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The market is getting nervous about Powell’s testimony this week

Rising bond yields and accompanying inflation fears are adding a level of drama to Powell’s appearance.

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Federal Reserve Chair Jerome Powell speaks during a Senate Banking Committee hearing on Capitol Hill, Washington, December 1, 2020.

Al Drago | Pool | Reuters

Rising bond yields and accompanying inflation fears are adding a level of drama to Federal Reserve Chairman Jerome Powell‘s appearance this week before Congress.

The central bank chair is slated to address Senate and House panels on successive days as part of mandated semiannual updates on monetary policy.

Normally routine affairs, recent financial market tumult and concerns about how the Fed may react have investors paying a bit more close attention than usual to the hearings scheduled for Tuesday and Wednesday.

“This is one of the more interesting episodes in which a Fed chair has had to testify,” said Nathan Sheets, chief economist at PGIM Fixed Income. “Sometimes we say, ‘ho hum, no news.’ This is going to be news. He’s really caught between a rock and a hard place.”

What’s got the market’s attention recently has been a pickup in government bond yields, particularly further out on the curve.

While the 2-year is unchanged for 2021, the 5-year has risen nearly a quarter percentage point as of Friday’s market close while the benchmark 10-year note has seen its yield jump 41 basis points to 1.34%, an area where it hasn’t been since around the same time in 2020, before the worst of the pandemic struck.

The 30-year bond yield has surged even more, leaping nearly half a point this year to 2.14%.

Powell’s dilemma is this: Rising bond yields could be signaling the reflation of the economy that the Fed has been pushing and are therefore higher for good reasons. However, should the trend get out of control, the Fed then might have to tighten policy faster than the market expects, offsetting some of the good that has come with the burst in yields.

Complicating the matter is that markets also might not like it if Powell is overly complacent.

“If this testimony was behind closed doors, I think Jay Powell would be quite pleased with what he sees in the economy and the markets,” Sheets said, using the Fed chair’s nickname. “But given that it’s public, he’s got to be careful. If he’s too sanguine about the rise in rates, the markets are going to take that as a significant green light for rates to rip higher.”

“The Fed is comfortable with an organic rise in rates reflecting shifts in views on growth and inflation,” he added. “But I think the Fed also wants to be careful that it doesn’t create and amplify a self-sustaining dynamic that pushes rates higher for other reasons.”

Those “other reasons” primarily would be fears that the economy could overheat.

Stimulus and more stimulus

The Fed has run historically loose policy for the past year, dropping its benchmark borrowing rate to near zero and buying at least $120 billion of bonds each month. That’s on top of a series of since-expired lending and liquidity programs implemented in the early days of the Covid-19 crisis.

Along with that, Congress has come in with more than $3 trillion of fiscal stimulus and could approve up to $1.9 trillion more by the end of week.

All that has transpired amid an economy that, besides a still-troubling employment problem primarily in the service sector, is humming. Wall Street is taking up first-quarter growth expectations and market-based indicators of inflation are rising.

That’s why Powell’s tightrope walk this week will be all the more compelling.

“The market mood has changed,” Mohamed El-Erian, chief economic advisor at Allianz, said Monday on CNBC’s “Squawk Box.” It’s no longer whether yields are going higher, it’s when is the move too big. That’s what the market’s trying to figure out.”

Investors are particularly concerned whether all the stimulus isn’t going overboard and threatening to destabilize the economy over the longer run.

“I can predict that the yellow lights are flashing all over the Fed because of the [yields] move and the steepening of the yield curve, and the Fed may do more to try to control yields,” El-Erian said.

Fed officials have largely dismissed so-called yield curve control to use its bond purchasing power to control rates between various fixed income maturities.

But the market could force the Fed’s hand, and Powell is likely to get asked about where he stands on what tools the Fed has to calm market issues. He has repeatedly stressed that the central bank has the weapons to control inflation, but deploying those comes with a price. Markets used to low yields and companies accustomed to cheap borrowing costs could get rattled by an unexpected Fed move.

