September 16, 2021

Market recap

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Top Story

US Manufacturers Scramble Amid Rising Steel Prices

Rising Steel Prices Threaten Manufacturing

Campbell Soup (CPB), Peloton (PTON), Ford (F), General Motors (GM), and Steelcase (SCS) are among the companies going to great lengths to secure steel, as rising prices are hurting their ability to produce soup cans, exercise bikes, desks, vehicles, and a host of other products.

Steel and aluminum prices are rising at a rapid pace, forcing companies to accept whatever supply they can get and prompting many to hire more workers to source supply. Steel prices were around $1,940 per ton at the start of September. That is a huge jump considering that in both September 2019 and 2020, steel cost $560 per ton. The price for steel and iron nearly doubled in August on a year-over-year basis—the biggest increase since the 1920s when prices were first tracked.

Tariffs and Strong Demand Drive Metal Prices Higher

Rising prices for steel and other metals adds yet another challenge for the US manufacturing industry, which has been struggling with semiconductor shortages, shipping delays, and a lack of workers during the pandemic. Steel prices are being pushed up due to strong demand for goods as well as tariffs on imported steel. These tariffs were put in place by the Trump administration and have continued under President Biden.

To adjust to the current situation and keep production going, companies are purchasing metal sizes that are not standard. They are also hiring more workers for their supply chain units, passing along the costs to consumers, and buying more imported steel.

Calls for US Producers to Step Up

Steel production in China accounts for over half of the world’s steel. But steel manufacturing in the country is projected to decline in the coming months. As a result, some contend that US steel producers including United States Steel (X) and Cleveland-Cliffs (CLF) should do more to bring idled plants back into action. Since the pandemic began the US steel industry has collectively removed around seven million tons of steel production capacity.

US manufacturers have faced a tough time since the pandemic began. In addition to parts shortages and a lack of workers, they now have to contend with steel and metal prices that do not appear to be coming down anytime soon. It will be interesting to see what impact that has on the prices consumers pay for a wide variety of products.

Reset! Recharge! Reimagine!

In the second event of our series “Reset! Recharge! Reimagine!” media personality Stacy London will discuss how to pivot, evolve, and grow your career—and your life. You won’t want to miss out! Join us next week on 9/21 at 10am PT.

RSVP here.


Fiscal Firepower

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 fiscal firepower.

The Politics of Investing

Over the weekend and earlier this week, we got a more detailed look at the reconciliation bill proposed in the House as debates heat up again in Washington. We will continue to hear about this in coming weeks, especially as we approach the debt ceiling later in fall. The final bill is something we need to take heed of as investors.

Not every political negotiation or policy change warrants attention, but there are elements of this reconciliation bill that could alter the landscape for businesses and taxpayers. While some of these elements will not affect all sectors equally, all of these pieces matter for markets.

Investors should also note that government spending accounts for almost 18% of GDP and, like it or not, is an important part of the US economy.

What Comes First: Spending or Taxing?

Long story short, tax announcements hit markets first. In this case, we’re looking at tax hikes on corporations and top-bracket individuals (including small businesses that use individual tax rates). I’ve never met a company that welcomes a bigger tax bite out of its bottom line.

How big of a bite will it be? Mosquito bite or shark bite?

The proposed corporate tax hike will take the rate from its current 21% up to 26.5%. The key word here being “proposed.” This bill is what was brought forward in the House, and still needs to be negotiated and then reconciled with the Senate’s version before reaching a final state.

Also, this draft proposal outlines spending and tax changes that will occur over a number of years. For simplicity, we will only focus on 2022 here. A 26.5% rate would be expected to shave roughly $42 billion off of 2022 S&P 500 earnings, which is only a 2.3% bite.

However, although that rate will get the headlines, there are more tax changes that could affect corporations. Namely, taxes on multinational revenue, tobacco taxes, and pharmaceutical controls, among others. Also, the Senate tax proposal is expected to be more aggressive than the House version—so when all is said and done, tax changes will likely shave more than the above-mentioned 2.3% off of 2022 earnings.

But the proposed tax changes will not affect all industries equally and there are a couple worth a callout.

The Usual Suspects

I don’t remember the last time a debate didn’t include healthcare as a topic, and this time is no exception. To be clear, I am bullish on the healthcare sector long-term because I believe the pandemic forced the marriage between healthcare and technology to speed up, helping to build efficiencies and a better cost/revenue structure overall. Also, the demand for health care around the globe is forever changed and forever necessary.

That said, as proposed, this bill would likely be a headwind for pharmaceutical companies and a tailwind for managed care, medicaid HMOs, and hospitals. Much of the expansion in spending would benefit the latter, and would be paid for by price controls and spending cuts on pharma. Markets have largely anticipated the hit to pharma as stocks most sensitive to these cuts have underperformed the broad index and the healthcare sector overall since February.

Another topic that gets a lot of airtime is energy. The transition from fossil fuels to renewable energy is a focus of this administration and is a large component of the House proposal. Specifically, it includes subsidies and mandates for the use of renewable energy that are offset by regulating fossil fuels. Beneficiaries of this piece of legislation would be companies involved in electric vehicles and the production/delivery of renewable energy.

The Rest Is Yet to Come

I can’t stress enough that this was a proposal and a draft at that. What matters here is that we had a break from Washington debates at the end of August—that break is over now. This is a component of the wall of worry investors are facing in the fall, if only because it introduces uncertainty, and markets do not take kindly to prolonged uncertainty. All told, this does not change my long-term optimistic outlook on equities, but it also does not change my near-term expectation that we will trudge through some more mud before the path clears.


Fake Christmas Trees the Latest Victim of the Pandemic

Artificial Christmas Trees Will Be More Expensive This Year

Decking the halls will be pricier this holiday season with retailers across the country raising prices for fake trees. Some retailers are hiking artificial Christmas tree prices by 20% to 25% to cover rising shipping costs. Others are warning that some trees could sell out early due to overseas delivery delays. Retailers which import their holiday trees and decorations are more exposed to the current disruptions in the supply chain than those which source products domestically.

Christmas tree customers are more sensitive to shipping delays because Christmas trees are for such a specific occasion. If a tree arrives after Christmas because of shipping delays, it has to be heavily discounted or stored until next season. It does not help that Christmas trees are hard to fit into shipping containers, which makes it more expensive for retailers to transport them. Artificial tree importers are paying about $20,000 per container and still cannot find enough containers to meet inventory orders in time for the holidays.

America’s Love of Fake Christmas Trees

Artificial trees make up the majority of Christmas tree sales in the US. Last year 85% of American households had a fake tree, which is nearly a 50% increase since 1992. As it stands the artificial Christmas tree market is between $1 billion and $2 billion in size.

But it’s not all bad news. The supply of live Christmas trees is expected to be improved from last year, when supply was tight due to light planting during the financial crisis of more than a decade ago. It takes about 10 years for trees to grow to the right size. This year there should be more than enough live trees to go around.

Retailers Already Preparing for Tree Shortage

Consumers who want to purchase an artificial tree this year may need to act ASAP. Retailers including Lowe’s (LOW) and Big Lots (BIG) said they have taken action in recent weeks to limit the impact from supply-chain delays. That includes placing orders for holiday imports earlier than in previous years. That means products are likely to show up in stores earlier. In July, US imports of artificial trees were up 45% year-over-year. Amazon (AMZN) and Wayfair (W) vendor National Tree Company already imported half of its artificial trees in June. Even so, it expects to import 10% fewer trees than planned.

The pandemic has created supply-chain difficulties which have impacted numerous industries. Now, the artificial Christmas tree market is feeling the effects. Retailers are working to adapt so their profits and their consumers don’t have a blue Christmas.

Not-So-Breaking News

  • Google (GOOGL) was fined $176.9 million by South Korea’s Fair Trade Commission, which ruled the company abused its position in the mobile OS market. The regulator is alleging Google blocked smartphone makers from using competing mobile operating systems. Google plans to appeal the ruling.

  • Pfizer (PFE) said a booster shot six months after people are fully inoculated from COVID-19 restores 95% protection. The booster shot data in question were taken from trials in Israel. Pfizer submitted the findings to the FDA as it pushes for the government to recommend a third shot.

  • Canadian Pacific Railway (CP) emerged victorious in its bid to buy Kansas City Southern (KSU), inking a $27.2 billion cash-and-stock deal. The deal creates the first direct railway connecting Canada, the US, and Mexico.

  • DoorDash (DASH) is suing New York City over a new law which requires food-delivery companies to share information about customers including names, contact information, and addresses, with the restaurants they are delivering for. DoorDash argues the rule undermines customers' right to privacy.

  • Despite a lack of inventory, mortgage applications increased 7% last week, when compared to the previous week, marking the highest level since April. Applications are still down 11% year-over-year.

  • The types of available jobs are changing fast. Here’s 4 Tips for Navigating the Job Market so you can move with the tide.

Financial Planner Tip of the Day

“Mutual funds combine a variety of different assets. Buying into a mutual fund means purchasing a small share of the combination. It can be a very economic way to invest, because it pulls a bunch of people together to buy a large collection of investments. Most mutual funds are actively managed by a professional, who decides when to buy, sell, and hold the portfolio of assets. However, they can be passively managed as well.”

Brian Walsh, CFP® at SoFi

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