Among the many factors driving the surge in companies going public, from traditional IPOs to SPACs, is the heady valuation of the stock market due in large part to the flush of stimulus packages passed during the pandemic and the Federal Reserve’s low interest rate policies.
“Five-hundred million used to be a pretty big IPO,” Jeff Bunzel, global co-head of equity capital markets at Deutsche Bank told Reuters. “Nowadays everything seems to be in the billions or three-quarters of a billion-plus. So there’s really been an explosion in the size of transactions as well.”
By the end of 2021, US IPOs could potentially raise a staggering $250 billion-$300 billion or more, data from Dealogic showed.
Meanwhile, SPACs, a popular route to public markets used by many startups, have boomed as well.
In 2020, a total of 248 SPACs raised $83.3 billion according to SPAC Analytics. But 2021 data already shows 340 SPACs have raised $106 billion just six months into the year.
UK inflation shot up by 2.1% in May, more than economists were expecting and above the Bank of England’s target of 2%, as the reopening of the economy pushed up the cost of fuel, clothing, and meals out.
The 2.1% year-on-year increase was the biggest since July 2019, the Office for National Statistics said Wednesday, and compared with an increase of 1.5% in April.
Core inflation – which strips out volatile categories like food and energy – climbed 2% year-on-year, the most since August 2018.
The pound rose after the data was released, and traded 0.23% higher against the dollar at $1.411. Britain’s FTSE 100 stock index was up 0.27% in early trading.
The ONS said the rise in inflation in May was led by fuel prices. Part of the increase was due to so-called base effects, given that energy prices fell sharply in May 2020, the comparative month.
But clothing prices also added upward pressure as stores reopened and cut back on discounting. Meals and drinks consumed at pubs and restaurants also became more expensive after they were allowed to resume business in April.
The UK economy is gradually opening up again after the strict coronavirus lockdowns put in place in the winter.
May’s inflation data was collected before the English government loosened restrictions further in the middle of the month, said Samuel Tombs, chief UK economist at Pantheon Macroeconomics. That means “we likely will see a further, broader-based recovery in services inflation in June’s data.”
He added: “Looking ahead, we expect [consumer price index] inflation to peak at about 2.8% towards the end of this year.”
Such a rise would be well above the Bank of England’s 2% target, potentially putting pressure on the central bank to pull back on its support for the economy.
Hannah Audino, economist at PwC, said: “We expect the Bank of England to see through the recent rise in inflation and continue to prioritize supporting the recovery with low interest rates, over reducing inflation.”
“It is important to interpret the latest data in the context of the low prices we saw 12 months ago during the pandemic,” Audino said. “This means that so-called ‘base effects’ are driving up the rate of inflation, and will likely do so for a few more months.”
Willem Sels, chief investment officer at HSBC’s private bank, said: “Although UK CPI may now further overshoot the Bank of England’s 2% target, we still think it will come down again to around 2% in 2022.”
Signs that inflationary pressures are building came in the latest readings on UK producer price inflation, also released Wednesday. Prices of manufactured goods increased by 4.6% in May year-on-year, compared with 4% in April, the ONS said. Meanwhile, costs for UK producers jumped 10.7%, the highest rate of growth for input prices since September 2011.
Meanwhile, investors continue to weigh inflationary pressures ahead of the FOMC decision due Wednesday. Most economists are anticipating that the central bank will leave its policy mostly unchanged. Investors will be focusing on tapering discussions, the latest economic projections, and inflation.
“Despite the ‘transitory’ message regarding inflation, some on the Committee must be twitching a little uncomfortably,” said Marcus Dewsnap, head of fixed income strategy at IGM, which is part of Informa Financial Intelligence.
Hard data so far hasn’t quite suggested the sort of second-quarter that will force economic growth to hit the Fed’s 2021 projection, Dewsnap added.
The 10-year Treasury yield hovered near 1.5% for most of the day.
In March, Fed officials saw consumer prices rising 2.4% in the fourth quarter of 2021 from a year earlier. That pace, they said, would be consistent with their goal of 2% average annual inflation over the long run.
