy an EV—up from 22% in 2020.
When Daimler announced its plans to sell only electric vehicles by 2030, CEO Ola Källenius said interest in EVs, particularly in the luxury segment, is increasing. He said the tipping point is near and Daimler wanted to be ready. That seems to be the case with the other vehicle manufacturers as they pour hundreds of billions of dollars into the EV market. It will be interesting to see if their bets pay off.
Institutional Investors Eye the Residential Real Estate Market
Blackstone and KKR Bet on Residential Real Estate
Major real estate investors including Blackstone (BX) and KKR (KKR) are investing in the residential real estate market, buying up a massive amount of existing homes during a time of record demand.
Commercial real estate took a major hit during the pandemic with malls and office buildings shuttered amid restrictions. Most residential tenants were able to make their monthly payments. But according to one estimate, investing in US single-family homes yields annual returns of 6.6%—higher than 6.3% for commercial property investments.
Buying to Rent
Blackstone has been active in the residential real estate market in recent weeks. Its REIT just spent $5.1 billion to purchase a portfolio of apartments from American International Group (AIG). In June it spent $6 billion to acquire Home Partners of America which owns 17,000 homes across the United States. The company offers renters the option to buy. Meanwhile KKR recently launched a new unit focused on buying homes to rent.
While investors already own 55% of the rental home supply in the US, largely through condos, they have little stake in single-family homes. Of the single-family homes available to rent, only 2% are owned by institutional investors.
Backlash May Mount
Blackstone, KKR, and other institutional investors buying up single-family homes risk facing backlash from politicians and advocates. Inventory for existing homes is extremely tight, driving up the prices and shutting many buyers out of the market. If that becomes more difficult because of big investors, it could create a public relations nightmare and prompt government intervention.
With demand for homes not expected to slow any time soon, institutional investors see an opportunity to make money. If has an impact on supply, don’t be surprised if politicians and advocates cry foul.