Volatility is the name of the game these days as investors try to size up the economic outlook and what it might mean for their portfolios. It hasn’t been easy forecasting where things might go from here, and a raft of mixed data points have led to difficult investing conundrums. As traders size up the latest sentiment, a broad-based rally took hold of equities on Monday, with the Dow Jones (DJI) popping 550 points, the benchmark S&P 500 (SP500) jumping 2.7% and the tech-heavy Nasdaq (COMP.IND) surging 3.4% into the close.
Healthy consumer: Following in the footsteps of JPMorgan (JPM) and Wells Fargo (WFC), Bank of America (BAC) reported earnings that topped expectations despite a slew of worries that continue to spook the economy. Customers are continuing to spend freely, according to BofA, with account balances higher than before COVID-19. Net interest income also jumped 24% to $13.8B, while consumer credit remained strong and late-stage delinquencies were down 40% from pre-pandemic levels.
“Analysts might wonder whether the talk of inflation, recession and other factors could [result] in a slower spending growth,” CEO Brian Moynihan said on a conference call. “We just don’t see [that] here at Bank of America. The customers’ resilience and health remain strong.”
Coming up: While banks benefit from rising interest rates, it remains to be seen if additional companies will fare as well in the current environment. Earnings season will move on from financials this week as high-profile names like Netflix (NFLX), Tesla (TSLA) and others report results. Is the bottom in, or will unchanged fundamentals mean the latest advance could translate into yet another bear market rally? (4 comments)
Investors are also breathing a sigh of relief as some U.K. drama that hung over financial markets appeared to be resolved. New Chancellor of the Exchequer Chief Jeremy Hunt has reversed nearly all the government’s proposed tax cuts, which had caused an uproar since being unveiled last month. A broad rally in sterling, gilts and stocks ensued, though there are reports that the Bank of England may still delay the unwinding of QE, by postponing the sale of billions of pounds of government bonds until the climate becomes calmer.
Thought bubble: The near total U-turn on the “mini-budget” and “growth plan” calls into question how much longer the new prime minister will be able to survive in government. The tax cuts were part of Truss’s signature economic agenda that was at the core of her run for No. 10 Downing Street. High-profile Conservative Party members, including Hunt, are now said to be angling for the leadership, though the fact that the Tories cannot rally around one single candidate might keep her in the office for longer.
“I’m sticking around because I was elected to deliver for this country, and that is what I am determined to do,” Truss told the BBC. “I do want to accept responsibility and say sorry for the mistakes that have been made. I wanted to act to help people with their energy bills to deal with the issue of high taxes, but we went too far and too fast.”
Elsewhere: First Minister Nicola Sturgeon is utilizing the recent chaos to attempt a fresh push for Scottish independence. A newly released economic blueprint demonstrates how the U.K. constituent could transition to its own currency (Scottish pound) managed by a new central bank, and how it would seek to rejoin the European Union. Scots last voted 55% to 45% to remain in the United Kingdom in 2014, but that was before Brexit. The U.K. government has so far refused to grant Sturgeon another referendum in October 2023, but she is pursuing the plan in the Supreme Court by referring to it as a democratic right.
While the “Mississippi” has long been used as a filler to count seconds, many are now concerned about counting its feet. Case in point: Levels of the important waterway in Memphis have just hit a new all-time low record of -10.77 feet. The situation is reminiscent of troubles seen on the Rhine River in Europe and the Yangtze in Asia as years of severe drought deliver harmful effects across the globe.
Snapshot: The Mississippi River is a critical shipping route, especially for farmers and commodity dealers, and the lower water levels have impacted transportation. Estimates vary greatly, but the river is thought to normally carry around 60% of America’s corn and soybean exports. Many farmers are also throwing away their crops instead of harvesting right now, in the hope of better conditions that could still be weeks away.
Meanwhile, companies are not loading as much cargo onto ships – so they can travel safely and not bottom out – while fewer barges are included in each tow. According to the American Commercial Barge Line, the industry has agreed to a 25-barge tow max size, which translates into around a 17-38% reduction in capacity. Dredging by the U.S. Army Corps of Engineers has been helpful to keep the traffic flowing, but new challenging spots can surface any day.
Commentary: “While the public and media generally understand that our economy depends upon viable international ocean shipping, trucking, and rail transportation, the essential role of our inland waterways is often overlooked,” said Peter Friedmann of the Agriculture Transportation Coalition. “Our members depend upon adequate water levels in the Mississippi River system, to reach domestic and international export markets. The low water disruption of the supply chain will be felt not only by our U.S. producers of food, farm, and fiber but also by U.S. and international consumers as well.”
Pot smokers in Ontario have been able to order weed through Uber Eats (NYSE:UBER) since last November, but until now, items were only available for pickup. That is now changing through a partnership with online marijuana marketplace Leafly. In a program starting in Toronto, residents over the age of 19 will be allowed to place orders from local licensed cannabis retailers, which will send over the goods via certified “budtenders” who will verify age and sobriety before handing over the baggies.
Quote: “We are partnering with industry leaders like Leafly to help retailers offer safe, convenient options for people in Toronto to purchase legal cannabis for delivery to their homes, which will help combat the illegal market and help reduce impaired driving,” said Lola Kassim, Director and General Manager of Uber Eats Canada.
Delivery has been a key focus at Uber, especially since the pandemic changed the way people shop for food, prescriptions and other consumer goods. The company even scooped up on-demand alcohol marketplace Drizly last year for $1.1B, to expand its presence and footprint, and encourage people to use the app more often. Around the same time, CEO Dara Khosrowshahi said Uber could start delivering cannabis in the U.S. once federal legalization comes into play.
Stats: According to the Ontario Cannabis Store, the number of pot shops in the province climbed to 1,460 at the end of March, up from 1,333 at the end of 2021.
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