Evidence of how clearly the market is watching the issue came Monday morning, when European Central Bank President Christine Lagarde said she is “closely monitoring the evolution of longer-term nominal bond yields.” Her words where enough to calm a jittery market and turn what had been an opening loss on Wall Street into a mixed market with the Dow up in early afternoon trading. Treasury yields were mostly flat on the day.

Tom Lee, managing partner and head of research at Fundstrat Global Advisors, noted that his “clients have already expressed some apprehension about this week. Part of this reflects the fact that bond yields have been steadily rising and equity investors are nervous that the bond market might reach some sort of ‘breaking point'” during Powell’s testimony.

Powell speaks Tuesday before the Senate Finance Committee when Wednesday to the House Financial Services Committee.

Normally routine affairs, recent financial market tumult and concerns about how the Fed may react have investors paying a bit more close attention than usual to the hearings scheduled for Tuesday and Wednesday.

Source: https://www.cnbc.com/2021/02/22/market-nervousness-growing-over-powells-testimony-to-congress-this-week.html

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GameStop sales rise 25% as retailer chases e-commerce growth, says it may sell 5 million shares

GameStop sales rose 25% in the fiscal first quarter as the company focuses on e-commerce and tries to stage a turnaround.

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SELINSGROVE, PENNSYLVANIA, UNITED STATES – 2021/01/27: A woman walks past the GameStop store inside the Susquehanna Valley Mall. An online group sent share prices of GameStop (GME) and AMC Entertainment Holdings Inc. (AMC) soaring in an attempt to squeeze short sellers.

Photo by Paul Weaver/SOPA Images/LightRocket via Getty Images

GameStop‘s sales rose 25% in the fiscal first quarter, as the video game retailer embarks on a turnaround strategy partially fueled by a Reddit-inspired stock rally. The company also named former Amazon executive Matt Furlong as its new CEO.

Shares fell more than 12% in extended trading on Wednesday, after the company declined to provide an outlook for the year and said it may sell as many as 5 million shares.

Here’s how the company did for the fiscal first quarter ended May 1, compared with Refinitiv consensus estimates:

  • Loss per share: 45 cents per share adjusted vs. 84 cents expected
  • Revenue: $1.28 billion vs. $1.16 billion expected

In the quarter, GameStop reported that its net loss narrowed to $66.8 million, or $1.01 per share, from a loss of $165.7 million, or $2.57 per share, a year earlier. Excluding items, the company had a loss of 45 cents per share. Analysts were expecting GameStop to report a loss of 84 cents per share, according to Refinitiv.

Total revenue grew to $1.28 billion from $1.02 billion a year earlier, topping Wall Street’s expectations of $1.16 billion.

The company declined to provide a forecast for the year. It said sales momentum continued into the second quarter, with total sales in May increasing about 27% compared with the same month a year ago.

GameStop filed a prospectus with the Securities and Exchange Commission to sell up to 5 million shares of its stock from time to time, in “at-the-market” offerings. The funds it raises through these stock sales will be used for general corporate purposes, investing in growth initiatives and strengthening its balance sheet, the company said.

As of May 1, GameStop said, it had paid off its long-term debt and no longer had any borrowings under its asset-based revolving credit facility.

The video game retailer’s stock has gyrated wildly over the past several months as retail traders have shared tips on Reddit and tried to fuel short squeezes for companies including GameStop, AMC Entertainment, Bed Bath & Beyond and Clover Health — collectively the group has become known as meme stocks.

GameStop’s shares are up 1,506% so far this year. Its shares have swung from a 52-week low of $3.77 to a 52-week high of $483. As of Wednesday’s close, shares were $302.56. Its market value is $21.41 billion.

The trading frenzy has gotten the attention of the SEC. In a filing Wednesday, GameStop said it had received a request from the SEC on May 26 to voluntarily provide documents and information. The company said it was reviewing that request and planned to cooperate.