Here’s where US indexes stood at the 4:00 p.m. ET close on Tuesday.
Solid Power, an electric-vehicle battery producer, announcedit’s going public by merging with blank-check firm Decarbonization Plus Acquisition Corporation III in a deal valued at $1.2 billion.
In cryptocurrencies, bitcoin finally hit the $40,000-level on Monday after trending below that level to date in June.
Still, a new survey found that hedge fund bosses are planning to ramp up their holdings of cryptocurrencies, predicting that an average of 7.2% of their assets under management will be held in digital tokens by 2026.
The Tudor Investment Corporation founder also raised the prospect of a retail-fueled commodity boom, recommended stricter margin limits on investors, and voiced his support for higher taxes on America’s wealthiest people.
Here are Jones’ 10 best quotes from the interview, lightly edited and condensed for clarity:
1. “I get nervous from a financial-instability standpoint when the stock market is 220% of GDP. I get nervous when that number is 45% higher than in the 2000 bubble, and 90% higher than at the 2007 top.” – referring to Warren Buffett’s namesake gauge, which compares the stock market’s total value to the size of the economy.
2. “When you look at the Fed today and the Fed in 2013, you wonder how you can have such wildly different policy views on what constitutes the right levels for employment, the right levels for inflation. It’s almost like a split personality.”
3. “We’re going to be where we were pre-pandemic by October. And yet we are quantitative easing and juicing an economy that’s already red-hot.” – warning that the Fed is stimulating the economy even though the surplus of job offers to unemployment claims is on track to hit January 2020 levels in the next four months.
4. “You’ve got the craziest mix of fiscal and monetary policy. It goes against all traditional economic orthodoxy. Things are absolutely bats— crazy.” – suggesting that the government throwing out the rulebook may have paved the way for the Capitol insurrection and the meme-stock and SPAC booms.
5. “If the Fed treats rising inflation with nonchalance, then it’s a green light to go all-in on the inflation trades. I’d probably buy commodities, buy crypto, buy gold.”
6. “If the Reddit crowd ever gets into commodities, God forbid. Commodities are generally finite-supply, small markets. If we ever got retail investors actually nervous about inflation, those things can double or triple with no problem whatsoever.”
7. “If I was Fed chair, I would have raised margin requirements two years ago. I would have said, ‘Okay, we’re gonna experiment with an unproven, untried, negative-real-rate economic program that is going to encourage a lot of leverage. We want asset prices to rise, we want you to take risks, we want to extend duration, but you need to be prudent in how you use your leverage and what you invest in.”
8. “Bitcoin is math and math has been around for thousands of years. I like the idea of investing in something that’s reliable, consistent, honest, and 100% certain.”
9. “I like bitcoin as a portfolio diversifier and store of wealth. I want to have 5% in gold, 5% in bitcoin, 5% in cash, 5% in commodities. I don’t know what I want to do with the other 80% at this point in time. I want to wait and see what the Fed’s gonna do.”
10. “It’s really difficult. You cannot tax unrealized capital gains because of the volatility. But should the top 1% pay more? Absolutely.” – commenting on the ProPublica report that found billionaires were paying little federal income tax relative to their net worth.
US stocks hovered near record highs Tuesday as investors await comments from the Federal Open Market Committee about a timetable for scaling back on its accommodative policies.
The FOMC decision is due Wednesday after a two-day meeting, with most economists anticipating the central bank will leave its policy mostly unchanged. Investors will be focusing on tapering discussions, the latest economic projections, and inflation.
“It is going to be increasingly difficult for the Fed to soothe markets with its dovish stance, as they probably will be discussing tapering and will have to revise up forecasts for economic growth and inflation,” Bank of America said in a note on Tuesday.
While the central bank can exhibit patience this time, the situation will not be the same by the July and September FOMC meetings, Bank of America added.
In March, Fed officials saw consumer prices rising 2.4% in the fourth quarter of 2021 from a year earlier. That pace, they said, would be consistent with their goal of 2% average annual inflation over the long run.
The S&P 500 closed at a record high on Monday for the second trading day in a row. The tech-heavy Nasdaq also closed at a record.
