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Why One Bank Is Warning Its Clients Of An Imminent “Hard Correction”

Why One Bank Is Warning Its Clients Of An Imminent "Hard Correction"

Earlier this week, when recapping the latest bearish outlooks from most large Wall Street banks, we touched on Deutsche Bank’s latest House View take in which the bank -…

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Why One Bank Is Warning Its Clients Of An Imminent "Hard Correction"

Earlier this week, when recapping the latest bearish outlooks from most large Wall Street banks, we touched on Deutsche Bank's latest House View take in which the bank - along with most of its peers - said that its strategists expects an "imminent correction" without giving much context for the bank's gloomy take.

So fast forwarding to today, the bank's chief equity strategist Binky Chadha expounded on this bearish take, and in a note pointing out that "equity valuations are extremely rich", he first explains "what's keeping equity valuations high", and then goes on to warn that "the risk the correction is hard is growing" adding that "there has been a clear negative relationship between initial valuations and subsequent forward returns, with the relationship strengthening as the return horizon is increased from 1 to 3 to 5 years out. For the highest decile of initial valuations, which is where we currently are, 5-year forward returns have on average been slightly negative."

Starting at the top, Chadha lays out what everyone - even the NY Fed president - is aware of, namely that equity market valuations are "historically extreme" on almost any metric: "trailing and forward price to earnings (P/E), enterprise value to EBIT, EBITDA  or operating cash flow are all well into the 90s in percentile terms. High valuations are broad based across sectors and median company valuations are high."

Furthermore, he notes that "equities are very expensive (36%) relative to the drivers of valuation which have explained the bulk (70%) of historical variation in them." As a result, the cyclically adjusted P/E at 26.2x is well outside its historical 10-20x range "and easily the highest outside of the Tech bubble."

Some more details on the current extreme valuations:

  • Valuations are high across sectors. Of the 11 sectors in the S&P 500, 7 are trading 10%-85% above their (ex-recession) average trailing multiples since 1995; 3 are trading in line (Materials, Health Care and Financials); and Energy the lone sector that is trading at a discount (-35%).
  • Median company valuations are very high. DB looks at the valuation of the median company in the S&P 500 to reduce the impacts of outliers or particular sectors in the aggregate. For the median company, the traditional trailing P/E multiple is near a record high and well above Tech bubble peaks, while the multiple on forward consensus estimates is down from its peaks but at levels comparable to Tech bubble peaks.

  • For the median company, EV to EBIT, EBITDA, or OCF are above their Tech bubble peaks. Unlike for the aggregate (37th percentile), for the median company EV/FCF is much higher (97th percentile) relative to history.

  • Equities are very expensive (36%) relative to the historical drivers of valuation. According to his market model, which is based on payout ratios (+), earnings deviation from trend (-), inflation (-), real rates (+) and inflation volatility (-), which captures the  large majority (70%) of the variation in P/E multiples over the last 85 years, BofA sees fair value of 17x. That leaves a 6.1 multiple point gap (36%) between the current P/E at 23.1x and fair value of 17x.

  • The cyclically adjusted P/E (CAPE) is very high. From a long perspective, it is useful to look at cyclically adjusted P/Es. Arguably the best-known measure is the Schiller CAPE. But in to Chadha, that measure has a number of shortcomings as it relies on long moving averages and adjusts for inflation and is not comparable to other measures. Instead, he notes that there has been a very clear trend in S&P 500 EPS since the mid-1930s (when the US left the gold standard, a very different macro regime) and cyclical adjustment of S&P 500 earnings is therefore straightforward. Using this trend as a cyclically adjusted earnings measure, on current trend EPS of $172, the P/E is 26.2x, easily the highest outside the late 1990s bubble when it peaked at 35x.

Ok fine, everything is expensive, but if the Fed continues to inject liquidity there is no reason why stocks can't get even more expensive as every single dip is bought? In his response to this key question, Chadha asks rhetorically "why are valuations high" and debunks one by one all the widely circulated, popular narratives why the S&P is trading at 4,500. As the DB strategist writes, "extreme valuations are naturally fertile ground for new narratives and the list is long." Clearly, this is the case now on the up side, the opposite of what happened post the GFC when the S&P 500 multiple hit a low of 12x and stayed below its historical average for several years and below fair value for even  longer. In his view, the list includes:

  • low interest rates;
  • the pandemic accelerating the adoption of technologies that raise productivity, margins and the level and/or trend growth in earnings;
  • large firms (which dominate the major equity indices) gaining market share at the expense of small, raising the trend level of earnings;
  • the share of high growth companies in the market has grown;
  • the cash flow generated from earnings has risen; a paradigm shift in monetary and fiscal policies has reduced downside risks to macro growth;
  • the increased participation of retail investors.