GameStop has tried to catch investors’ attention in other ways, as it focuses more on e-commerce and poaches talent from other companies. This spring, it tapped Chewy co-founder Ryan Cohen to lead efforts to grow the online business. He was named chairman at a shareholder meeting Wednesday. The company also hired several former Amazon executives, including Jenna Owens, its new chief operating officer; Matt Francis, its first chief technology officer; and Elliott Wilke, its chief growth officer.

Yet some analysts are unconvinced that the longtime brick-and-mortar retailer can pivot its business and believe the company has been propped up by speculation.

Loop Capital analyst Anthony Chukumba dropped his coverage of GameStop earlier this year following the Reddit frenzy. He told CNBC that the video game retailer’s challenges run deep regardless of who it hires.

“It’s great that these guys worked at Amazon. Amazon is a very successful retailer that I do cover, that I’m very familiar with, but at the end of the day, GameStop’s problems have very little, if anything, to do with e-commerce,” Chukumba said on CNBC’s “Closing Bell.”

“Their problem is not that they’re not a good omnichannel retailer. The problem is that gamers are increasingly downloading video games,” he added. “Look, they can hire Jeff Bezos when he comes back from space. … It’s not going to make a difference. The symptoms are not aligned with the medicine that the doctor is giving them. You can hire anyone you want from Amazon — not going to make a difference.”

Read the company’s earnings press release here and its CEO announcement here.

— CNBC’s Kevin Stankiewicz contributed to this story.

Correction: GameStop named former Amazon executive Matt Furlong as its new CEO. An earlier version of this story misstated his first name.

Here’s how the company did for the fiscal first quarter ended May 1, compared with Refinitiv consensus estimates:

Source: https://www.cnbc.com/2021/06/09/gamestop-gme-earnings-q1-2021.html

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Homeowners got $2 trillion richer during the first three months of the year

Home prices have been soaring, so homeowners have been getting richer, at least on paper. The equity numbers are staggering.

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Helen H. Richardson | Denver Post | Getty Images

Homeowners are getting richer and richer as prices keep soaring – and the numbers are staggering.

Those with mortgages — about 62% of all properties — saw their equity jump by 20% in the first quarter from a year earlier, according to CoreLogic. This represents a collective cash gain of close to $2 trillion. Per borrower, the average gain was $33,400.

The massive gain is thanks to soaring home prices, which CoreLogic said were up over 11% in March, the end of the quarter, from a year earlier. That’s the sharpest gain since 2006. Prices rose an even stronger 13% in April.

High demand for homes spurred by the coronavirus pandemic amid an already low supply caused bidding wars in markets across the nation. Record-low mortgage rates for much of last year only added to the buying frenzy and helped fuel the price gains.

“Homeowner equity has more than doubled over the past decade and become a crucial buffer for many weathering the challenges of the pandemic,” said Frank Martell, president and CEO of CoreLogic. “These gains have become an important financial tool and boosted consumer confidence in the U.S. housing market, especially for older homeowners and baby boomers who’ve experienced years of price appreciation.”

As of June 1, there were still just over 2 million homeowners in Covid-related mortgage bailout programs, according to the Black Knight real estate data company. As these plans begin to expire, having home equity will help those in trouble. They can still sell and get out with a potential profit if they have to.

“This reduces the likelihood for a large numbers of distressed sales of homeowners to emerge from forbearance later in the year,” CoreLogic chief economist Frank Nothaft said, adding that the average homeowner now has about $216,000 in equity.

The share of borrowers in a negative equity position, owing more on their mortgages than their homes are worth, consequently dropped. From the fourth quarter of 2020 to the first quarter of 2021, the total number of mortgaged homes in negative equity decreased by 7% to 1.4 million homes, or 2.6% of all mortgaged properties. Annually, the number of underwater homes dropped by 24%.

