Wall Street Breakfast: In Need Of Direction

In need of direction - U.S. stock futures turned higher overnight - Dow +0.6%, S&P 500 +0.8%, Nasdaq +1% - following heavy losses seen on Wall Street in the previous session. A spike in bond yields sent equities plunging, with the Nasdaq closing down nearly 3% for its worst day since March. Hardest hit were growth stocks - given their lower relative value of future earnings - as the benchmark 10-year Treasury yield touched a high of 1.567%. Facebook (FB), Microsoft (MSFT) and Alphabet (GOOGL) all lost more than 3%, triggering a tech out that hit the broader markets.Bigger picture: Inflation and the prospect of higher interest rates are prompting investors to dump government bonds and reposition their stock portfolios. The Fed meeting last week indicated a willingness to respond to growing inflationary pressures by lifting borrowing costs as soon as next year, as well as tapering bond buying as soon as November. Combined with surging prices for oil and other commodities, the rhetoric was enough to send bond yields flying, with the 10-year Treasury climbing 20 basis points over the last week alone."The interest rate induced selloff is a reminder of how impactful monetary stimulus has been with the Fed signaling a swift removal of the emergency stimulus measures is coming soon," noted Charlie Ripley, senior investment strategist for Allianz Investment Management. "This is an uncomfortable period for market participants as the removal of Fed support will be underway soon and equity markets will have to learn how to stand on their own again. However, we should be reminded that it is unlikely the Fed would move forward with tapering bond purchases if they didn't think the economy was ready."Fedspeak: More commentary on the economic landscape will come today as Fed Chair Jerome Powell participates in a policy panel discussion before virtual European Central Bank Forum on Central Banking at 11:45 a.m. ET. It won't be the only event to watch. Philly Fed President Patrick Harker, San Francisco Fed President Mary Daly, Atlanta Fed President Raphael Bostic and New York Fed President John Williams will give additional perspectives at a series of webinar discussions and virtual speeches throughout the day. (11 comments)

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Top News In need of direction Shutterstock U.S. stock futures turned higher overnight - Dow +0.6%, S&P 500 +0.8%, Nasdaq +1% - following heavy losses seen on Wall Street in the previous session. A spike in bond yields sent equities plunging, with the Nasdaq closing down nearly 3% for its worst day since March. Hardest hit were growth stocks - given their lower relative value of future earnings - as the benchmark 10-year Treasury yield touched a high of 1.567%. Facebook (FB), Microsoft (MSFT) and Alphabet (GOOGL) all lost more than 3%, triggering a tech out that hit the broader markets. Bigger picture: Inflation and the prospect of higher interest rates are prompting investors to dump government bonds and reposition their stock portfolios. The Fed meeting last week indicated a willingness to respond to growing inflationary pressures by lifting borrowing costs as soon as next year, as well as tapering bond buying as soon as November. Combined with surging prices for oil and other commodities, the rhetoric was enough to send bond yields flying, with the 10-year Treasury climbing 20 basis points over the last week alone. "The interest rate induced selloff is a reminder of how impactful monetary stimulus has been with the Fed signaling a swift removal of the emergency stimulus measures is coming soon," noted Charlie Ripley, senior investment strategist for Allianz Investment Management. "This is an uncomfortable period for market participants as the removal of Fed support will be underway soon and equity markets will have to learn how to stand on their own again. However, we should be reminded that it is unlikely the Fed would move forward with tapering bond purchases if they didn't think the economy was ready." Fedspeak: More commentary on the economic landscape will come today as Fed Chair Jerome Powell participates in a policy panel discussion before virtual European Central Bank Forum on Central Banking at 11:45 a.m. ET. It won't be the only event to watch. Philly Fed President Patrick Harker, San Francisco Fed President Mary Daly, Atlanta Fed President Raphael Bostic and New York Fed President John Williams will give additional perspectives at a series of webinar discussions and virtual speeches throughout the day. (11 comments)       Economy U.S. credit default? Inflation and tapering aren't the only forces spooking investors. Debt ceiling drama is intensifying in Washington ahead of a Thursday night deadline, with the risk of a partial shutdown starting Friday morning. Nearly two weeks later, on Oct. 18, the government will run out of money to meet its obligations to debtholders, according to Treasury Secretary Janet Yellen. A separate fight over a $1.2T infrastructure bill and a $3.5T reconciliation bill is also rattling parties and lawmakers, prompting President Biden to cancel a planned trip to Chicago today to save his economic agenda. Quote: "The only way Congress in this day and age ever gets anything done is by coming very close to deadlines," declared Capitol Hill strategist Jim Manley. "So far, we as a country have not suffered the economic consequences from such political gamesmanship, but at some point, somebody is going to make a mistake and something bad is going to happen to the country." The words couldn't ring truer at the current moment as corporate leaders start to sound the alarm over the rapidly approaching debt ceiling deadline. JPMorgan (JPM) CEO Jamie Dimon said the lender has begun to prepare for the "potentially catastrophic event" of a U.S. credit default, while Morgan Stanley (MS) is planning for a similar scenario. The Business Roundtable, one of Washington's leading business lobby groups, meanwhile announced that a failure to raise the debt ceiling would pose an "unacceptable" risk to the U.S. economy. Analyst commentary: "Investors should note that there is no clear path to dealing with the debt ceiling," said Brian Gardner, a policy analyst at Stifel. "It could be a tense few weeks in Washington which could add to market volatility." (20 comments)       Sponsored By Northern Trust Are You Making the Most of Low Interest Rates? Explore six facets of wealth planning – from estate planning to borrowing to investing, including opportunities for family offices, business owners and executives – that can be beneficial in a low, but eventually rising, interest rate environment. Learn More IPOs Warby Parker Investors today will be eyeing the public debut of Warby Parker (WRBY), which will hit the New York Stock Exchange via a direct listing (a cheaper, but less common way of going public). The company is known for its affordable eyeglasses, which start at $95 a pair, and are sold online and through its network of 145 stores. Last night, the NYSE assigned a reference price of $40 to Warby's 111.5M outstanding shares, giving it a valuation of around $4.6B (during its last fundraising round in August 2020 it was valued at $3B). Backdrop: Warby Parker was founded in 2010 by four friends at the University of Pennsylvania's Wharton School: Neil Blumenthal, David Gilboa, Andrew Hunt and Jeffrey Raider. The group desired to create high-quality, affordable glasses by adopting a direct-to-consumer process, while providing the flexibility of free home try-ons and returns. Warby also runs a philanthropic program through which it distributes glasses to someone in need for each pair of eyewear purchased by a customer. Blumenthal and Gilboa are now co-CEOs of the business, while Hunt and Raider remain as directors of the company. Warby Parker's growth has been financed by a total of $535.5M in venture capital raised in funding rounds from backers including D1 Capital Partners and T. Rowe Price (NASDAQ:TROW). While the company notched $393.7M in revenue during 2020 - up from $370.5M in 2019 - it posted a net loss of $55.9M, following a breakeven 2019 and a loss of $22.9M in 2018. Warby also had 2.08M active customers as of June 30, up from 1.81M in 2020 (the metric is defined as those who have purchased a pair of glasses in the last 12 months). Some of its publicly traded rivals include National Vision Holdings (NASDAQ:EYE) and France-based EssilorLuxottica (OTCPK:ESLOF), which have both seen share gains of around 50% over the past year. Outlook: Statistics from the Vision Council of America suggest that Warby Parker is operating in a growth market valued at $35B in the U.S. 75% of American adults use some type of vision correction, and of that number, 64% wear glasses. The eyewear industry is also pretty resilient to economic cycles due to its medical and nondiscretionary nature. However, some still say the company is overvalued despite its well-known brand and visibility, like SA author David Trainer. In an article entitled, See Through This Optical Illusion, he argues that Warby Parker operates in a highly fragmented market with many small private companies, as well as consumers that still favor in-store purchases.

     

Tech

Meet Astro

Amazon's (AMZN) robot is here after all. Despite conventional wisdom that the announcement would wait a while, the tech giant unveiled its Astro home assistant - a sort of wheeled Echo device that can follow you around. The dog-like product, designed to appear animated and friendly, looks to bring together the company's strengths in robotics, artificial intelligence, home monitoring and cloud services.

Is it worth $1,000? The robot can be integrated with Amazon's smart home security subsidiary Ring and patrol a user's home while they're away. It's also equipped with Alexa, the voice assistant that can set reminders, deliver entertainment and control smart home devices. Astro additionally sports a cup holder on its rear and a robot arm that can extend and look at things from up to four feet.

Digital adopters concerned about privacy can be rest assured that Astro's camera, microphone and motion sensors can be switched off by pressing a button (or at least until the next scandal). Users can also pick "out of bounds zones," or certain rooms that are off-limits to the robot via mapping software.

Other items announced at the hardware event: Amazon's first smart thermostat, the Echo Show 15, an Echo partnership with Disney (DIS) and a new Halo View fitness tracker. Amazon also unveiled Glow, an oddity of a chat/videoconferencing device with a built-in tabletop projector that can cast images of games, books or puzzles in a clear target for children. (23 comments)

     

Today's Markets

In Asia, Japan -2.1%. Hong Kong +0.7%. China -1.8%. India -0.4%.
In Europe, at midday, London +0.9%. Paris +1.2%. Frankfurt +1%.
Futures at 6:20, Dow +0.6%. S&P +0.8%. Nasdaq +1%. Crude -0.8% at $74.70. Gold +0.4% at $1745. Bitcoin +1.6% at $42406.
Ten-year Treasury Yield -4 bps to 1.5%

Today's Economic Calendar

7:00 MBA Mortgage Applications
9:00 Fed's Harker: Economic Outlook
10:00 Pending Home Sales
10:00 State Street Investor Confidence Index
10:30 EIA Petroleum Inventories
11:00 Survey of Business Uncertainty
11:45 Jerome Powell Speech
1:00 PM Fed's Daly Speech
2:00 PM Fed's Bostic: "Inclusive Payments"
5:00 PM Fed's Williams Speech

Companies reporting earnings today »

What else is happening...

Home prices up a record 19.9% according to Case-Shiller survey.

United Airlines (NASDAQ:UAL) set to fire 593 employees who refused vaccine.

Applied Materials (NASDAQ:AMAT), ASML sink as New Street sidelines semicaps.

Lucid (NASDAQ:LCID) rolls first EV off assembly line, deliveries start in October.

Sen. Elizabeth Warren: Fed Chair Jay Powell is a 'dangerous man'.

Pfizer's (NYSE:PFE) COVID shot for kids may not get clearance until November.

Micron (NASDAQ:MU) slips as near-term forecast trails expectations in quarterly beat.

Nat gas rally should fade with shale's return - Pimco analyst.

Ford (NYSE:F) CEO: $11.4B investment boosts EV manufacturing and supply chain.

Buy now, pay later... Affirm (NASDAQ:AFRM) prepares to begin accepting crypto.

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