He discusses some of these in more details below, starting with why he doesn't think it is due to low interest rates:

  • Rates have been here before, but multiples were much lower then. Looking across time, rates are where they were post the GFC when multiples were low and severely depressed relative to fair value. Similarly, looking across countries, interest rates are lower in Europe and Japan than in the US, but so are equity multiples.

  • The equity risk premium is a much bigger component of the equity discount rate and inversely related to rates. Rates are a small part (10y yield currently at 1.3%) of the equity discount rate (average 10.3%), with the larger part being the equity risk premium (currently 8%). The equity risk premium has historically moved inversely with rates. That is to say, when rates fell (say because of low growth) the equity risk premium rose, for the same reason that rates fell in the first place. Historically there is a very strong negative correlation between rates and the equity risk premium (beta near -1), implying equities were priced largely independently of rates.

  • The historical correlation between interest rates and equity multiples has been strong but shifted between long periods of positive and negative correlations. This ambiguity disappears when rates are broken into inflation and real rates. While inflation has robustly been negative for equity multiples, real rates have actually been positive.

  • In the current context, rates are low because real rates are low, while breakeven inflation rates look in line with history. Low real rates argue for lower not the high multiples currently prevailing, as do inflation risks

Chadha then digs into the heart of the matter and looking at the recent surge in earnings relative to trendline, notes that he is "skeptical the 85-year trend in earnings has changed."

Since there are cyclical reasons for earnings to have risen above trend levels with the economic recovery, it is too early to tell whether either the trend level or growth rate has risen, either because of the adoption of technologies or gains in market share of large companies. This will only become evident over time, if and when earnings start to slow toward trend or that they do not. The 85-year trend has held through numerous regime changes and cycles that included the inflationary 1970s, the Tech boom of the 1990s and through and after the GFC. It held across various sector and industry group rises and reversals: as such Chadha remains "skeptical that the trend (normalized) level of earnings or the underlying growth rate has risen."

Going down the list, Chadha writes that the share of faster-growing companies is well within its historical range. Defining high growth companies as those with 3-year annualized growth in earnings above 15%, their share of S&P 500 companies, at 30%, is at the lower end of the historical range of 20%-55%. Their share in earnings at 45% is in the middle of the historical 20%-65% range, while in terms of market cap at 50% it is on the high side but well below the prior peaks of 60% hit pre-GFC and at the tail end of the Tech bubble. Nor has the earnings growth of high growth companies been higher than in it has historically.

No evidence that earnings are generating higher free cash flows (in fact one can argue the opposite). The ratio of free cash flows to earnings peaked recently at 1.1 and is down to 1.0. The recent peak was comparable to the peaks reached after the Tech bubble burst and after the GFC.

What about the recent surge of retail daytraders? According to Chadha, from a demand-supply perspective, retail investor participation in equity markets has clearly increased, and has been a driver of high valuations. This increased retail investor participation has been spurred by working from and staying home and encouraged by stimulus checks; retail participation had closely followed (inversely) the Covid time line, rising during lockdowns and falling with reopening, while retail investor surveys have shown the role played by stimulus checks.

Retail participation peaked back in January this year, fell and has been noisily going sideways since.

So if it the widely accepted narratives are not behind record valuations, what is it? Chadha next lays out his own view on what is behind the relentless market surge, starting with the surprisingly rapid rebound in earnings which "has been key": 

S&P 500 earnings have beaten the bottom-up analyst consensus estimate by an unprecedented 15-20pp for 5 quarters running. Since the analyst consensus is informed by a dialogue with company managements, large recurring beats suggests that companies themselves were surprised by the strength and speed of the recovery. Meanwhile, the market multiple on forward consensus earnings has been in a relatively narrow range. So price returns have been about equal to changes in forward consensus estimates, which  in turn have been rising rapidly, buoyed by the big beats.

But after a torrid 18 months, the analyst consensus looks to have caught up and Deutsche bank - like us - look for earnings upgrades to slow or even end (note the stark recent profit warnings from the likes of PPG). According to Chadha, earnings beats and upgrades will slow, "diminishing if not ending what has been a key driver of equity upside, particularly year to date and supported multiples." The bottom up consensus for S&P 500 EPS in 2021 has been rising rapidly, from its lows last summer of $160 to $202 presently (+26%). This compares with DB's estimate of $210, which suggests 4% upgrade upside. But this is actually about the typical 4-5% historical beat, suggesting less likelihood of upgrades. The analyst consensus for 2022 has also been rising and at $220 now, about in line with DB's estimate of $222. Historically, Chadha observes, "there is a positive correlation between S&P 500 analyst estimate changes and macro data surprises, which after remaining positive for a little over a year turned negative in late July this year."

And while lofty expectations are set to disappoint, the earnings cycle is also very advanced. S&P 500 earnings had already recovered back up to trend levels by Q4 of 2020; are now 10% above; and could rise to 20% above by year end. With typical expansionary phases of the cycle seeing earnings go 20% above and past records of 30%, there is room for them to go further above trend, but the cycle is clearly very advanced according to DB.

So cutting to the chase, Chadha argues that at a fundamental level, "the key reason multiples are high is market confusion over where we are in the earnings cycle, in part reflecting the speed and surprise with which the economic recovery has unfolded and the large persistent beats this generated." Given that GDP is still well below trend, there is a popular view the better part of the recovery is yet to come. However, the parts of the economy that S&P 500 companies are exposed to are already significantly above trend. Indeed 2/3 of S&P 500 industries have activity levels 1sd or more above trend; about half of those, so about 1/3 of the S&P 500, 5sd above! So - and this probably is the best summary of the DB bear case - "the cycle is much more advanced and the risk is that activity begins to slow, while the market is priced for most of the recovery as yet to come and large beats to continue."

Which finally brings us to the punchline: the coming "hard correction."

According to Chadha, valuation corrections don’t always require market pullbacks - indeed multiples can shrink at roughly the same pace as earnings are growing resulting in unchanged stock prices - but they do constrain returns, or as Chadha puts it, "while equities are very expensive, by itself this does not necessitate a large market correction as valuations compress when price increases are smaller than earnings growth." Of note, historically valuation “corrections” in equities happened in slow motion, i.e., equity prices rose by less than earnings grew; and took place slowly, on average over 3 years. That is certainly not the case this time.

Furthermore, while valuation corrections are likely to be softer, i.e., not entail market drawdowns, the earlier in the recovery earnings are as growth is rapid. But with the current cycle advancing very quickly - recall this is also Morgan Stanley's core thesis, as the bank sees the current cycle burning "hotter but shorter" - Deutsche Bank warns that "the risk that the correction is hard" i.e., one requiring a market drawdown - "is growing" for the simple reason that the current cycle "has been advancing very quickly and so the risk that the valuation correction is harder is growing. "

If this is the case, and if a correction is imminent, it is also intuitive that higher valuations will lower returns longer term, since the "market has pulled forward much of the returns of this recovery."

Historically, looking at forward price returns vs initial valuations, there has been a clear negative relationship between initial valuations and subsequent forward returns, with the strength and magnitude of the negative relationship increasing as the return horizon increases from 1 to 3 to 5 years out. Looking at price to trend EPS as the valuation metric, the average and median price return is highest for low initial valuations, then goes mostly sideways to gently down for intermediate valuations, before falling notably for high valuations. For the highest decile of initial valuations, which is where we are currently, 5- year forward annual returns were slightly negative on average. There is a wide dispersion in returns around this average, ranging between -10% (10th percentile) and +5% (90th percentile). But even an outcome at the higher end would mean lower than average returns.

Tyler Durden Fri, 09/10/2021 - 12:40

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Shakira’s net worth

After 12 albums, a tax evasion case, and now a towering bronze idol sculpted in her image, how much is Shakira worth more than 4 decades into her care…

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March 14, 2024

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Shakira’s considerable net worth is no surprise, given her massive popularity in Latin America, the U.S., and elsewhere. 

In fact, the belly-dancing contralto queen is the second-wealthiest Latin-America-born pop singer of all time after Gloria Estefan. (Interestingly, Estefan actually helped a young Shakira translate her breakout album “Laundry Service” into English, hugely propelling her stateside success.)

Since releasing her first record at age 13, Shakira has spent decades recording albums in both Spanish and English and performing all over the world. Over the course of her 40+ year career, she helped thrust Latin pop music into the American mainstream, paving the way for the subsequent success of massively popular modern acts like Karol G and Bad Bunny.

In late 2023, a 21-foot-tall bronze sculpture of Shakira, the barefoot belly dancer of Barranquilla, was unveiled at the city's waterfront. The statue was commissioned by the city's former mayor and other leadership.

Photo by STR/AFP via Getty Images

In December 2023, a 21-foot-tall beachside bronze statue of the “Hips Don’t Lie” singer was unveiled in her Colombian hometown of Barranquilla, making her a permanent fixture in the city’s skyline and cementing her legacy as one of Latin America’s most influential entertainers.

After 12 albums, a plethora of film and television appearances, a highly publicized tax evasion case, and now a towering bronze idol sculpted in her image, how much is Shakira worth? What does her income look like? And how does she spend her money?

Related: Dwayne 'The Rock' Johnson's net worth: How the new TKO Board Member built his wealth from $7

How much is Shakira worth?

In late 2023, Spanish sports and lifestyle publication Marca reported Shakira’s net worth at $400 million, citing Forbes as the figure’s source (although Forbes’ profile page for Shakira does not list a net worth — and didn’t when that article was published).

Most other sources list the singer’s wealth at an estimated $300 million, and almost all of these point to Celebrity Net Worth — a popular but dubious celebrity wealth estimation site — as the source for the figure.

A $300 million net worth would make Shakira the third-richest Latina pop star after Gloria Estefan ($500 million) and Jennifer Lopez ($400 million), and the second-richest Latin-America-born pop singer after Estefan (JLo is Puerto Rican but was born in New York).

Shakira’s income: How much does she make annually?

Entertainers like Shakira don’t have predictable paychecks like ordinary salaried professionals. Instead, annual take-home earnings vary quite a bit depending on each year’s album sales, royalties, film and television appearances, streaming revenue, and other sources of income. As one might expect, Shakira’s earnings have fluctuated quite a bit over the years.

From June 2018 to June 2019, for instance, Shakira was the 10th highest-earning female musician, grossing $35 million, according to Forbes. This wasn’t her first time gracing the top 10, though — back in 2012, she also landed the #10 spot, bringing in $20 million, according to Billboard.

In 2023, Billboard listed Shakira as the 16th-highest-grossing Latin artist of all time.

Shakira performed alongside producer Bizarrap during the 2023 Latin Grammy Awards Gala in Seville.

Photo By Maria Jose Lopez/Europa Press via Getty Images

How much does Shakira make from her concerts and tours?

A large part of Shakira’s wealth comes from her world tours, during which she sometimes sells out massive stadiums and arenas full of passionate fans eager to see her dance and sing live.

According to a 2020 report by Pollstar, she sold over 2.7 million tickets across 190 shows that grossed over $189 million between 2000 and 2020. This landed her the 19th spot on a list of female musicians ranked by touring revenue during that period. In 2023, Billboard reported a more modest touring revenue figure of $108.1 million across 120 shows.

In 2003, Shakira reportedly generated over $4 million from a single show on Valentine’s Day at Foro Sol in Mexico City. 15 years later, in 2018, Shakira grossed around $76.5 million from her El Dorado World Tour, according to Touring Data.

Related: RuPaul's net worth: Everything to know about the cultural icon and force behind 'Drag Race'

How much has Shakira made from her album sales?

According to a 2023 profile in Variety, Shakira has sold over 100 million records throughout her career. “Laundry Service,” the pop icon’s fifth studio album, was her most successful, selling over 13 million copies worldwide, according to TheRichest.

Exactly how much money Shakira has taken home from her album sales is unclear, but in 2008, it was widely reported that she signed a 10-year contract with LiveNation to the tune of between $70 and $100 million to release her subsequent albums and manage her tours.

Shakira and JLo co-headlined the 2020 Super Bowl Halftime Show in Florida.

Photo by Kevin Winter/Getty Images)

How much did Shakira make from her Super Bowl and World Cup performances?

Shakira co-wrote one of her biggest hits, “Waka Waka (This Time for Africa),” after FIFA selected her to create the official anthem for the 2010 World Cup in South Africa. She performed the song, along with several of her existing fan-favorite tracks, during the event’s opening ceremonies. TheThings reported in 2023 that the song generated $1.4 million in revenue, citing Popnable for the figure.

A decade later, 2020’s Superbowl halftime show featured Shakira and Jennifer Lopez as co-headliners with guest performances by Bad Bunny and J Balvin. The 14-minute performance was widely praised as a high-energy celebration of Latin music and dance, but as is typical for Super Bowl shows, neither Shakira nor JLo was compensated beyond expenses and production costs.

The exposure value that comes with performing in the Super Bowl Halftime Show, though, is significant. It is typically the most-watched television event in the U.S. each year, and in 2020, a 30-second Super Bowl ad spot cost between $5 and $6 million.

How much did Shakira make as a coach on “The Voice?”

Shakira served as a team coach on the popular singing competition program “The Voice” during the show’s fourth and sixth seasons. On the show, celebrity musicians coach up-and-coming amateurs in a team-based competition that eventually results in a single winner. In 2012, The Hollywood Reporter wrote that Shakira’s salary as a coach on “The Voice” was $12 million.

Related: John Cena's net worth: The wrestler-turned-actor's investments, businesses, and more

How does Shakira spend her money?

Shakira doesn’t just make a lot of money — she spends it, too. Like many wealthy entertainers, she’s purchased her share of luxuries, but Barranquilla’s barefoot belly dancer is also a prolific philanthropist, having donated tens of millions to charitable causes throughout her career.

Private island

Back in 2006, she teamed up with Roger Waters of Pink Floyd fame and Spanish singer Alejandro Sanz to purchase Bonds Cay, a 550-acre island in the Bahamas, which was listed for $16 million at the time.

Along with her two partners in the purchase, Shakira planned to develop the island to feature housing, hotels, and an artists’ retreat designed to host a revolving cast of artists-in-residence. This plan didn’t come to fruition, though, and as of this article’s last update, the island was once again for sale on Vladi Private Islands.

Real estate and vehicles

Like most wealthy celebs, Shakira’s portfolio of high-end playthings also features an array of luxury properties and vehicles, including a home in Barcelona, a villa in Cyprus, a Miami mansion, and a rotating cast of Mercedes-Benz vehicles.

Philanthropy and charity

Shakira doesn’t just spend her massive wealth on herself; the “Queen of Latin Music” is also a dedicated philanthropist and regularly donates portions of her earnings to the Fundación Pies Descalzos, or “Barefoot Foundation,” a charity she founded in 1997 to “improve the education and social development of children in Colombia, which has suffered decades of conflict.” The foundation focuses on providing meals for children and building and improving educational infrastructure in Shakira’s hometown of Barranquilla as well as four other Colombian communities.

In addition to her efforts with the Fundación Pies Descalzos, Shakira has made a number of other notable donations over the years. In 2007, she diverted a whopping $40 million of her wealth to help rebuild community infrastructure in Peru and Nicaragua in the wake of a devastating 8.0 magnitude earthquake. Later, during the COVID-19 pandemic in 2020, Shakira donated a large supply of N95 masks for healthcare workers and ventilators for hospital patients to her hometown of Barranquilla.

Back in 2010, the UN honored Shakira with a medal to recognize her dedication to social justice, at which time the Director General of the International Labour Organization described her as a “true ambassador for children and young people.”

On November 20, 2023 (which was supposed to be her first day of trial), Shakira reached a deal with the prosecution that resulted in a three-year suspended sentence and around $8 million in fines.

Photo by Adria Puig/Anadolu via Getty Images

Shakira’s tax fraud scandal: How much did she pay?

In 2018, prosecutors in Spain initiated a tax evasion case against Shakira, alleging she lived primarily in Spain from 2012 to 2014 and therefore failed to pay around $14.4 million in taxes to the Spanish government. Spanish law requires anyone who is “domiciled” (i.e., living primarily) in Spain for more than half of the year to pay income taxes.

During the period in question, Shakira listed the Bahamas as her primary residence but did spend some time in Spain, as she was dating Gerard Piqué, a professional footballer and Spanish citizen. The couple’s first son, Milan, was also born in Barcelona during this period. 

Shakira maintained that she spent far fewer than 183 days per year in Spain during each of the years in question. In an interview with Elle Magazine, the pop star opined that “Spanish tax authorities saw that I was dating a Spanish citizen and started to salivate. It's clear they wanted to go after that money no matter what."

Prosecutors in the case sought a fine of almost $26 million and a possible eight-year prison stint, but in November of 2023, Shakira took a deal to close the case, accepting a fine of around $8 million and a three-year suspended sentence to avoid going to trial. In reference to her decision to take the deal, Shakira stated, "While I was determined to defend my innocence in a trial that my lawyers were confident would have ruled in my favour [had the trial proceeded], I have made the decision to finally resolve this matter with the best interest of my kids at heart who do not want to see their mom sacrifice her personal well-being in this fight."

How much did the Shakira statue in Barranquilla cost?

In late 2023, a 21-foot-tall bronze likeness of Shakira was unveiled on a waterfront promenade in Barranquilla. The city’s then-mayor, Jaime Pumarejo, commissioned Colombian sculptor Yino Márquez to create the statue of the city’s treasured pop icon, along with a sculpture of the city’s coat of arms.

According to the New York Times, the two sculptures cost the city the equivalent of around $180,000. A plaque at the statue’s base reads, “A heart that composes, hips that don’t lie, an unmatched talent, a voice that moves the masses and bare feet that march for the good of children and humanity.” 

Related: Taylor Swift net worth: The most successful entertainer joins the billionaire's club

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Delta Air Lines adds a new route travelers have been asking for

The new Delta seasonal flight to the popular destination will run daily on a Boeing 767-300.

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March 14, 2024

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Those who have tried to book a flight from North America to Europe in the summer of 2023 know just how high travel demand to the continent has spiked.

At 2.93 billion, visitors to the countries making up the European Union had finally reached pre-pandemic levels last year while North Americans in particular were booking trips to both large metropolises such as Paris and Milan as well as smaller cities growing increasingly popular among tourists.

Related: A popular European city is introducing the highest 'tourist tax' yet

As a result, U.S.-based airlines have been re-evaluating their networks to add more direct routes to smaller European destinations that most travelers would have previously needed to reach by train or transfer flight with a local airline.

The new flight will take place on a Boeing 767-300.

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Delta Air Lines: ‘Glad to offer customers increased choice…’

By the end of March, Delta Air Lines  (DAL)  will be restarting its route between New York’s JFK and Marco Polo International Airport in Venice as well as launching two new flights to Venice from Atlanta. One will start running this month while the other will be added during peak demand in the summer.

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“As one of the most beautiful cities in the world, Venice is hugely popular with U.S. travelers, and our flights bring valuable tourism and trade opportunities to the city and the region as well as unrivalled opportunities for Venetians looking to explore destinations across the Americas,” Delta’s SVP for Europe Matteo Curcio said in a statement. “We’re glad to offer customers increased choice this summer with flights from New York and additional service from Atlanta.”

The JFK-Venice flight will run on a Boeing 767-300  (BA)  and have 216 seats including higher classes such as Delta One, Delta Premium Select and Delta Comfort Plus.

Delta offers these features on the new flight

Both the New York and Atlanta flights are seasonal routes that will be pulled out of service in October. Both will run daily while the first route will depart New York at 8:55 p.m. and arrive in Venice at 10:15 a.m. local time on the way there, while leaving Venice at 12:15 p.m. to arrive at JFK at 5:05 p.m. on the way back.

According to Delta, this will bring its service to 17 flights from different U.S. cities to Venice during the peak summer period. As with most Delta flights at this point, passengers in all fare classes will have access to free Wi-Fi during the flight.

Those flying in Delta’s highest class or with access through airline status or a credit card will also be able to use the new Delta lounge that is part of the airline’s $12 billion terminal renovation and is slated to open to travelers in the coming months. The space will take up more than 40,000 square feet and have an outdoor terrace.

“Delta One customers can stretch out in a lie-flat seat and enjoy premium amenities like plush bedding made from recycled plastic bottles, more beverage options, and a seasonal chef-curated four-course meal,” Delta said of the new route. “[…] All customers can enjoy a wide selection of in-flight entertainment options and stay connected with Wi-Fi and enjoy free mobile messaging.”

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Stock Market Today: Stocks turn lower as factory inflation spikes, retail sales miss target

Stocks will navigate the last major data releases prior to next week’s Fed rate meeting in Washington.

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March 14, 2024

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Check back for updates throughout the trading day

U.S. stocks edged lower Thursday following a trio of key economic releases that have added to the current inflation puzzle as investors shift focus to the Federal Reserve's March policy meeting next week in Washington.

Updated at 9:59 AM EDT

Red start

Stocks are now falling sharply following the PPI inflation data and retail sales miss, with the S&P 500 marked 18 points lower, or 0.36%, in the opening half hour of trading.

The Dow, meanwhile, was marked 92 points lower while the Nasdaq slipped 67 points.

Treasury yields are also on the move, with 2-year notes rising 5 basis points on the session to 4.679% and 10-year notes pegged 7 basis points higher at 4.271%.

Updated at 9:44 AM EDT

Under Water

Under Armour  (UAA)  shares slumped firmly lower in early trading following the sportswear group's decision to bring back founder Kevin Plank as CEO, replacing the outgoing Stephanie Linnartz.

Plank, who founded Under Armour in 1996, left the group in May of 2021 just weeks before the group revealed that it was co-operating with investigations from both the Securities and Exchange Commission and the U.S. Department of Justice into the company's revenue recognition accounting.

Under Armour shares were marked 10.6% lower in early trading to change hands at $7.21 each.

Source: Under Armour Investor Relations

Updated at 9:22 AM EDT

Steely resolve

U.S. Steel  (X)  shares extended their two-day decline Thursday, falling 5.75% in pre-market trading following multiple reports that suggest President Joe Biden will push to prevent Japan's Nippon Steel from buying the Pittsburgh-based group.

Both Reuters and the Associated Press have said Biden will express his views to Prime Minister Kishida Yuko ahead of a planned State Visit next month at the White House. 

Related: US Steel soars on $15 billion Nippon Steel takeover; United Steelworkers slams deal

Updated at 8:52 AM EDT

Clear as mud

Retail sales rebounded last month, but the overall tally of $700.7 billion missed Street forecasts and suggests the recent uptick in inflation could be holding back discretionary spending.

A separate reading of factory inflation, meanwhile, showed prices spiking by 1.6%, on the year, and 0.6% on the month, amid a jump in goods prices.

U.S. stocks held earlier gains following the data release, with futures tied to the S&P 500 indicating an opening bell gain of 10 points, while the Dow was called 140 points higher. The Nasdaq, meanwhile, is looking at a more modest 40 point gain.

Benchmark 10-year Treasury note yields edged 3 basis points lower to 4.213% while two-year notes were little-changed at 4.626%.

Stock Market Today

Stocks finished lower last night, with the S&P 500 ending modestly in the red and the Nasdaq falling around 0.5%. The declines came amid an uptick in Treasury yields tied to concern that inflation pressures have failed to ease over the opening months of the year.

A better-than-expected auction of $22 billion in 30-year bonds, drawing the strongest overall demand since last June, steadied the overall market, but stocks still slipped into the close with an eye towards today's dataset.

The Commerce Department will publish its February reading of factory-gate inflation at 8:30 am Eastern Time. Analysts are expecting a slowdown in the key core reading, which feeds into the Fed's favored PCE price index.

Retail sales figures for the month are also set for an 8:30 am release as investors search for clues on consumer strength, tied to a resilient job market. Those factors could give the Fed more justification to wait until the summer months to begin the first of its three projected rate cuts.

"The case for a gradual but sustained slowdown in growth in consumers’ spending from 2023’s robust pace is persuasive," said Ian Shepherdson of Pantheon Macroeconomics. 

"Most households have run down the excess savings accumulated during the pandemic, while the cost of credit has jumped and last year’s plunge in home sales has depressed demand housing-related retail items like furniture and appliances," he added.

Benchmark 10-year Treasury yields are holding steady at 4.196% heading into the start of the New York trading session, while 2-year notes were pegged at 4.628%.

With Fed officials in a quiet period, requiring no public comments ahead of next week's meeting in Washington, the U.S. dollar index is trading in a narrow range against its global peers and was last marked 0.06% higher at 102.852.

On Wall Street, futures tied to the S&P 500 are indicating an opening bell gain of around 19 points, with the Dow Jones Industrial Average indicating a 140-point advance.

The tech-focused Nasdaq, which is up 7.77% for the year, is priced for a gain of around 95 points, with Tesla  (TSLA)  once again sliding into the red after ending the Wednesday session at a 10-month low.

In Europe, the regionwide Stoxx 600 was marked 0.35% higher in early Frankfurt trading, while Britain's FTSE 100 slipped 0.09% in London.

Overnight in Asia, the Nikkei 225 gained 0.29% as investors looked to a key series of wage negotiation figures from key unions that are likely to see the biggest year-on-year pay increases in three decades.

The broader MSCI ex-Japan benchmark, meanwhile, rose 0.18% into the close of trading. 

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