Here’s where US indexes stood at the 9:30 a.m. ET open on Tuesday.
Meanwhile, US retail sales fell 1.3% in May, the Census Bureau said Tuesday. Economists surveyed by Bloomberg held a median estimate for a 0.7% decline. The decline places monthly sales at $620 billion and just below the record-high seen in April. The April sales data was revised higher to a 0.9% jump from an initially unchanged reading.
Bitcoin finally hit the $40,000-level on Monday after trending below that level to date in June. Still, many, including investment adviser Rich Bernstein, believe that bitcoin is in a bubble, and the crypto mania is making investors ignore other asset classes that have more potential.
“We have a lot of cash and capability and we’re going to be very patient, because I think you have a very good chance inflation will be more than transitory,” Dimon, the longest-serving CEO among the big US banks, said.
He suggested the risk of higher, more persistent inflation is growing. US inflation, or the rise in prices of goods and services, has picked up dramatically compared with last year, when the economy was in lockdown. Disruptions to the global supply chain and a burst of consumer spending have added to the increase. Higher interest rates would help ward off a more damaging pickup in inflation.
“If you look at our balance sheet, we have $500 billion in cash, we’ve actually been effectively stockpiling more and more cash waiting for opportunities to invest at higher rates,” he said. “I do expect to see higher rates and more inflation, and we’re prepared for that.”
While several Fed officials have been resolute in their view that the rise in inflation will ultimately prove transitory, other influential leaders have warned of the consequences of rising prices.
In a 1980 shareholder letter, Warren Buffett described high inflation as a “tax on capital” that dissuades corporate investment. The billionaire investor said the rise in general price levels can hurt more than income tax, and rising costs force companies to spend cash just to maintain their business – regardless of whether they’re generating profits.
JPMorgan, the largest US bank by assets, expects $52.5 billion in net-interest income in 2021, down from its previous expectation of $55 billion, partly due to a decline in credit card balances.
Separately, at Monday’s conference, Dimon said he planned to hold his position at JPMorgan for at least the next two to three years. Without giving an exact time frame, he said: “I intend to stay, which is sanctioned by the board, for a significant amount of time.”
The S&P 500 recorded a record high for the second trading day in a row while a rally in tech stocks helped lift the Nasdaq to a record high. Investors are awaiting a key Fed decision later this week. Technology was the best performing sector in the S&P 500, with Apple gaining 2% and Facebook climbing over 1%. The yield on the US 10-yr Treasury rose to 1.5% after hitting a three month low last week.
Investors are eagerly awaiting for signals from the US Federal Reserve later this week about a timetable for scaling back ultra-accommodative policies. The decision is due Wednesday, with most economists anticipating the central bank will leave its policy mostly unchanged.
Here’s where US indexes stood at the 4 p.m. ET close on Monday:
“The largest increases were limited to used vehicles, energy and airfare,” said Nuveen’s Saira Malik. “Given the lack of evidence of rampant, widespread inflation, we remain confident in the Fed’s ability to stay on-message, even if discussions of tapering come a few quarters earlier than originally expected.”
Inflation in the US is handily outpacing that of other advanced economies, and it’s probably thanks to the country’s stellar recovery, JPMorgan economists said.
With vaccines rolling out and lockdown measures slowly being lifted, the global economy is on the mend. Advanced economies lead the pack, benefitting from massive stimulus measures and more efficient vaccine distribution. Within that group, the US is among the best performers. The country’s economic output is expected to grow at the fastest rate since the 1950s, and some banks are already revising their estimates for 2022 growth higher on hopes for an even smoother rebound.
Yet concerns of soaring inflation have offset some reopening optimism. A popular gauge of US price growth rocketed 0.6% month-over-month in May and 5% year-over-year, exceeding estimates and marking the largest one-year leap since 2008. Where the Federal Reserve has said it expects the overshoot to be temporary, supply bottlenecks threaten to accelerate inflation further through the year.
The latest inflation readings are unusually strong, but are likely a byproduct of the US’ outperformance, the JPMorgan team led by Bruce Kasman said in a Friday note. Where the World Bank expects advanced economies to grow 5.4% in 2021, it sees US GDP expanding 6.8% and outpacing peers through the following two years.
