The Week Ahead on Wall Street
On Monday, the Census Department releases construction spending for June. This measures how much the US spent on construction in the month. For May, spending declined 0.3% amid rising material and labor costs. With inflation still rising and the labor market tight, investors will be paying close attention to the impact these factors had on construction spending in June.
On Tuesday, motor vehicle sales for July are released. The automobile industry sold 15.4 million vehicles in June. While the Fourth of July holiday is a big selling period for car manufacturers, 2021 is proving to be different. With semiconductor shortages and pent-up demand, car companies are having difficulty churning out new vehicles. That is expected to lower sales during what is typically a strong month.
On Wednesday, the Federal Open Market Committee releases the minutes of its meeting and Federal Reserve Chairman Jerome Powell will hold a press conference. Investors will be paying close attention to what the Fed has to say about interest rates in the wake of inflation that is rising at a pace not seen in more than a decade. In a policy statement released last week, the Fed said it remains optimistic about the recovery of the economy despite rising cases of the Delta variant.
On Thursday, initial and existing jobless claims for the week earlier are released by the Labor Department. Unemployment claims had been falling for a while but creeped up again in recent weeks, in part due to businesses worrying about the Delta variant. Last week initial claims decreased by 24,000 to 400,000, which was higher than the 380,000 economists were looking for.
On Friday, consumer spending for June is released. In May the frenzied pace of spending on the part of consumers took a break but higher prices led the index to remain unchanged. With concerns about COVID-19 cases increasing as the Delta variant spreads, investors will be paying close attention to June’s reading to gauge if consumer spending is beginning to slow.
On Monday, Global Payments (GPN) reports quarterly earnings. Earlier this month the payment technology and software company announced a new partner program aimed at cultivating strategic alliances with big global companies. PwC is a charter member of the new program. The aim of the alliance is to find new business opportunities, so investors will likely want to hear more about the effort when it reports quarterly earnings.
On Tuesday, be on the lookout for Alibaba Group (BABA) to report quarterly earnings. China’s largest ecommerce company’s share price has been under pressure in recent days as the government in its home country clamps down on tech companies and the education sector. The increased scrutiny and new regulations spooked investors, erasing billions in market value for Alibaba and other leading Chinese tech stocks. Investors will want to hear more about the impact from this increased Chinese regulation when it reports earnings Tuesday.
On Wednesday, CVS Health (CVS) weighs in with its quarterly earnings report. The drugstore operator, which administered the COVID-19 vaccine, has been enjoying brisk business but it also faces competition from online pharmacies. As it stands there are more than a dozen startup companies going after the prescription medicine market, which stands at $465 billion in the US. They are setting their sights on CVS and its traditional drugstore competitors as they try to disrupt the marketplace. Investors will want to know how CVS plans to stave off that newfound competition when it reports quarterly earnings.
Be on the lookout for Moderna (MRNA) to report quarterly earnings Thursday. The drug maker is expected to report strong sales lifted by its COVID-19 vaccine. After all, rival Pfizer (PFE) sold $7.8 billion worth of its pandemic vaccine during the second quarter. The company is currently expanding its vaccine trials of children between the ages of 5 and 11 as it seeks FDA approval. Approval could mean expanded sales, something investors will be paying close attention to.
On Friday, Dominion Energy (D) reports quarterly earnings. The energy company announced earlier this month that it is terminating the planned sale of Questar Pipelines to Berkshire Hathaway due to uncertainty around gaining FTC approval for the deal. As a result the company said it took out a 364-day term loan to pay back the $1.3 billion deal deposit Berkshire Hathaway Energy made. Investors will undoubtedly want to hear more about why the deal was canceled and what it means to the pipeline when Dominion reports earnings Friday.
The Week Ahead at SoFi
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What’s Next for Big Tech?
Google’s Digital Ad Dominance
A number of large tech companies recently reported earnings. Here is an overview of what they shared and what may be coming next for these tech giants.
Alphabet Inc. (GOOGL), Google’s parent company, reported its highest-ever quarter for profit and sales. Its Q2 revenue was $61.88 billion, which marked a 62% year-over-year improvement. Much of this growth was due to companies pouring money into digital advertising on Google’s flagship search engine and other platforms which it owns, including YouTube and Maps.
Though Google is the leader in the digital ad space, other companies including Twitter (TWTR) and Snap Inc. (SNAP) are vying for market share. Retailers like Walmart (WMT) and Target (TGT) are also working to up their digital advertising capabilities. Investors will be interested to see if Google’s digital ad dominance continues.
Amazon’s Post-Pandemic Conundrum
Amazon also shared strong quarterly results, despite the fact that its ecommerce business slowed as many consumers returned to shopping in person. Amazon raked in nearly $30 billion in profits over the past year. Investors are concerned that the tech giant will have difficulty matching or surpassing its performance in 2020 now that restrictions on businesses have eased.
Other arms of Amazon’s business besides ecommerce are seeing strong growth. Its cloud computing unit and its digital ad business is growing. The company is hopeful that these branches of its business will help make up for the downturn in ecommerce sales.
Apple and Facebook Look Ahead
Apple (AAPL) also beat expectations with its earnings and shared that its sales increased 36% year-over-year, with sales of its iPhones surging by almost 50%. But despite the earnings beat, Apple’s stock price fell due to concerns about how chip shortages could impact the company’s supply chains in the coming months.
Meanwhile, Facebook (FB) also surpassed expectations with its earnings report, though its shares fell on news that the company expects revenue growth to taper in the coming months. Facebook’s user numbers also climbed last quarter. In Q2 it had 3.51 billion monthly active users across Facebook, Instagram, and WhatsApp—up from 3.45 billion in the first quarter. Tech companies have had a wild ride over the past year and a half as the pandemic altered consumers’ habits around the world. Investors will be eager to see how each of these tech giants continue to navigate volatile market conditions.
The Rise of Deferred Payments
The Pandemic’s Impact on Shopping Habits
“Buy now, pay later” programs are seeing a surge in popularity, both at brick-and-mortar stores and on ecommerce platforms. Many consumers grew accustomed to shopping this way during the pandemic, and that trend does not appear to be dissipating.
In 2020 Americans spent roughly $20 to $25 billion through deferred payments. Analysts estimate that deferred payments could exceed $1 trillion worldwide by 2025. Small startups have led the way in the deferred payments space, but large tech companies are taking note of recent trends and are working to muscle their way into the industry.
Deferred Payments Offer Advantages for Shoppers and Retailers
Deferred payment programs provide advantages for both retailers and consumers. Many younger shoppers who are wary of credit cards appreciate deferred payments because loans are linked to a specific purchase and are designed to feel easier to manage than credit card debt.
Many deferred payment companies do not require credit checks and some do not even charge interest. Some put in other protections for borrowers. For example, Afterpay (AFTPY) does not allow consumers to continue making purchases if a payment for a previous loan is missed.
For retailers, deferred payments mean that more consumers feel comfortable purchasing higher-priced items. Sticker shock is less powerful when shoppers know they do not have to pay for a product in full.
Big Tech Wants Market Share
At the moment, most retailers use third-party fintech companies such as Affirm (AFRM), Afterpay, and Klarna to set up deferred payment options for their consumers. These platforms make most of their money in fees from retailers, rather than interest from consumers.
As deferred payments continue to gain popularity, larger tech companies are working to gain market share in the industry. PayPal (PYPL) recently debuted a “Buy now, pay later” service called Pay in 4. Meanwhile Apple (AAPL) is working with Goldman Sachs (GS) to build its own deferred payment service, which it plans to integrate into Apple Pay. Deferred payments have changed the way people shop over the past year. It appears that those changes could be here to stay.