Home values are expected to cool off in coming months because buyers are already hitting an affordability wall. Sales have begun to slow, and price drops usually follow.

Home prices are not, however, expected to crash, since there is still strong demand for housing, and the demographics support that going forward. As prices moderate, buyers will come back. Unlike the last time home prices crashed, today’s mortgage underwriting is far more stringent.

Source: https://www.cnbc.com/2021/06/10/homeowners-got-2-trillion-richer-during-first-three-months-of-2021.html

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Stitch Fix shares soar as sales top estimates, styling service raises full-year outlook

Stitch Fix’s sales topped analysts’ estimates, driven by consumers refreshing their wardrobes and looking for styles in new sizes.

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The Stitch Fix application for download in the Apple App Store on a smartphone arranged in Hastings-on-Hudson, New York, U.S., on Saturday, June 5, 2021. Stitch Fix Inc. is scheduled to release earning on June 7.

Tiffany Hagler-Geard | Bloomberg | Getty Images

Stitch Fix shares soared Monday after the online shopping and styling service reported a narrower-than-expected loss in its fiscal third quarter.

Sales topped analysts’ estimates, driven by consumers refreshing their wardrobes for summer vacations and the office and looking for styles in new sizes.

The stock was recently up around 15% in extended trading.

Stitch Fix also raised its revenue outlook for the full year, after previously lowering it due to the uncertainty stemming from the Covid pandemic. It offered a better-than-expected sales outlook for its fiscal fourth quarter.

President and incoming CEO Elizabeth Spaulding noted that as the apparel retail backdrop improves across the country, the company is building momentum. In its men’s business, for example, button-down shirts are trending and suit requests are back up. Stitch Fix said its tailored shop is outperforming its lounge selection.

Here’s how Stitch Fix did during the period ended May 1 compared with what analysts were anticipating, using Refinitiv estimates:

  • Loss per share: 18 cents vs. 27 cents expected
  • Revenue: $535.6 million vs. $511 million expected

Stitch Fix’s loss narrowed to $18.8 million, or 18 cents per share, compared with a loss of $33.9 million, or 33 cents per share, a year earlier. That was better than the 27 cent loss expected by analysts.

Revenue grew 44% to $535.6 million from $371.7 million a year earlier, topping estimates for $511 million.

Its active client count grew 20% year over year to 4.1 million and was up 234,000 from the previous quarter. Stitch Fix defines active clients as people who have bought an item directly from its website in the preceding 52 weeks from the last day of the quarter.

Revenue per active client came in at $481, down 3% from a year earlier but up 3% from the prior quarter.

For fiscal 2021, Stitch Fix is now calling for revenue to be in the range of $2.07 billion to $2.08 billion, which would imply year-over-year growth of 20.9% to 21.5%. Earlier this year, it had lowered its annual sales forecast for growth of 18% to 20%. Analysts have been looking for year-over-year revenue growth of 19.1%.

For the fourth quarter, it expects sales to be up 21.8% to 24% from a year earlier. Analysts had been looking for a 20.6% increase.

The company is still working to improve the window of time it takes for it to receive orders of merchandise to its warehouses, which were elongated over the holiday season and have weighed on recent results. CFO Dan Jedda said Monday that the shipping windows have come back down to pre-holiday levels, but remain heightened compared with a year earlier.

Before the end of its fiscal year, Stitch Fix is set to launch its direct-buy service, which allows customers to purchase items individually from its app, to the public. Currently, only subscribers can use the direct-buy service. Stitch Fix has said the offering is an evolution of its business that should help it to continue to grow sales and reach new users.

Spaulding is set to succeed founder and CEO Katrina Lake on Aug. 1.

As of market close Monday, Stitch Fix shares are down about 1% year to date. The company’s market cap is $6.2 billion.

Find the full financial press release from Stitch Fix here.

Source: https://www.cnbc.com/2021/06/07/stitch-fix-sfix-reports-q3-2021-results.html

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