Closing Stock Market SummaryThe S&P 500 lost 0.8% on Monday for its fifth straight decline, as weakness in the growth stocks outweighed relative strength in the value/cyclical stocks. The Nasdaq Composite dropped 2.5%, and the Russell 2000 declined 0.7%. The Dow Jones Industrial Average (+0.1%), however, eked out a gain.
Valuation angst lingered after the 10-yr yield touched 1.39% in overnight action on the prevailing view that additional fiscal stimulus and reopening/vaccination efforts will spur growth and inflation. Considering the 10-yr yield started the month at 1.09%, this speedy ascent continued to undercut risk sentiment for growth stocks with elevated valuations.
Those were typically found in the Nasdaq, the S&P 500 information technology (-2.3%) and consumer discretionary (-2.2%) sectors, and the Philadelphia Semiconductor Index (-3.8%). Shares of Tesla (TSLA 714.50, -66.80, -8.6%) dropped nearly 9%.
The 10-yr yield finished the session one basis point higher at 1.36%. The 2-yr yield remained flat at 0.11%. The U.S. Dollar Index decreased 0.3% to 90.12.
Interestingly, six of the 11 S&P 500 sectors still closed in positive territory, and the iShares Russell 1000 Value ETF (IWD 145.57, +0.57, +0.4%) closed at a record high. Financial stocks have the biggest weighting in this ETF, and they directly benefited from the minor curve-steepening activity.
The S&P 500 financials sector advanced 1.0%, but the energy sector (+3.5%) noticeably outperformed with a 3.5% gain amid sharply higher oil prices ($61.63, +2.63, +4.5%).
Other cyclical stocks were supported by analyst upgrades. For example, the U.S. Global Jets ETF (JETS 25.68, +0.86, +3.5%) rose 3.5% after Deutsche Bank upgraded many of the airline stocks to Buy from Hold, and Dow Inc. (DOW 62.48, +2.09, +3.5%) provided influential leadership in the materials sector (+0.4%) after BofA Securities upgraded it to Neutral from Underperform.
Boeing (BA 212.88, -4.59, -2.1%) was a notable exception to the reopening trade after a Pratt & Whitney engine in one of its 777 planes caught fire over the weekend. Note, Pratt & Whitney is a subsidiary of Raytheon Technologies (RTX 73.00, -1.26, -1.7%), and no passenger died in the event.
Reviewing Monday's economic data:
- The Conference Board's Leading Economic Index (LEI) increased 0.5% m/m in January (consensus 0.4%) following an upwardly revised 0.4% increase (from 0.3%) in December. January marked the ninth consecutive monthly increase.
- The key takeaway from the report is that the strength in component indicators was widespread, with seven of the 10 indicators making positive contributions.
Looking ahead, investors will receive the Conference Board's Consumer Confidence Index for February, the FHFA Housing Price Index for February, and the S&P Case-Shiller Home Price Index for December on Tuesday.
- Russell 2000 +14.0% YTD
- Nasdaq Composite +5.0% YTD
- S&P 500 +3.2% YTD
- Dow Jones Industrial Average +3.0% YTD
After Hours Summary: EVER +11.7%, ZI +11.7%, FIVN +9.4%, CDNS +5.9% up big on earnings; NLS -13%, API -9.7%, REAL -5.6%, GDOT -4.1%, TREX -3.9% fall on earningsAfter Hours Gainers:
Companies trading higher in after hours in reaction to earnings/guidance: EVER +11.7%, ZI +11.7%, FIVN +9.4%, CDNS +5.9%, AL +5.2%, BCC +4.6%, IR +3.4%, TTCF +2.4%, RSG +2.2%, MRO +1.2%, WMB +1.1%, EXR +0.9%, O +0.7%, XEC +0.5%, FRPT +0.4% (also announces stock offering), AWR +0.1%, CNNE +0.1%, PRA +0.1%, UIS +0.1%
Companies trading higher in after hours in reaction to news: EXPR +6.5% (files for 25 mln share common stock offering), FREQ +5.6% (announces publication of Phase 1/2 study results for FX-322), WTRH +4% (announces full integration with Ordermark), AMC +3.4% (to reopen all 13 of its NYC theatres on March 5), KKR +2% (enters into agreement with Telefónica Chile for majority stake in fiber optic network), CLDX +0.9% (to expand clinical development CDX-0159 into prurigo nodularis), BIP +0.9% (KMI and BIP announce minority interest sale in Natural Gas Pipeline), MRNA +0.6% (releases testimony ahead of hearing on Tues), KMI +0.5% (KMI and BIP announce minority interest sale in Natural Gas Pipeline), FTI +0.3% (awarded substantial contract from PETRONAS Carigali), DG +0.2% (taking steps to find a potential successor for CEO Todd Vasos, according to Reuters), PSN +0.2% (wins contract with the US Postal Service worth up to $600 mln), XENE +0.1% (to present new preclinical data of XEN1101 program), RVNC +0.1% (announces top-line data from Phase 2 JUNIPER trial)
After Hours Losers:
Companies trading lower in after hours in reaction to earnings/guidance: NLS -13%, API -9.7%, REAL -5.6%, GDOT -4.1%, TREX -3.9%, RIG -2.7%, FANG -2.3% (also increases dividend), OXY -2.2%, NHI -2%, BIGC -1.8%, PANW -1.7%, VNOM -1.5%, OKE -1.3%, GFL -1.2%, BWXT -0.7%, PRIM -0.6%, WRI -0.2% (also increases dividend), ACC -0.1%, JBT -0.1%, LSI -0.1%
Companies trading lower in after hours in reaction to news: CCIV -16.5% (CCIV and Lucid Motors announce merger agreement at PIPE offer price of $15.sh), PAVM -11.5% (stock offering), SHOP -2.1% (announces offering of 1,180,000 Class A subordinate voting shares), GNMK -1.6% (ePlex RP2 Panel predicted to detect known SARS-CoV-2 variants), DBX -1.5% (convertible notes offering), CCL -1.3% (commences public offering of $1 bln of shares), KIM -0.1% (increases dividend)
Treasury Watchdog Warns of Government’s Use of Cellphone Data Without Warrants
Intelligence and law enforcement agencies may be on shaky legal ground in purchasing the data, report says
WASHINGTON—A new Treasury Department watchdog report warns that law enforcement agencies may not be on firm legal footing when they use cellphone GPS data drawn from mobile apps without obtaining a warrant first.
In a review of the Internal Revenue Service’s use of a commercial platform that allowed the agency to track cellphones, the Treasury Department inspector general for tax administration said that a landmark 2018 Supreme Court case might preclude the warrantless tracking of criminal suspects through location data generated by weather, game and other apps. The report encouraged stricter controls on use of the data.
Many government lawyers have concluded that the decision in Carpenter v. United States doesn’t apply because it addresses data held by cellphone carriers that contain a subscriber’s personally identifying information, rather than GPS location data drawn from apps, which doesn’t.
The watchdog’s report is only a recommendation, and its interpretation of the law hasn’t been blessed by any court. Yet it is the first known government analysis to raise serious doubt about the legality of law enforcement and intelligence agencies purchasing highly revealing information generated by U.S. cellphones and other digital services.
The audit, requested by Sens. Ron Wyden (D., Ore.) and Elizabeth Warren (D., Mass.), examined the IRS Criminal Investigation division’s use of a commercial software platform provided by Venntel, a company that sells to the government access to GPS data gathered from apps. Venntel’s parent company, Gravy Analytics, caters to corporate clients. The IRS experimented with Venntel’s platform as an investigative tool in 2017 and 2018 but stopped using the software.
Mr. Wyden’s office provided a copy of the inspector general report to The Wall Street Journal.
In approving the agency’s project, IRS lawyers had maintained “that data obtained from marketers of information like Venntel is not subject to a warrant because the data is collected by apps loaded on cellphones to which the phone users voluntarily granted access,” the inspector general found.
But in the Carpenter case, the court rejected a similar argument about location data collected by cellphone carriers.
Cellphone location records are an “exhaustive chronicle of location information casually collected by wireless carriers,” the Supreme Court said, and therefore law enforcement must get a warrant to access the data.
“The court’s rationale was that phone users do not truly voluntarily agree to share the information given the necessity of phones in our society,” the IRS inspector general concluded. “Courts may apply similar logic to GPS data sold by marketers.”
The IRS didn’t immediately respond to a request for comment. A spokesman for the IRS’s Criminal Investigation division previously said it “takes the privacy of citizens very seriously and follows all laws and regulations surrounding that privacy while administering the very important law-enforcement mission of protecting our nation’s tax system.” After a year of experimenting with Venntel, the spokesman added, “It was determined that this tool did not benefit CI investigations and its use was discontinued.”
The president of Venntel didn’t respond to a request for comment.
Harvesting cellphone-location data from apps accessed by customers—used to understand consumer behavior, make investment and real estate decisions, target advertising and more—is a multibillion-dollar industry. Unlike cell-tower data kept by carriers, these data sets identify individual users only by an alphanumeric code, which the marketing industry says cloaks the identities of phone users. However, in practice, users’ identities can be gleaned based on things like the address where the device is usually located in the evening. This data also pinpoints a phone’s location more precisely than the data held by carriers.
This pool of data is increasingly being tapped by military units, intelligence agencies and law enforcement to observe the patterns, habits and routines of small groups of people or even individuals, including terrorist networks, criminal enterprises and unlawful immigrants, and to apprehend suspects, according to interviews with numerous people familiar with the government’s actions.
Intelligence and military agencies are collecting commercial app data in near-real time at global scale, the people say. Besides the IRS, the Department of Homeland Security and the Federal Bureau of Investigation have experimented with it for domestic law enforcement, according to government spending contracts and previous Wall Street Journal reporting.
A DHS spokesman last year acknowledged collecting location information but said “information doesn’t include cellular phone tower data, is not ingested in bulk and doesn’t include the individual user’s identity.” An FBI spokeswoman previously declined to address specific surveillance efforts, but added that “all FBI operations are conducted in accordance with all legal requirements.”
Using such data on overseas targets who aren’t U.S. citizens doesn’t raise any legal barriers under U.S. law.
Using it domestically for intelligence and criminal justice, however, raises thorny questions about whether the U.S. government can buy its way around Americans’ constitutional protections in order to surveil them.
Intelligence analysts are generally forbidden to use app-based GPS data to look at targets inside the continental U.S. without approval from supervisors and attorneys, people say. However, the intelligence agencies are collecting and storing that data and can access it under certain circumstances.
For example, the Defense Intelligence Agency acknowledged last month that it accessed data on U.S. persons five times in the past 2½ years. People familiar with the matter say that data came via a National Geospatial-Intelligence Agency program that obtains it directly from commercially available consumer apps.
“As part of their authorized activities, Department of Defense components purchase publicly and commercially available data to inform analysis of foreign threats to national security,” a Pentagon spokesman said. The Defense Department “ensures compliance with applicable law and policy through robust oversight,” he added.
A person familiar with the matter said that those five instances involved matters of national security, and the actions were carried out in conjunction with domestic law-enforcement agencies.
Looser privacy terms for WhatsApp, which led some users to seek alternative chat apps, will be enforced from May 15, says the company. Anyone who has not agreed to the new terms by that date will no longer be able to read or send messages, and face the prospect of their account being deleted altogether.
Separately, the invitation-only audio chat app Clubhouse has suffered a security breach that has seen audio feeds made available on a third-party website…
Looser privacy terms for WhatsApp
WhatsApp last month notified users that new and looser privacy terms were about to be introduced. We explained then the background.
WhatsApp will shortly start to share your data with Facebook as a condition of use of the app. This completes a U-turn which began when Facebook first acquired the app back in 2014.At the time, WhatsApp assured users that their data would remain private, and not be shared with Facebook. The first part of the U-turn came in 2016, when WhatsApp began sharing data with Facebook by default. At the time, however, existing users could opt out of the data sharing. Upcoming changes to the messaging app’s privacy policy remove the opt-out option.
The new terms were set to come into force on February 8, but user objections forced the company to delay the change as it sought to provide reassurance. It emphasised that user-to-user chats remain end-to-end encrypted, and that the data shared would be from user messaging with businesses, which are not protected in the same way. Still, many remain unhappy and say they won’t agree to the terms.
WhatsApp now says that users must agree by the new deadline of May 15. If they don’t, they will no longer be able to read or send messages.
To give you enough time to review changes at your own pace and convenience, we’ve extended the effective date to May 15th. If you haven’t accepted by then, WhatsApp will not delete your account. However, you won’t have full functionality of WhatsApp until you accept. For a short time, you’ll be able to receive calls and notifications, but won’t be able to read or send messages from the app.
After that, you will still have some time to change your mind, but only around four months.
You can still accept the updates after May 15th. Our policy related to inactive users will apply […] To maintain security, limit data retention, and protect the privacy of our users, WhatsApp accounts are generally deleted after 120 days of inactivity.
If you instead choose to delete your account, the company warns there is no going back.
If you’d like to delete your account on Android, iPhone, or KaiOS, we hope you reconsider. It is something we cannot reverse as it erases your message history, removes you from all of your WhatsApp groups, and deletes your WhatsApp backups.
Clubhouse chats breached
Audio chat app Clubhouse has recently seen millions of downloads following its adoption by some high-profile figures in the tech world.
The Clubhouse app reached 8.1 million global downloads on the iOS App Store on February 16 […] Tesla founder Elon Musk and Facebook CEO Mark Zuckerberg have already created a Clubhouse account and interacted with other users there. Other celebrities and high-profile people have also been using the new app.
Bloomberg reports that Clubhouse chats were breached not long after the company claimed to have stepped up security.
A week after popular audio chatroom app Clubhouse said it was taking steps to ensure user data couldn’t be stolen by malicious hackers or spies, at least one attacker has proven the platform’s live audio can be siphoned.An unidentified user was able to stream Clubhouse audio feeds this weekend from “multiple rooms” into their own third-party website, said Reema Bahnasy, a spokeswoman for Clubhouse. While the company says it’s “permanently banned” that particular user and installed new “safeguards” to prevent a repeat, researchers contend the platform may not be in a position to make such promises.Users of the invitation-only iOS app should assume all conversations are being recorded, the Stanford Internet Observatory, which was first to publicly raise security concerns on Feb. 13, said late Sunday. “Clubhouse cannot provide any privacy promises for conversations held anywhere around the world,” said Alex Stamos, director of the SIO and Facebook Inc.’s former security chief.
Chinese dissidents have been urged to be especially cautious, as data processing and audio production is handled not by Clubhouse itself but by a Shanghai-based startup.
Beijing Plans Changes to Group Selecting Hong Kong’s Leader
Chinese lawmakers are expected to vote on a proposal to transfer seats from elected councilors to pro-Beijing figures
China’s leaders plan to curb the influence of Hong Kong opposition groups on a body that selects the city’s top official, taking seats away from pro-democracy politicians and handing them to pro-Beijing loyalists, according to people familiar with the proposal.
At an annual legislative session in March, Chinese lawmakers are expected to vote on the proposed changes to the composition of a 1,200-member committee that picks Hong Kong’s chief executive, the people said.
The revisions would drastically reduce, or potentially eliminate, the 117 seats assigned to Hong Kong’s district councilors, a bloc now dominated by opposition groups, they said. These seats would be given to some of the more than 200 Hong Kong-resident members of China’s top political advisory body, the Chinese People’s Political Consultative Conference, the people said.
The plan is part of sweeping changes presaged by the chief of Beijing’s office on Hong Kong affairs, Xia Baolong, in a speech on Monday in which he said that Hong Kong’s executive, legislature and judiciary must comprise “true patriots.” In his first public speech after taking the office in early 2020, Mr. Xia called anyone who opposes the governments of China or Hong Kong “destroyers” who shouldn’t be able to exert influence in the future.
Mr. Xia didn’t specify any proposed electoral changes, but the people familiar with the plans said details of the legislation are being completed ahead of the March 5 opening of the National People’s Congress, China’s legislature. Chief Executive Carrie Lam, who has a low public-approval rating, hasn’t said whether she intends to run for a second five-year term next year.
Beijing is increasingly asserting its power over Hong Kong after violent antigovernment protests rocked the city in 2019. The National People’s Congress imposed a national-security law on the former British colony in June, and authorities have since arrested more than 100 pro-democracy figures, disqualified opposition lawmakers and delayed local legislative elections scheduled for September by at least a year.
A Hong Kong government spokeswoman didn’t immediately offer comment on the plan to reassign seats on the electoral committee.
Opposition groups have said Beijing wants to wipe out all opposition and dissent in Hong Kong and in so doing erode rights and freedoms citizens were promised for half a century following the 1997 handover of sovereignty from the U.K.
Existing rules give 10% of seats on the 1,200-member chief-executive election committee to district councilors. Pro-democracy politicians would take most of those seats on the committee when it is formed because they won district council elections by a landslide in late 2019, bolstering the minority opposition bloc on the committee and increasing its sway in deciding among candidates.