The strength of the country’s rebound explains why inflation bounced back so suddenly, the team said.
“Although core inflation is tracking above the pre-pandemic pace elsewhere, the US has been exceptional for a number of reasons,” the JPMorgan economists added.
For one, the country’s service industry was hit particularly hard by the pandemic. Services prices dropped a full 2% at the peak of the downturn, surpassing the damage seen in other advanced economies.
The US also embarked on a far more ambitious stimulus rollout. Congress approved roughly $5 trillion in fiscal support during the health crisis. Much of that aid came in the form of direct payments and bolstered unemployment benefits. Once the country began to reopen, that support drove a demand boom that quickly lifted spending above its pre-pandemic peak. By contrast, spending remained weak in Western Europe, where stimulus wasn’t as large or direct, JPMorgan said.
Trends in the US labor market also contributed to the country’s strong recovery and faster inflation, the team added. Where employers laid off workers en masse at the start of the pandemic, they’re now rushing to rehire and service an unprecedented wave of consumer demand. Job openings soared to a record high in April, but the budding labor shortage also saw quits hit a record and payroll growth slow sharply.
The imbalance between worker supply and employer demand has since driven wages sharply higher as businesses struggle to attract workers. The jumps in labor costs and households’ purchasing power will further lift inflation, the economists said.
That pick-up isn’t to be feared, according to the Federal Reserve. The central bank has said it will let inflation run hot in hopes of driving stronger employment and wage growth through the recovery. President Joe Biden similarly praised the trend in a late-May speech, saying the jump in average pay is a “feature,” not a bug, of the US recovery.
Policymakers will likely recognize the spike in inflation rates but maintain that the economy remains far from the Fed’s “substantial further progress goals,” JPMorgan said. The first post-pandemic rate hike will probably arrive in late-2023, the team added, leaving plenty of time for the Fed’s ultra-easy policy to drive the recovery that JPMorgan is calling “exceptional” forward.
The Labor Department released its monthly Consumer Price Index (CPI) data on Thursday, revealing a 5% jump in headline consumer prices year-over-year in May, the fastest pace of increase since August 2008.
That came in above the consensus economist estimate of 4.7%.
Core CPI, which excludes volatile food and energy prices, rose a more modest 3.8% year-over-year in May but still increased 0.7% month-over-month.
Both figures fanned the flames of an already raging debate among economists and market watchers about the nature of current inflationary trends.
Some, including the Federal Reserve, argue that rising costs are only “transitory” – a result of supply and demand imbalances brought about by the pandemic and rapid reopening.
Others, including Cambridge’s Mohamed El-Erian, claim that inflation could be here to stay and question the Fed’s insistence on maintaining ultra-accommodative policies as the pandemic winds to an end.
From Coca-Cola to Campbell Soup, the majority of these price increases have come from consumer staples companies that are most affected by commodity costs.
Whether or not current price increases will remain over the long-term is clearly up for debate, but for the everyday consumer, the reality is life is now more expensive than it was last year.
Detailed below are 10 companies that have already said they are passing rising costs onto consumers due to inflation.
Campbell Soup Company
On June 9, in Campbell Soup’s third quarter, 2021 conference call, the word “inflation” was mentioned 35 times by execs and analysts.
The company revealed it was “impacted by a rising inflationary environment,” and CEO Mark Clouse said he expects “sustained inflationary pressures through the remainder of the year.”
Campbell’s said it will be raising food prices this summer to offset the rising costs. Although CEO Mark Clouse noted, “we are going to be very thoughtful about it. The last thing we want to do is shut down the growth that we’ve worked fairly hard to have.”
The JM Smucker Company
In JM Smucker’s fourth-quarter, 2021 conference call on June 3, there were 10 mentions of inflation, and CEO Mark Smucker said the company would be raising prices to offset rising costs.
“Broad-based inflation is impacting many of the commodities, packaging materials, and transportation channels that are important to our business. We are mitigating the impacts through a combination of higher pricing inclusive of list price increases, reduced trade and net revenue optimization strategies, as well as continued cost management,” Smucker said.
Stanley Black & Decker
In Stanley Black & Decker’s first quarter 2021 earnings presentation on April 28, in a slide entitled “Commodity Inflation Update,” the company said steel, resin, base metals, electrical components, and batteries have pushed incremental inflation costs up for 2021 by $160 million vs. January guidance.
The slide showed Black & Decker’s plans to increase prices to offset costs.
In an interview with Yahoo Finance in April, Whirlpool’s CFO Jim Peters said the company was seeing price increases and would pass the costs onto consumers.
“We took price increases in every region of the world, that range from 5% to 12%,” Peters said. “Those are driven by commodity cost increases, and it’s something we have done historically.”
The company said in its first-quarter conference call that the price increase actions “will offset the impact of global supply constraints and rising input costs.”
Kimberly-Clark said it would be raising prices on products like Scott toilet paper and Huggies diapers by “mid-to-high single digits” in late March.
Then, in the company’s April 23 first-quarter earnings call, execs said they saw “sharp rises in input costs.”
Michael Hsu, Kimberly-Clark’s chairman and chief executive officer, said the company was “moving rapidly, especially with selling price increases to offset commodity headwinds.”
Honeywell’s CEO Darius Adamczyk announced that “inflation is taking hold” and affecting his business’ bottom line in the company’s first-quarter 2021 conference call on April 23.
The CEO said, “there’s no doubt about it. We knew it. We see it.” Honeywell announced it would be “quickly taking action” on pricing to stay ahead of the problem.
The Clorox Company
Clorox’s VP of Investor relations Lisah Burhan told investors in the company’s third-quarter 2021 results on April 30 that the company has seen “significant resin price inflation.”
In order to “manage those rising costs,” Clorox announced “pricing action” effective in July. “As we’ve mentioned, we’ll manage inflationary pressures holistically using all the tools in our toolbox,” Burhan said.
Procter & Gamble
Procter & Gamble COO Jon Moeller told analysts in an April 20 earnings call that “this is one of the bigger increases in commodity costs that we’ve seen over the period of time that I’ve been involved with this, which is a fairly long period of time.”
The company said it will begin “the process of implementing price increases on its Baby Care, Feminine Care, and Adult Incontinence product categories in the United States to offset a portion of the impact of rising commodity costs,” noting that the “exact amount of the price increase will vary by brand and sub-brand in the range of mid-to-high single-digit percentages and will go into effect in mid-September.”
In mid-April, Coca-Cola’s CEO James Quincey told CNBC’s Sara Eisen on “Squawk on the Street” that the company would be increasing prices to offset rising costs.
“We are well-hedged in ’21, but there’s pressure built up for ’22, and so there will have to be some price increases,” Quincey said.
“We intend to manage those intelligently, thinking through the way we use package sizes and really optimize the price points for consumers,” he added.
Reynolds Consumer Products
Reynolds Consumer Products revealed that a three-step price increase is already underway on some of its most popular products last month.
“Price increases have been implemented, and a second-round is underway, with plans for a third-round to be implemented in the third quarter,” Michael Graham, Reynolds chief financial officer, said during the company’s first-quarter earnings call on May 8.
US stocks rose on Friday, with the S&P 500 hovering near record highs as investors continue to remain optimistic about the US economy amid support from the Federal Reserve.
The benchmark index on Thursday broke both its intraday record and closing record, to finish the session at 4,239.18.
Tom Lee, managing partner and the head of research at Fundstrat Global Advisors, said the breakout to new highs was presaged by the upside breakout last week.
“Our base case of a surge in S&P 500 to 4,400 before mid-year 2021 remains intact,” Lee said in a note.
While Thursday’s data showed that US inflation surged more than expected in May, weekly jobless claims fell to a pandemic-era low.
The 10-year Treasury yield was trading around 1.455%, two basis points above its March low, in a sign that the market believes strong inflation will prove transitory, as the Federal Reserve has stated.
Here’s where US indexes stood at 9:30 a.m. open on Friday: