Business Of Fashion : Inside Adidas’ Billion-Dollar Digital Transformation

Inside Adidas’ Billion-Dollar Digital Transformation
The German sneaker giant is investing for a new era of tech-enabled retail in a bid to close the gap with Nike.

For Adidas, there’s no doubt the future is digital.
The German sports giant is investing more than $1 billion to transform its business from design to delivery by the middle of the decade. The effort is central to the company’s ambitions to reignite slowing growth and position itself as a pacesetter in a new era of tech-enabled retail.
By 2025, Adidas expects the “vast majority” of its sales to come from products that were created and sold digitally, according to an ambitious growth strategy outlined in March. It’s planning to digitise across the value chain, moving to design more of its products in 3D, sell to retail partners without them ever having to see a physical sample and quickly get products in front of shoppers on digital channels it controls — and which feed it back valuable data.
“We have some great lofty goals for 2025,” Chris Murphy, vice president of digital activation for Adidas North America, told BoF.

As the company seeks to get faster, smarter and more agile, it’s also aiming to more than double the shoppers signed up for its membership program. That would not only give Adidas stronger relationships with its customers but also let it harvest data directly from them.
The company is working hard to catch up to Nike, which in recent years has acquired a handful of data-centric technology firms and remodelled its business around selling directly to shoppers through its own stores, e-commerce and apps such as SNKRS.
“The key for these big brands is can they build a really strong network of apps and direct customer relationships? Because these are businesses which traditionally have relied to a very large extent on selling via third parties,” said Simon Irwin, an analyst at Credit Suisse. “With the whole move to [direct-to-consumer selling], that is all changing dramatically, and clearly Nike is miles in the lead.”
Adidas could use a boost. After a stretch of blazing growth through 2017, its performance has cooled and it’s still recovering its footing from the pandemic. In 2020, the company’s sales fell to €19.8 billion ($22.3 billion), down 14 percent in currency-neutral terms from the prior year. Sales rebounded in 2021, but the company recently trimmed its forecast for the year, citing struggles in China and supply chain snarls.
Adidas is seeking to sell investors on a long-term promise “to significantly increase sales and profitability as well as gain market share,” as it said in its growth plan. It’s targeting an average of eight percent to 10 percent growth per year on a currency-neutral basis through 2025. Digital sales, which Adidas is looking to double, will be crucial.

How Adidas is Going Digital
The change Adidas envisions is arguably more evolution than transformation. At its stores, for instance, the company has been expanding digital touchpoints, said LaNiece Douglas, the company’s vice president of retail for North America. Smart mirrors currently give shoppers information on products they’re holding, and so-called “endless aisle” kiosks let them shop online for products or sizes not available in the store. Soon the company will also enable self-checkout through its app.
A smart mirror in Adidas' London flagship. Adidas.
On the operations side, the company is scaling its use of 3D design, which allows designers to develop and revise products faster using detailed digital renderings, eliminating the need for physical samples that are usually shipped from factories in Asia. More than €5 billion of Adidas’ sales already come from products created with 3D design, Adidas’ head of global operations Martin Shankland said at the company’s investor day in March. If the company hits its 2025 targets, that number will grow substantially in the coming years.

It may just be the price of staying competitive at this point, though. While brands of all sorts still rely heavily on physical sampling, a number are increasingly using 3D in its place, including Nike, Under Armour, Saucony and more, according to Matt Priest, president and chief executive of Footwear Distributors and Retailers of America, an industry trade group.
“It’s turning into table stakes,” Priest said.
Transformation isn’t always easy either. In 2015, Adidas launched a high-profile project to help it respond faster to customer demand in key markets with high-tech “Speedfactories.” But it shut down the two manufacturing locations it built in Germany and the US in 2019. At the time, Adidas said it made more sense for the company to take what it had learned and upgrade its supplier base in Asia, where most of its production is concentrated.
Irwin said he sees the new digital investments as fundamentally different.
“That was always fairly speculative,” he said of the Speedfactories, noting that near-shoring production was impossible to scale. But digitising operations is “just basic business in terms of what most of these companies need to do,” Irwin said.
Getting Smarter with Data
Where Adidas’ investments could give it an edge, analysts say, is by helping to fuel its membership programme and apps. Membership lets Adidas build deeper relationships with its best customers, and the more members it has, the more data it’s able to collect from them.
Data lets companies make better decisions and more accurate predictions — if they’re able to effectively analyse it and put it to use. To help on that front, the company is planning to hire more than 1,000 data and technology workers this year.

“We’re looking at infusing data right into our buying, our planning process, our operations process,” said Douglas.
Adidas' Confirmed app, where it launches its most hyped products. Adidas.(Adidas)
Adidas already uses data to inform decisions such as the local assortment at its stores, down to the colour choices. It wants to be able to sift data from its e-commerce and apps on what’s selling or where there are gaps in its assortment, feed that to its design team to rapidly conceive new products with 3D tools and quickly test those products in the market.
Member data is only growing more valuable given the changes occurring in online privacy. Murphy pointed to Apple’s update in April that now forces apps to ask permission to track a user’s activity. Apps dependent on that data to target ads, such as Facebook and Snapchat, have felt the impact.
“It’s important to grow your internal database and have an understanding of who your consumers are, instead of relying on outside parties to tell you that,” Murphy said.
Nike reported more than 300 million members in its most recent fiscal year. Adidas is trailing but has still attracted 220 million members since launching its programme in 2018, Murphy said. In 2020, the company also relaunched its Confirmed app, where it releases its most hyped products, after shuttering a previous version a few years earlier. This year, it expanded it across Europe.
Adidas anticipates big returns from its digital bet. In 2020 its total e-commerce sales already surpassed €4 billion — more than a quarter of the company’s sales — up significantly from the prior year after the pandemic supercharged online shopping. In 2025, according to its growth plan, it’s targeting between €8 billion and €9 billion in online sales. By that time, it plans to have around 500 million members.
“If you dig into the figures that Adidas is mentioning for membership, for example, or that Nike is mentioning for apps — the SNKRS app or the Nike app — this draws literally millions of consumers and makes them come back,” said Erwan Rambourg, an analyst at HSBC. “I think it is a competitive advantage.”

FT : UK to put up £1.7bn to support Bulb in special administration

UK to put up £1.7bn to support Bulb in special administration
Britain’s seventh-biggest energy supplier, with 1.6m customers, failed this week

UK ministers will put up £1.7bn of taxpayers’ money to continue running the failed energy supplier Bulb while it is managed by administrators on the government’s behalf over the winter.

Bulb, which was Britain’s seventh-biggest supplier, with 1.6m customers, admitted this week that it was supporting the process of being placed into “special administration”, a mechanism to protect customers of a large supplier when it becomes insolvent.

It emerged on Wednesday that the UK government will make available £1.7bn in working capital so that Bulb’s customers can continue to receive electricity and gas through to April.

It is the first time the special administration process has been deployed in the energy sector. Bulb will remain in the mechanism until it can be sold, restructured or its customers transferred to an alternative provider.

Greg Hands, energy minister, said the government’s priority was “to protect consumers”.

“The appointment of administrators will ensure the supply of energy remains normal to Bulb customers across the country, providing vital reassurance while an enduring solution is agreed,” Hands added.

The £1.7bn of government support was first reported by Bloomberg.

Bulb is the biggest energy supplier to collapse in Britain in nearly 20 years and the 23rd since the beginning of August as the industry struggles to cope with surging wholesale prices.

Its failure has amplified calls for tighter regulation of Britain’s energy supply sector. Many analysts and executives had warned of a disaster waiting to happen as too many companies were offering lossmaking deals and had no, or inadequate, hedging policies to protect them against upward swings in wholesale energy prices.

Kwasi Kwarteng, business secretary, told the House of Commons earlier on Wednesday that, in the case of Bulb, regulators had not been able to fall back on the UK’s normal safety net for failed suppliers, where households are quickly transferred to a rival, because of the size of its customer book.

“A special administration is a temporary arrangement,” Kwarteng insisted, adding that it would keep bills at the “lowest cost which is reasonably practical to incur whilst ensuring that the market remains stable”.

“The House should understand that we do not want this company to be in this temporary state longer than is absolutely necessary,” he added.

Ed Miliband, shadow business secretary, said the crisis in the sector pointed to a “systemic failure of regulation”.

“Firms took risky bets and were allowed to do so,” he added.

Teneo said it had been appointed as special administrator of Bulb.

Interpath Advisory, the insolvency business sold by KPMG to private equity group HIG Capital this year, said it had been appointed as administrator of Simple Energy, Bulb’s parent company.

Simple Energy, which employs 1,000 people, is not included in the special administration. It provides services such as a technology platform relied on by Bulb in its day-to-day operations.

Richard Heis, one of the administrators at Interpath, said the priority would be to work with the special administrators “to ensure continuity of operations for customers and staff of Bulb, on appropriate commercial terms”.

Bulb had been described as “wonderful” by Boris Johnson, UK prime minister, less than four months ago, when he visited its headquarters in London. But it had long been at the centre of energy industry speculation on its financial health and ability to offer prices that were often below Britain’s energy price cap.

Keith Anderson, chief executive of ScottishPower, one of Britain’s top-six suppliers, said on Monday that Bulb’s failure had been “been a long time coming”.

Bulb blamed its demise on wholesale prices and Britain’s price cap for more than 15m households, which, it said, forced suppliers to sell energy “at a significant loss”.

Further supplier casualties are expected by the end of the winter.

Baringa Partners, a consultancy, has estimated that as few as 10 suppliers could be left standing by the end of winter. There were still 50 at the end of June, according to Ofgem data.

FT : Roman mosaic of Homer’s ‘Iliad’ unearthed on English farm

Roman mosaic of Homer’s ‘Iliad’ unearthed on English farm
Farmer’s son makes most ‘exciting’ find of century with help of Google maps before calling in archaeologists

A Roman mosaic depicting scenes from Homer’s Iliad has been unearthed in a farmer’s field in the English county of Rutland, in what archaeologists described as the most “exciting” mosaic discovery in the UK for a century.

The 11-metre mosaic floor includes a panel that shows the Greek warrior Achilles dragging the corpse of Hector behind a chariot around the walls of Troy as his grief-stricken father, King Priam, looks on.

The dig site, which lies to the east of the city of Leicester, is part of a bigger villa complex dating to the third or fourth century AD. It was discovered during the first coronavirus lockdown last year by Jim Irvine, the son of the landowner, when his curiosity was aroused by a fragment of pottery spotted while on a family walk.

Looking up the field on Google’s satellite imagery maps, he detected lines of prior construction under the wheat. “I spotted a very clear crop mark, as if someone had drawn on my computer screen with a piece of chalk,” he said. “This really was the ‘oh wow’ moment.”

It is the first time that themes from the Iliad — one of the most celebrated epic poems in western literature — have been found depicted on a mosaic in Britain, and one of only a handful of examples across Europe.

The mosaic formed the floor of what is thought to have been a dining or entertaining area in the villa complex that is likely to have been the home of a wealthy landowner. Geophysical surveys pointed to the presence of aisled barns, circular structures, ditches and a possible bath house. Archaeologists, who carried out full excavations at the site from September, have not ruled out finding further mosaics at the dig.

“This is certainly the most exciting Roman mosaic discovery in the UK in the last century,” said John Thomas, the lead archaeologist on the project.

“The fact that we have the wider context of the surrounding complex is also hugely significant, because previous excavations on Roman villas have only been able to capture partial pictures of settlements like these, but this appears to be a very well-preserved example of a villa in its entirety,” he said.


Archaeologists from Leicester university examine the mosaic © Steven Baker/Historic England
After Irvine alerted the local authority, the dig was handed over to Ulas, the commercial archaeology unit of the University of Leicester, which previously handled the disinterment of King Richard III’s remains from a car park in the city in 2012.

The government on Thursday declared the site a scheduled monument, after taking advice from Historic England, the agency that protects sites of significance across the country, which provided emergency funding for the initial work in August 2020.

The dig also revealed human remains from a later era. These are yet to be carbon dated but suggested the villa was repurposed as a burial site in the very late Roman or early Medieval period, when the building was no longer thought to have been occupied.

Archaeologists have collected extensive data from the mosaic dig and the excavations have been temporarily backfilled until further work gets under way next year. There are no plans to allow members of the public to visit the site, which is on private land. Instead, one option under consideration is to display the site in a museum using digital imagery.

>>> After Hours Summary: Quiet session ahead of Thanksgiving holiday

After Hours Summary: Quiet session ahead of Thanksgiving holiday

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: CO +17.8%

Companies trading higher in after hours in reaction to news: AURA +5.6% (reports that data from two clinical trials were recently presented; also reports earnings), BERY +1.1% (announces $50 mln accelerated share repurchase transaction)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance: None

Companies trading lower in after hours in reaction to news: SELB -11% (FDA places clinical hold on Phase 1/2 clinical trial of SEL-302), AVIR -2.3% (files for mixed securities shelf offering; also files sales agreement prospectus for $200 mln stock offering), QTNT -2.2% (stock offering)

FT : AutoStore: robot warehouses continue to stack up

AutoStore: robot warehouses continue to stack up
A push to replace humans should support earnings growth

On the British television programme Robot Wars inventors battled with their homemade machines. Life now imitates art in the mundane theatre of ecommerce warehouses. Results from AutoStore, the Norwegian robotic group that listed in October, show the fight remains mostly focused on defeating the humans first.

Demand for the robotic vertical stacking systems continues to accelerate. Supply chain disruption remains a net positive for the group. Revenues in the third quarter of the year almost doubled to $85m, though its costs are increasing.

As an example, prices for aluminium, its biggest input, have climbed to decade highs. Operating margins slipped a bit, falling 2 percentage points to 47 per cent. A push to replace humans with robots in warehouses should continue to support earnings growth.

Another income source could come from its legal spat with UK automation rival Ocado. Their spat over patent infringement is being heard at the US International Trade Commission, with an initial decision expected in early December. Both earn substantial business there. Should AutoStore win, that could mean a lump sum settlement from Ocado or annual royalty payments. The size of the former would be at least a few hundred million dollars, think Berenberg analysts.

Valuations reflect optimism for the sector. AutoStore shares have risen 25 per cent since they began trading. An enterprise value multiple of 22 times 2023 sales chimes with analyst estimates for Ocado’s automation division.

But there are reasons to believe AutoStore will beat revenue estimates for $500m next year. Already orders converted from the group’s $3.4bn pipeline reached $423m in the first three months of this year, or almost three times more than in 2020. Assuming full-year orders continue apace that represents a conversion rate of about one-fifth of the total pipeline, double recent conversion rates. Even at historical conversion rates that would add at least $100m to next year’s sales forecasts.

A battle for robot supremacy within warehouses should mean good news to come for AutoStore shareholders.

FT : UK fintech Freetrade seeks to double valuation in fundraising

UK fintech Freetrade seeks to double valuation in fundraising
Trading app would be worth £650m as it plans push into cryptocurrencies

UK fintech Freetrade will seek a £650m valuation in a fresh round of crowdfunding, double the value the company posted earlier this year, as the trading app plans to push into cryptocurrencies.

The group on Wednesday launched its seventh round of fundraising from the public since its founding in 2016. The London-based start-up has also raised money from traditional venture capital investors, most recently in March, which valued it at £270m. 

The sharp rise in Freetrade’s valuation comes as retail stock trading boomed during the Covid-19 pandemic, bringing a rush of younger customers and new cash to brokers from Robinhood in the US to established players such as the UK’s Hargreaves Lansdown.

In the UK, customers opened 7.1m investing accounts in the first 12 months of the pandemic, according to the most recent figures from the Financial Conduct Authority.

Freetrade, which recently surpassed £1bn in assets, is seeking to capitalise on this momentum to expand across Europe, squaring off against continental rivals such as Trade Republic.

Adam Dodds, Freetrade’s chief executive, told the Financial Times in September that next year would see “battleground Europe” among investment apps.

“What we’ve seen over the past two years is that the theory that Europeans don’t invest and aren’t interested in the stock market isn’t true,” he said.

Freetrade — which has 600,000 funded accounts, up from 150,000 at the start of the year — expected to bring in £15m of revenue this year, up from £3m last year. However, it still projected a loss of £26m before interest, taxes, depreciation, and amortisation as it continued to invest in tech and marketing.

The company, which charges investors foreign exchange fees on their trading and offers a monthly premium subscription, said its new valuation target represented a multiple of 13 times projected 2022 revenues, not including new business lines such as cryptocurrency trading. It plans to launch this in the new year, matching moves by peers including Revolut, Germany’s Scalable Capital and Robinhood in the US.

The French payment mobile app Lydia this week said it would allow its 5m users to trade cryptocurrencies, along with stocks, ETFs and precious metals. “Driven by the pandemic, trading has seen unprecedented appetite from retail investors,” the company said.

The push into crypto for Freetrade runs counter to a campaign by UK regulators to discourage high risk investing among retail punters. The FCA said it wants to see fewer first-time investors jumping into digital tokens, and has raised concerns that slick trading apps “[make] it easier for consumers to make bad decisions” — pointing to the sharp rise in sign-ups during January’s craze for US “memestocks”. 

Freetrade counts 13,000 individual shareholders as its largest block of owners, alongside venture capitalists including Left Lane Capital and Molten Ventures, previously known as Draper Esprit.

It said it would for the first time open its crowdfunding to European investors, as it looks to raise up to £13m. The company hopes to roll out services across Europe next year, pending regulatory approval from Swedish authorities.

FT : Japan’s government spared showdown over Shinsei poison pill

Japan’s government spared showdown over Shinsei poison pill
Withdrawal of the company’s M&A defence allows hostile bid from ambitious SBI to go ahead

Late on Wednesday evening Tokyo time, Japan stood less than 24 hours away from the most pivotal shareholder showdown in the history of its financial services industry: a proxy battle over the future of Shinsei Bank and the culmination of the sector’s first ever hostile takeover attempt.

Then very suddenly, it wasn’t. Shinsei’s poison pill defence strategy was abruptly withdrawn, Thursday’s extraordinary general meeting cancelled and the way apparently cleared for the breaking of Japan’s great hostile takeover taboo. It is far from clear, however, whether the forces of change or the backroom machinations of Old Japan won the day.

The latest torment around Shinsei — the institution born from the 1998 collapse and forced nationalisation of the Long Term Credit Bank — began in September with a $1.1bn hostile bid.

The move came from one of the most controversial and successful figures in Japanese finance: the online brokerage tycoon and SBI chief executive, Yoshitaka Kitao. His relish for disruption is unabashed and his stated aim for the past few years has been to upgrade his various online businesses into Japan’s “fourth megabank”.

That ambition, for which effective control over Shinsei would be the linchpin, has so far involved buying a series of minority stakes in various ailing regional banks — with, many observers suspect, a tacit nod of political gratitude.

At the time of SBI’s move on Shinsei, Kitao’s company held 20.3 per cent in its quarry. Its rather unconventional tender offer envisages it adding an additional 27.6 per cent to take the total stake to 48 per cent — just shy of the 50 per cent level that would avoid a drawn out approval process and onerous capital requirements.

Shinsei’s response was to propose a poison pill defence, which SBI attempted to block in court, but failed. Shareholders were due to vote on it on November 25 after Shinsei appeared to come up short in its scramble to find another buyer.

The natural vote of the pro-governance progressive might be against any form of poison pill as it can entrench management and hinder shareholders from profiting from a takeover offer. But if successful, SBI’s bid would give Kitao cheap, low-responsibility control over a major bank and create company structure that might disadvantage minority shareholders.

Given that and other factors, proxy advisers ISS and Glass Lewis, counterintuitively, had made recommendations in favour of the poison pill. Some domestic and foreign investors also were backing it. But there were more twists to come.

Shinsei’s history has resulted in the Japanese government holding 22 per cent of the bank’s voting rights via two entities — the Resolution & Collection Corporation and the Deposit Insurance Corporation.

The RCC and DIC have an obligation to return roughly Y350bn to taxpayers for the original bailout, but could only do so by exiting Shinsei at a price of Y7450 per share. SBI’s offer, even with its premium, came in at Y2,000, which means that the government is unlikely to sell into it. Nevertheless, people close to the RCC and DIC let it be known this week that they would be voting against the poison pill — a stance that some have taken as a sign that there is now a government faction eager to countenance hostile takeovers.

The prospect of the RCC, DIC and Kitao combining to successfully vote down Shinsei’s poison pill thus appears to have forced the bank to pull the defence before that humiliation. Some activist investors, who have fought the intransigence of corporate Japan over many years, roared in triumph and declared the proxy advisers were caught on the wrong side of history.

Finally, they argued, the fear of state disapproval of hostile bids, which has long constrained companies and private equity, should now lift and Japan would see a long-absent market for corporate control evolve.

They may be correct, but sceptics suggest this outcome might feel more plausible with a hostile takeover that raises fewer questions over the desirability of its end result. Particularly troubling is the implied government endorsement of a deal that does not look like a step forward for governance or protection of minority shareholder interests.

CLSA analyst Nicholas Smith notes there are a number of former — and potentially highly influential — senior bureaucrats drawn mostly from the financial services regulator on the board of SBI and its group of companies. “I fear that this may be seen,” says Smith, “as a stick of Brighton Rock with ‘conflict of interest’ written all the way through.”

FT : Hydrogen: price transparency will help fuel a green revolution

Hydrogen: price transparency will help fuel a green revolution
Much must happen before a publicly traded index can become a reality

Environmentalists such as former US vice-president Al Gore extol “the magic of markets” as a way to cut back green costs. There are efforts to establish a tradeable market in hydrogen, the fuel expected to play a big role in decarbonisation. A hydrogen price index proposed by Deutsche Börse’s power and gas exchange EEX is an indication of rising interest.

Details are scant. But the reported aim is to publish a price of hydrogen that will reflect the over-the-counter market and bilateral trades in import and export agreements.


Considerable data already exist. S&P Global Platts assesses hydrogen production costs in different regions. The main variable is the cost of natural gas, currently used in more than 95 per cent of global production. A sizeable gap has opened up between the cost of hydrogen in gas-importing countries and those with plentiful supplies such as the US Gulf Coast.

Hydrogen prices from Platts are thus based on input costs. Creating an index based on actual prices paid for hydrogen is more of a stretch. There is, as yet, little trade in the gas. In 2020 EU countries exported — to other member states and externally — less than 0.2 per cent of total hydrogen consumption, according to Hydrogen Europe. What little hydrogen trade exists tends to be subject to long term contracts.

Even the debate about how best to transport hydrogen is at an early stage. Australia will soon export its first liquid hydrogen cargo to Japan. But it may well be cheaper to build pipelines or ship hydrogen-carrying ammonia instead. Regulations also need to be agreed. It would make sense to certify the carbon intensity of hydrogen, as with the “guarantee of origin” certificates for renewable energy.

Much must happen before a publicly traded index can become a reality. But it is a laudable ambition. Hydrogen has a crucial role in tackling the hard-to-decarbonise sectors. Price signals should help in targeting limited supplies and incentivise hydrogen production in low-cost countries. Greater transparency on pricing could make a difficult transition more efficient.

>>> US Close Dow -0.03% S&P +0.23% Nasdaq +0.44% Russell +0.15%

Closing Stock Market Summary

The S&P 500 gained 0.2% on Wednesday, overcoming an early 0.7% decline, as the market adjusted to the thought of the Fed tightening policy more aggressively. The Nasdaq Composite (+0.4%) and Russell 2000 (+0.2%) also completed their own comebacks, while the Dow Jones Industrial Average (-0.03%) closed fractionally lower.

Six of the 11 S&P 500 sectors closed lower while five closed higher. The real estate (+1.3%) and energy (+1.0%) sectors outperformed in positive territory. The materials (-0.7%) and consumer staples (-0.3%) sectors underperformed with modest declines.

Expectations for a more aggressive Fed were corroborated by the latest economic data and Fed commentary: the FOMC Minutes from the November meeting noted that "some participants preferred a somewhat faster pace of reductions that would result in an earlier conclusion to net purchases." Weekly initial claims (199,000) fell to their lowest level since Nov. 15, 1969. The Fed's preferred inflation gauge in the PCE Price Index was up 5.0% yr/yr in October.

The market had already been pricing in this thinking, but it's worth noting that the probability for a rate hike in May 2022 increased to 54.9%, versus 45.4% yesterday, according to the CME FedWatch Tool. The fed-funds-sensitive 2-yr yield rose three basis points to 0.64%, leaving it up 13 basis points since Friday.

Strikingly, the 10-yr yield declined two basis points to 1.65% after brushing up against 1.70% in the morning. The U.S. Dollar Index rose 0.3% to 96.82. WTI crude futures were unchanged at $78.37/bbl.

This retracement happened not only in spite of the unemployment and inflation data, but a host of other data that increased on a sequential basis like personal income and spending for October, new homes sales for October, the second estimate for Q3 GDP, and the final November reading for the University of Michigan Index of Consumer Sentiment.

Nevertheless, the turnaround in the 10-yr yield was cited as a supportive factor for the rebound in the growth stocks, and in turn, the major indices.

Separately, Nordstrom (JWN 22.66, -9.27, -29.0%) and Gap (GPS 17.84, -5.67, -24.1%) were punished for reporting disappointing earnings results. Deere (DE 367.86, +18.58, +5.3%), HP Inc. (HPQ 35.44, +3.25, +10.1%), and Dell (DELL 57.30, +2.63, +4.8%), on the other hand, pulled through for shareholders.

Reviewing Wednesday's economic data:

  • Initial jobless claims for the week ending November 20 plunged by 71,000 to 199,000 (consensus 265,000), which is the lowest level of initial claims since November 15, 1969. Continuing jobless claims for the week ending November 13 decreased by 60,000 to 2.049 million.
    • The key takeaway from the report is that, with initial claims hitting their lowest mark since 1969, it will play into the burgeoning narrative that the Fed is going to need to be more aggressive with its tapering plans.
  • Personal income increased 0.5% month-over-month in October (consensus +0.2%) while personal spending increased 1.3% ( consensus +1.0%). The PCE Price Index jumped 0.6%, as expected, and the core PCE Price Index, which excludes food and energy, rose 0.4%, also as expected.
    • The key takeaway from the report is that prices increased at a pace faster than income, stealing the purchasing power of those income gains and leading to more spending out of savings. Real disposable personal income declined 0.3% month-over-month while the personal savings rate, as a percentage of disposable personal income, fell to 7.3% from 8.2%.
  • New home sales increased 0.4% month-over-month in October to a seasonally adjusted annual rate of 745,000 ( consensus 800,000) from a downwardly revised 742,000 (from 800,000) in September. On a year-over-year basis, new home sales were down 23.1%.
    • The key takeaway from the report is that the growth in new home sales is concentrated in higher-priced homes, as inflation pressures, exacerbated by supply constraints and labor shortages, are curtailing the building of lower-priced homes and pinching affordability for lower-income buyers.
  • The final November University of Michigan Index of Consumer Sentiment increased to 67.4 (consensus 66.8) from the preliminary reading of 66.8. The final reading for October was 71.7.
    • The key takeaway from the report is that the Index of Consumer Expectations has been pressured to its lowest level in a decade due to rapidly accelerating inflation and little belief that steps are being taken to mitigate rising prices. Roughly 25% of respondents said that inflation eroded their living standards in November.
  • The second estimate for Q3 GDP showed an upward revision to 2.1% (consensus 2.2%) from 2.0%. The GDP Price Deflator was revised to 5.9% ( consensus 5.7%) from 5.7%.
    • The key takeaway from the report is the understanding that the change in private inventories fueled the Q3 GDP increase. Real final sales of domestic product, which excludes the change in private inventories, were flat, slightly better than 0.1% decline reported with the first estimate.
  • The Advance report for International Trade in Goods for October showed a deficit of $82.9 billion, versus a revised $97.0 billion (from $96.3 billion) in September. The Advance report for Retail Inventories for October decreased 0.1%, while the Advance report for Wholesale Inventories for October increased 2.2%.
  • The Weekly MBA Mortgage Applications Index increased 1.8% following a 2.8% decline in the prior week. 

As a reminder, the market will be closed tomorrow for Thanksgiving Day and will reopen on Friday with a 1:00 p.m. ET closure. 

  • S&P 500 +25.2% YTD
  • Nasdaq Composite +22.9% YTD
  • Russell 2000 +18.1% YTD
  • Dow Jones Industrial Average +17.0% YTD