Axios Markets: What's next on recovery watch

Plus: Big companies are bullish on themselves | Tuesday, June 29, 2021

Open in app View in browser   Presented By Blinkist   Axios Markets By Sam Ro ·Jun 29, 2021 Today's newsletter is 1,282 words, 4.8 minutes. 📈 of the day: $11,200, the cost of moving a 40-foot shipping container from Shanghai to New York.     1 big thing: Recovery watchers plot what's next Illustration: Rebecca Zisser/Axios   The second half of the year starts Thursday and from an economic perspective, it looks to be a lumpy but uphill climb, Axios' Hope King writes. Why it matters: The shape of the economic recovery will be defined by how the labor market grows, how spending drives inflation and how the Federal Reserve signals its plan to phase out crisis-era policies. By the numbers: After declining 3.5% in 2020, the U.S. economy is expected to grow 6.5% in 2021, according to FactSet. Q2 estimates for GDP growth peak at a 10% rate before cooling down for the second half. Labor recovery: Labor supply constraints should loosen after federal unemployment supplements expire in September and schools reopen, JPMorgan economists write in a recent research note. The unemployment rate is expected to drop from 5.8% now to 5.3% by the end of the year, according to FactSet. Wage growth is expected to continue as employers compete for labor to meet demand. In March, the reservation wage (the lowest wage that a worker would be willing to accept for a new job) grew 15.7% year over year. Labor force participation should also improve as virus fears wane with vaccine distribution, child care problems recede as schools reopen, and the general reflection on work-life priorities settles down as people transition. Inflation watch: Core PCE inflation may have peaked, but will likely remain above 2% for the remainder of the year. Inflation will be bolstered by spending. Morgan Stanley estimates $1 trillion in excess cash now sits with the bottom 90% income group — households that in the aggregate are more likely to spend liquid assets compared to higher-income families. Supply-driven price increases in categories like cars and lumber are likely temporary whereas rent price growth is more persistent because of cyclical pricing pressure, Morgan Stanley also notes. Fed tapering is coming. With employment on the mend and inflation running above the Fed's 2% target rate, the central bank is expected to start reducing its purchases of mortgage securities and Treasury debt. Most economists expect a taper announcement by the end of the year. Threat level: A new COVID variant remains a top concern. When asked how ready the U.S. and global economies are to sustain future variant-related closures, Charles Schwab's chief investment strategist Liz Ann Sonders tells Axios she expects shutdowns to be much more targeted and treatment options to be better with more access to vaccines. The bottom line: "The recovery always came down to whether there would be enough stimulus to sustain us through the shutdowns," Capital Group U.S. economist Darrell Spence notes in a recent memo. "[W]ith the vaccine rollout compressing the time between stimulus and the functional end of COVID, we could see even stronger growth than the market expects today."     2. Catch up quick The biggest U.S. banks announced a slew of dividend hikes and share buybacks. (Reuters) Cathie Wood's Ark Invest filed with the SEC to create a bitcoin ETF. (CNBC) Sanofi plans to invest $477 million per year to build an mRNA business. (WSJ)     3. Big companies raising the bar for themselves Data: FactSet; Chart: Axios Visuals A record number of S&P 500 companies have said their second-quarter earnings would be better than what analysts expect. Why it matters: Companies provide guidance, or their projection for their financial performance, so that the market isn't too surprised when they announce actual results. However, they risk disappointing investors and triggering a stock selloff if those actual results ultimately fall short. By the numbers: A company's guidance is considered positive if it is higher than the median analyst's estimate for the metric. Of the S&P 500 companies, 103 offered Q2 earnings guidance, according to FactSet data. A record 66 of these companies provided positive guidance. Flashback: In Q2 of 2020 during the early stages of the coronavirus pandemic, just 53 companies offered any kind of guidance due to lack of visibility as the economic lockdown was totally unprecedented. What they're saying: The fact that a record number of companies are issuing positive guidance confirms Wall Street continues to be too conservative about earnings prospects, DataTrek Research's Nicholas Colas wrote in an email on Monday. Earnings have been driving the rally over the past year, and if expectations for positive outcomes are still going up, it seems to be reason enough for stocks to keep following suit. What to watch: Companies will start announcing their actual results in two or three weeks. "Q2 2021 earnings season needs to show real upside to Wall Street expectations to keep the current US bull market on track, and the last 2 weeks' 'guidance season' confirms that it should," Colas wrote.     A message from Blinkist Get the key insights from best-selling business books in minutes     Blinkist's innovative app gives busy professionals actionable advice, specific examples, and key takeaways from top nonfiction business books in 15 minutes. The result: 87.5% of 3,500 U.S. users surveyed say they've made changes in their lives based on what they learned. Start your free trial.     4. Facebook joins the four commas club Source: YCharts Facebook's market value surpassed $1 trillion for the first time Monday after a federal judge dismissed an antitrust complaint from the Federal Trade Commission. Why it matters: Despite its massive scale and the intense and ongoing regulatory scrutiny it attracts, Facebook maintains the confidence of investors who continue to bid up the stock. Flashback: In December, the FTC brought an antitrust lawsuit against Facebook alleging that it had violated antitrust law by buying companies like Instagram and WhatsApp to stifle competition. What they're saying: Judge James Boasberg of the Federal District Court in D.C. wrote in his ruling: "The FTC has failed to plead enough facts to plausibly establish a necessary element of all of its Section 2 claims — namely, that Facebook has monopoly power in the market for Personal Social Networking (PSN) Services." Facebook quickly put out a statement. "We are pleased that today's decisions recognize the defects in the government complaints filed against Facebook," Facebook policy communications director Andy Stone tweeted. "We compete fairly every day to earn people's time and attention and will continue to deliver great products for the people and business that use our services." By the numbers: Facebook joins Apple, Alphabet, Microsoft and Amazon who have surpassed $1 trillion in market value in recent years. What's next: The FTC has until July 29 to file a new complaint.     5. United's historic airplane order Photo courtesy of United Airlines   United Airlines just placed the biggest aircraft order in its history and expects to create 25,000 unionized jobs by 2026 in an effort to capitalize on the astonishing rebound in passenger travel, Axios' Joann Muller writes. Why it matters: This is one of those "go big or go home" moments for the airline industry, which was devastated by pandemic-related travel restrictions worldwide. Domestic leisure travel has bounced back, but business and international travel remain depressed, making United's plan a significant bet on future growth. What they're saying: "Everything we see, every day, tells us that business and international travel will ultimately come back 100%," United CEO Scott Kirby told reporters late Monday. "Next summer, travel across the Atlantic is going to be an absolute record-breaker," added chief commercial officer Andrew Nocella. Details: United announced the purchase of 270 new Boeing and Airbus aircraft — its biggest ever, and the largest by any carrier in the past decade. Combined with previous orders, United plans to take delivery of 500 new planes between now and 2026, replacing at least 200 smaller regional jets with larger aircraft. The fleet overhaul means United will increase the total number of available seats across its domestic network by almost 30% per departure. What to watch: United plans to add 100 flights per day in Chicago, Denver and Houston, and expects domestic and international growth of 4% to 6% over the next few years. To support that growth, the airline said it will add up to 25,000 jobs, mostly at its seven domestic hubs. The bottom line: United is well-positioned for a fast recovery, Kirby said, because it struck a union deal early in the pandemic to keep pilots on staff and maintain their training requirements, unlike other airlines now facing pilot shortages. Go deeper.     A message from Blinkist The app top professionals use to quickly gain insights     Get key insights from the world's best nonfiction books such as Adam Smith's The Wealth of Nations in less than 15 minutes. Here's how: With Blinkist, people looking to improve their business acumen can read or listen to more than 4,500 titles written by top minds. Join 18 million Blinkist users.   🤦‍♂️ of the day: "Alright the laser eyes didn't work. Anyone have any ideas?" - Tom Brady, quarterback for the Tampa Bay Buccaneers Like this email style and format? Learn more about Axios HQ. It'll help you deliver employee communications more effectively.   Axios thanks our partners for supporting our newsletters. If you're interested in advertising, learn more here. Sponsorship has no influence on editorial content. Axios, 3100 Clarendon B‌lvd, Suite 1300, Arlington VA 22201   You received this email because you signed up for newsletters from Axios. Change your preferences or unsubscribe here.   Was this email forwarded to you? Sign up now to get Axios in your inbox.   Follow Axios on social media: