Democratic Senator Raphael Warnock has won re-election in Georgia’s runoff election, defeating Republican challenger Herschel Walker, who had been backed by former President Donald Trump. With 99% of the estimated vote counted, Warnock notched 51.4% of the ballot, compared to 48.6% for Walker. Even before the runoff, the Georgia Senate race already become one of the most expensive congressional races of all time, with both parties shelling out around $250M on political ads in the general election alone.
Bigger picture: Warnock’s victory means that Democrats will control the Senate 51-49 starting in January, cementing a hold on the chamber they have controlled since early 2021. Last month, Democrat John Fetterman scored a victory over Republican Mehmet Oz in Pennsylvania, flipping a GOP seat and giving Democrats control of the chamber with at least a 50-50 partisan split (and a tie-breaking vote from Vice President Kamala Harris). “After a hard-fought campaign – or should I say campaigns – it is my honor to utter the four most powerful words ever spoken in a democracy: The people have spoken,” Warnock told the crowd in a victory speech.
Congressional gridlock still lies ahead, with the GOP taking control of the House of Representatives, though a clear majority for Senate Democrats could give the party more flexibility on passing legislation. It will also lessen the influence of centrist Sens. Joe Manchin and Kyrsten Sinema, who had forced the party to make big changes to tax, finance and healthcare legislation, as well as a climate framework originally called Build Back Better. Democrats will additionally have outright control of Senate committees and will no longer be bound to a power-sharing agreement with the GOP.
Commentary: “If Democrats win Georgia, then they would hold a 51-49 majority and would adjust committee ratios so Democrats would have a one-vote majority on each committee,” wrote Brian Gardner, Stifel’s chief Washington policy strategist, ahead of the vote. “That would allow Senate committees to issue subpoenas without Republican support. This is something investors will likely overlook but it could increase headline risk for some sectors such as technology (NYSEARCA:XLK) and social media (NASDAQ:SOCL), financials (NYSEARCA:XLF) and healthcare (NYSEARCA:XLV), as Senate committee chairmen would have increased flexibility to call witnesses to testify before the committees.” (19 comments)
Theft is becoming a big problem for retailers, especially as margins show signs of slowing in the current economic environment. According to the National Retail Federation’s Retail Security Survey, retail “shrink” is now an almost $100B problem, up from $94.5B in losses in 2021, and $90.8B in 2020. While “shrink” encompasses many types of losses like gift card fraud and inventory mismanagement, it is primarily driven by external theft, which has prompted companies to boost their budgets for loss prevention and technology.
Quote: “Theft is an issue. It’s higher than what it has historically been,” Walmart (NYSE:WMT) CEO Doug McMillon told CNBC in an interview. “We’ve got safety measures, security measures that we’ve put in place by store location. I think local law enforcement being staffed and being a good partner is part of that equation, and that’s normally how we approach it.”
Walmart has rolled out additional plexiglass cases in vulnerable locations, while locking up or partitioning off high-price items like health and beauty products. When asked about some laws in local jurisdictions that effectively decriminalize low-level offenses, McMillon said it could have repercussions if not corrected over time. “Prices will be higher, and/or stores will close. It’s really city by city, location by location.”
Bottom line: On an earnings call last month, Target (NYSE:TGT) CFO Michael Fiddelke revealed that shoplifting at company stores had jumped 50% Y/Y, resulting in more than $400M in losses for the retailer in fiscal 2022. (14 comments)
Stocks in China aren’t getting much love despite another easing of the country’s zero-COVID policy. The Shanghai Composite ended the session down 0.4%, while the Hang Seng Index closed 3.2% lower on Wednesday. Investors appear to be focused on trade data for November that was reported overnight, which showed exports (-8.7% Y/Y) and imports (-10.6% Y/Y) shrinking at their steepest pace since 2020.
Commentary: “Outbound shipments will receive a limited boost from the easing of [China’s] virus restrictions, which are no longer a major constraint on the ability of manufacturers to meet orders,” said Julian Evans-Pritchard, senior China Economist at Capital Economics. “Of much greater consequence will be the downturn in global demand for Chinese goods due to the reversal in pandemic-era demand and the coming global recession.”
The government has tried to respond to weakening growth by implementing a series of policy measures, like cutting the reserve requirement ratio of banks and loosening financing restrictions to save the property sector. China is also trying to play catch-up by loosening its severe COVID measures, though a full-blown relaxation of pandemic controls will take significantly more time and high-risk areas still remain subject to lockdown-like restrictions.
The latest: Asymptomatic or mild coronavirus cases will now be allowed to isolate at home rather than at hospitals or centralized quarantine facilities. Citizens also no longer need negative tests in order to travel between different parts of the country, while Beijing became the latest city to announce negative tests won’t be needed to enter public venues. “When it comes to implementation, there are a lot of inconsistencies between different departments and different regions,” noted Dan Wang, chief economist at Hang Seng China.
Supply chain disruptions are still very real for companies and their investors. Airbus (OTCPK:EADSY) has become the latest firm to roll back targets for 2022, saying its guidance for “around 700” commercial aircraft deliveries is now out of reach. It’s the second time the European planemaker has lowered its delivery forecast, originally predicting 720 handovers before cutting its guidance in the summer.
Bigger picture: Parts shortages have become commonplace in the aviation industry, affecting everything from small components to engines. Soaring energy costs are also squeezing suppliers, and Airbus CEO Guillaume Faury doesn’t see the problem resolving itself until the end of next year. The situation has even led the company to adjust the production-rate increase on its best-selling A320 jets to 65 units per month in 2023 and 2024, though it hopes to lift production to 75 a month by the middle of the decade.
Despite missing this year’s delivery target, Airbus said it won’t have any impact on profitability and free cash flow guidance for 2022. The stock has traded sideways for much of the last year, while rival Boeing (BA) has declined 13% over the past 52 weeks. While Boeing hasn’t given a 2022 delivery target for its commercial aircraft deliveries, analysts expect the number to come in around 470, and the U.S. planemaker should give investors the latest figures next week.
Fun fact: Boeing’s last 747 jumbo jet rolled off the production line yesterday, 53 years after first taking flight in 1969. Retiring the “Queen of the Skies” was a matter of time as the industry began to turn to smaller fuel-efficient twin-engine models, like the 777 and 787 Dreamliner. (4 comments)
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