The Week Ahead on Wall Street

Economic Data

Today, existing home sales for July are released. Sales of existing homes in the US rebounded in June, albeit slightly, up 1.4% to 5.86 million units. The real estate market is dealing with tight inventory which has driven the prices of homes up and is hurting sales of existing homes. Investors will be paying close attention to July’s report to see if the supply-and-demand imbalance is improving.

Tomorrow, be on the lookout for new home sales in July to be released. Homebuilders are seeing brisk demand, which has driven up the prices for new homes. But with labor shortages, a lack of property to build on, and rising material costs, home builders have been doing less construction in recent months. It will be interesting to see if that situation is improving when new home sales for July are released. In June new home sales fell 6.6% to 676,000 units.

On Wednesday, the Commerce Department releases durable goods sales numbers for July. This data point tracks consumer orders of cars, appliances, and other big-ticket items. In June, durable goods orders increased 0.8% to $257.6 billion compared to May. Economists were looking for 2% growth. If orders increase again in July, it will signal that the economy is still seeing strength despite labor shortages, supply-chain issues, and increasing COVID-19 cases.

On Thursday, the Labor Department releases initial and existing unemployment claims for the prior week. Despite the rising COVID-19 cases, unemployment has been declining as more people return to work. Last week initial claims came in at 348,000, setting a new pandemic low. Investors will be paying close attention to see if this trend continues as the Delta variant spreads.

On Friday, be on the lookout for the Commerce Department to release consumer spending numbers for July. This data point tracks how much US consumers are spending on goods in a given month. While consumer spending increased slightly in June, that may not be the case for July. The Delta variant has spread rapidly since June and consumers have been reining in spending. Investors will be looking for any signs the economy is cooling when this data point is released. Also Friday personal income numbers for July and consumer sentiment for August are released.

Earnings

Today, JD.com (JD) reports quarterly earnings. Concerns are rising that China’s retail sector is hurting as COVID-19 takes a toll on the economy. Retail sales in China increased 8.5% in July, which was below the 11.5% growth analysts had forecast. As for ecommerce, sales only increased 4.4%. Investors have reacted by selling off shares of JD. They will be paying close attention to what JD.com has to say about the current environment and the impact COVID-19 is having on ecommerce.

Tomorrow, be on the lookout for Nordstrom (JWN) to report quarterly earnings. Like other retailers, Nordstrom has been benefiting from the economic recovery, but any gains could be at risk with the Delta variant spreading. Data points are emerging showing that consumers are reining in their spending. Investors will be looking for any insight from Nordstrom about the impact rising COVID-19 cases are having on back-to-school sales and general demand.

On Wednesday, Toll Brothers (TOL) reports quarterly earnings. With demand still surging for new construction, Toll Brothers has not been able to meet all the demand. To build its presence in Las Vegas, a booming real estate market, it recently acquired local home builder StoryBook Homes. Investors will be paying close attention to see if acquisitions are a viable strategy to deal with supply-side shortages. They will also be looking for clues that the tight labor market and rising material costs are starting to ease.

Be on the lookout for Peloton (PTON) to report quarterly earnings Thursday. The maker of at-home gym equipment was a huge stock-market darling during the pandemic. As the economy recovered from the pandemic, Peloton lost some of its luster with investors as they turned to reopening plays. With COVID-19 cases rising again, investors are turning back to those pandemic stocks. They will be looking for any signs demand is rapidly accelerating again.

Also Thursday, Gap (GPS) reports quarterly earnings. The company is benefiting from a reduction in costs and a focus on Old Navy and Athleta—its two brands which have higher margins and are both experiencing strong growth. Investors will want to hear more about how the company is overhauling its branding when Gap reports quarterly earnings.

The Week Ahead at SoFi

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The Path to EVs Is Expensive for Car Companies

Recalls Cost Car Makers Billions

GM (GM), Ford (F), Hyundai (HYMTF), and other automakers are fully supportive of President Biden’s shift to electric vehicles, but the road to an electric future is costing them billions of dollars. From fires to safety recalls, the car makers are incurring extra expenses as they learn how to develop and mass-produce electric vehicles.

Three big recalls this year alone have collectively cost GM, Ford, and Hyundai $2.2 billion, with GM and Hyundai carrying the brunt of the costs.

GM announced it was recalling its Chevrolet Bolt EV in July because of manufacturing defects in the vehicle’s battery which were causing fires. This is costing GM $800 million. Meanwhile in May, Hyundai said it is spending $900 million to recall its Kona EVs.

Batteries, Software to Blame

Transitioning to EVs requires a steep learning curve for automakers. They have to rely on software and batteries to run their vehicles. Those two areas are vital to successfully developing EVs but are not yet part of most companies’ core expertise. To date, much of the vehicle maker’s EV recalls have been due to battery and software problems.

In July Porsche recalled its Taycan electric sedan due to a software glitch which caused the vehicle to lose power while in operation. Ford recalled some of its Mustang Mach-E electric crossovers in April after batteries in the vehicles stopped charging. Ford blamed a software issue.

Hurdles Are Not Insurmountable

Recalls are not uncommon in the auto industry, typically occurring when new vehicles are released. That is partly why vehicles that come equipped with the latest and greatest technology tend to perform poorly among consumers. That could become an issue for the car makers if more high-profile recalls occur.

However, the companies and the analysts who follow them are confident that GM, Ford, Hyundai, and the rest of the auto industry will figure it out and overcome the battery and software challenges.

Unemployment Falls, Student-Debt Borrowers Get Forgiveness

Unemployment Reaches New Pandemic Low

Initial jobless claims reached a pandemic-era low despite rising cases of COVID-19 due to the Delta variant. For the week ending August 14, 348,000 individuals filed first-time unemployment claims, coming in lower than the 365,000 economists were looking for.

Initial unemployment claims last hit that number in March 2020 before the pandemic put millions of people out of work. In the early days of the pandemic, over 22 million people were unemployed, with the rate close to 15%.

In another sign the economic recovery continues despite the Delta variant, continuing unemployment claims declined to 2.82 million. It marks a 79,000 dip from the week prior. It was also the lowest number since the pandemic began.

Still More Jobs Than Workers

While unemployment numbers are narrowing, businesses are still struggling to hire workers. There are about 6 million fewer Americans who are considered employed than before the pandemic struck. In July 8.7 million people were looking for employment, although there were still about 10 million job openings.

As a result of that imbalance, wages for workers have been increasing, with hourly pay up 4% in July compared to last year. Before the pandemic hit, that would have marked a record increase going back to 2007.

White House Forgives $5.8 Billion in Student Debt

Another positive for the economy came late last week when the White House announced it is forgiving the student debt of 323,000 borrowers, amounting to about $5.8 billion. Students who can not maintain employment because of physical or psychological disabilities do not have to pay back their student loans. Previously, students had to apply for this benefit, but under the new rule the Department of Education will be able to automatically identify borrowers through administrative matching data.

The program has also been criticized in the past for requiring students to navigate complex rules such as submitting proof of a disability. The Department of Education also required a three-year period in which the borrower’s income was monitored. From student-loan debt forgiveness to an improving job market, there are a lot of positives happening in the economy despite the rapidly spreading Delta variant. It will be interesting if they will be enough to keep the recovery going.