Thursday,
August 5, 2021

Market recap

Dow Jones

34,792.67

-323.73 (-0.92%)

S&P 500

44,02.66

-20.49 (-0.46%)

Nasdaq

14,780.53

+19.24 (+0.13%)

Target

$260.53

-$1.67 (-0.64%)

Delta Airlines

$38.36

-$1.41 (-3.55%)

Kroger

$41.92

-$0.70 (-1.64%)

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

Retailers Offer Free College to Attract Workers

Target Follows the Trend

Target (TGT) is joining a growing list of national retailers which are offering college reimbursement to attract workers in a competitive labor market. Due to childcare issues brought on by the pandemic, concerns about the Delta variant, and other factors, retailers across the country are having difficulties attracting workers.

In response to these trends, companies like Walmart (WMT), Starbucks (SBUX), and Chipotle (CMG) are raising the minimum wage they pay and footing the bill for undergraduate and graduate degrees. Walmart, which is the biggest employer in the US, announced just last week that it will cover the cost for college tuition and books for all its full- and part-time US associates.

Target Partners With Over 40 Schools

Beginning this fall, Target said it will pick up the bill for tuition, fees, and textbooks for employees who choose to earn an undergraduate degree at over 40 participating colleges and universities. Target will pay up to $10,000 per year for employees pursuing a graduate degree at one of the qualifying institutions.

The benefit kicks in on the first day of employment. Target will cover the entire cost to earn a degree in 250 areas which align with the goals of the company. Target will pay up to $5,250 for undergraduate degrees outside of these areas. Target is investing $200 million in the program over the course of four years.

Looking Ahead

Some of the colleges and universities participating in Target’s program include University of Arizona, University of Denver, and a number of historically Black colleges and universities. Employees can choose courses to earn a high school diploma, prepare for college, take English learning classes, pursue a certificate, attend boot camps, and earn associate, undergraduate, and graduate degrees.

Target is not alone in using this strategy to attract employees. Constraints in the labor market are not expected to end any time soon. It will be interesting to see if offering free college will help these retailers attract the workforce they need.

IPO Investing: Now for the Rest of Us

Traditionally, access to IPOs before they're traded on the public market has been reserved for large institutional investors. Now SoFi members can participate in IPOs before they trade on an exchange with no account minimum. Start trading now, or watch the video below to learn more about how it works.


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Yields Racing Lower

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 yields racing lower.

The Highest Low

At the end of July, the dividend yield on the S&P 500 sat at 1.33%, its lowest level since 2001. The US 10-year Treasury yield closed at 1.17% on August 4th, lower than the levels seen after the Global Financial Crisis of 2008/2009. To revisit a concept from my last column about how investors should consider three objectives—preservation, income, and growth—when building a portfolio: those who are prioritizing income right now are left with a set of uninspiring options.

It’s All Relative

Investing success is frequently gauged by performance relative to a benchmark or an alternate option. If we put these yield readings in the context of “what’s the other option?,” we come away with perhaps a bit more inspiration.

As far as equities go, the S&P 500 may only be offering a 1.33% dividend yield, but since the market bottom on March 23, 2020, the index has kicked out a price return of 97%. The tech-heavy Nasdaq had a stronger price return at 115% over that same period, but its dividend yield is less than half that of the S&P 500 at 0.64%. The small-cap Russell 2000 Index offered a price return of 119% for the period, and has a current dividend yield of 1.11%.

In other words, even at 1.17%, the 10-year Treasury offers a higher yield than small-cap stocks with arguably much less risk.

Additionally, the Nasdaq has produced more price return than the S&P, but leaves much to be desired as far as income is concerned, compared to the S&P, the 10-year Treasury, and the Russell 2000.

The five largest names in the Nasdaq and the S&P are exactly the same. If you’re searching for exposure to those “big cap tech” names, you can get it in the S&P just as well as in the Nasdaq.

Bottom line: if an investor is focused on income, the S&P 500 wins compared to these options. If they are focused on growth potential, the S&P 500 still looks pretty attractive on a risk-adjusted basis compared to the other equity options.

Relatively speaking, a 1.33% dividend yield on the S&P 500 isn’t that bad.

But Where Does It Go From Here?

The long-term average dividend yield is roughly 1.99%, which may sound quite attractive at the moment. And if you believe that measures eventually revert closer to their long-term averages, you might expect it to rise from here and be excited by the prospect. However, one of the ways the dividend yield can rise is by a fall in the index (dividend yield = dividends / index level).

That’s not a great alternative. It helps to look at results on a “total return” basis (price return + income). Income is at historic lows, but price return has more than pulled its weight since last March. Let’s be careful what we wish for even if we’re income investors. I’d rather have dividend yields at this historically low level than experience a material drop in the index.


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Airlines Bet on a Business Travel Rebound

Delta and Southwest Add Business Travel Flights

Delta (DAL) and Southwest (LUV) are among the airline operators gearing up for the return of business travelers this fall, despite an uptick in COVID-19 cases spurred on by the Delta variant of the virus. With consumer travel waning slightly, airlines are overhauling their routes to better accommodate business travelers in hopes they will finally return to the skies this fall.

Delta Air Lines is adding flights to New York, Boston, and other business hubs and reducing flights to popular vacation destinations. Southwest is also restoring some of its routes for business travelers and launching deals and discounts in September to keep vacation travel from declining.

Summer Vacation Travel Coming to an End Soon

Typically, vacation travel slows as summer comes to a close and business travel tends to pick up. Whether or not that trend plays out this year will be important for airline operators and their investors.

The airline industry relies on the corporate market for a large portion of their sales. Close to 2.24 million people went through security at US airports this past weekend—a new pandemic high. Airlines are hopeful that business travel will pick up when the summer vacation season ends. Despite the threat of the Delta variant, many industry leaders are optimistic this will happen. Airline operators say companies are beginning to spend on travel again, albeit slowly.

Delta Variant May Derail Plans

Though airlines are hopeful that corporate travel will tick up in the fall, the Delta variant of COVID-19 may hamper the rebound. Local governments and big companies are renewing mask requirements, even for vaccinated people.

These developments are leading some companies to rethink return-to-office plans. Apple (AAPL) and Google (GOOGL) are among the big companies delaying when workers are scheduled to go back to the office. Airlines are hopeful that business travel will recover in the fall, but it will depend on what unfolds with respect to the Delta variant.

Not-So-Breaking News

  • Vici Properties (VICI) is buying MGM Growth Properties in a $17.2 billion deal which includes MGM Resorts’ (MGM) stake in the REIT. The cash and stock deal is part of MGM Resorts’ effort to shed assets.

  • Pico, a data analytics company serving the financial services market, is going public via a SPAC deal with Betsy Cohen’s FTAC Athena Acquisition Corp. (FTAA). It is the seventh target for Cohen’s blank check company. The deal gives Pico a $1.75 billion valuation.

  • CVS Health (CVS) is raising the hourly wage it pays workers amid fierce competition for retail workers. By next July, the minimum wage it pays will increase to $15 per hour. However, CVS said that about two-thirds of its employees already make over $15 per hour.

  • GM’s (GM) second-quarter earnings fell short of Wall Street forecasts. This was partially due to $1.3 billion in recall costs. The majority of these recalls were for the company’s Chevrolet Bolt EV. Twice this year, GM had to recall the vehicle over fire concerns.

  • Royal Caribbean’s (RCL) second-quarter loss was worse than Wall Street forecast as the Delta variant of COVID-19 spreads. The cruise line operator posted an adjusted net loss of $5.06 compared to $4.39 which Wall Street expected.

  • How much wealth do you really have? Explore ways to calculate net worth and why you should.

Financial Planner Tip of the Day

"People who are reluctant to take on extra risk right now but are looking for ways to maintain exposure to certain securities might want to consider an investment strategy called dollar-cost averaging, which just means regularly putting a set amount of money into an investment."

Brian Walsh, CFP® at SoFi

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