Candidates for the city’s chief executive must secure more than 600 votes on the committee to secure the position.
The National People’s Congress is expected to also consider proposals to revise rules for Hong Kong’s district-council elections, the people familiar with the plans said. Under the system, which is still under discussion, district council seats would be distributed through proportional representation over a broader geographic area, rather than the current first-past-the-post system with one seat per constituency, in which the candidate who receives the most votes wins the seat, the people said.
That would prevent such lopsided outcomes as in 2019, when pro-democracy candidates won more than 80% of seats up for grabs. District council elections are the most democratic in Hong Kong’s political system, with only half of the city’s legislature being directly elected by the populace.
District councilors typically handle neighborhood affairs but can wield some political influence through limited roles in Hong Kong’s legislature and the election committee that chooses the city’s leader.
China’s elite legislative body, the National People’s Congress’s Standing Committee, is able to pass legislation at a later date if the plans aren’t completed in time to be voted on at the annual gathering of the full legislature.
Historic Gains in Small Stocks Highlight Investor Exuberance
Investors are piling into smaller companies and other cyclical stocks as booming market rally continues
Shares of small companies are outpacing their larger counterparts by the widest margin in more than two decades. Behind their rise: confidence among investors that heavy stimulus and coronavirus vaccine deployment will boost the economy.
The Russell 2000 Index of small companies has climbed 15% and set 10 closing records so far this year, well above the S&P 500’s 4% rise. That is the largest such gap between the two indexes through Feb. 19 since 2000, according to Dow Jones Market Data.
The leadership by small companies goes back even further. Over the past six months, they are beating the S&P 500 by nearly 30 percentage points as investors anticipate greater fiscal spending from the Biden administration.
Among some of the biggest gainers: hydrogen fuel-cell company Plug Power Inc., PLUG 11.27% fast-food chain Red Robin Gourmet Burgers Inc. RRGB 2.44% and retailer Macy’s Inc. M 4.54% All three stocks have more than doubled in the past six months and are up at least 30% in 2021.
Smaller companies are more tied to the domestic economy than their large-cap counterparts, which make more money overseas. Economically sensitive sectors such as energy, materials and banking also account for more of the Russell 2000 than larger indexes. These cyclical groups were battered by the pandemic but are now powering markets to records.
The sustained leadership from small caps also shows how traders are pouring money into investments that they think have more room to climb. Large technology companies, which pulled markets higher for much of the past decade and have been among the most widely owned stocks by investors for years, have pulled back in recent sessions.
“The stars are really lined up for small caps as an asset class this year,” said Amy Zhang, a small-cap fund portfolio manager at Alger.
In another illustration of their recent leadership, the Russell 2000 is outgaining the tech-laden Nasdaq Composite index to start the year by the largest margin on record in figures going back more than three decades.
Many investors have been piling into stocks and commodities lately, anticipating that historic support from the Federal Reserve will keep boosting asset prices. The number of investors surveyed by Bank of America in a monthly poll who said they hold more stocks and commodities than the benchmarks they track hit its highest level in a decade this month.
Investors in recent weeks have also plowed tens of billions of dollars into mutual funds and exchange-traded funds tracking stocks, with some of that money flowing toward small-cap funds such as the iShares Russell 2000 ETF. IWO 2.08% Some investors including Max Gokhman, head of asset allocation at Pacific Life Fund Advisors, are now betting that small companies can continue leading markets after they trailed larger firms for years.
“There’s still a lot of ground that small caps can make up, given that they’ve lagged for most of the previous [economic] expansion,” said Mr. Gokhman, who has increased his small-cap holdings recently.
In another signal that investors expect rising economic growth and inflation, Treasury yields have climbed, pushing the yield on the benchmark 10-year U.S. Treasury note above 1.3%, its highest level in nearly a year. Yields advance as prices fall. Rising yields tend to boost bank stocks by improving lending profitability.
Keith Lerner, chief market strategist at Truist Advisory Services, raised his investments in smaller companies in November, in part to take advantage of improving cyclical sectors such as banking and industrials.
Another boost for small companies: rising energy stocks as oil prices climb. U.S. crude prices, which rally when traders expect some combination of higher fuel demand or lower supply, recently crested above $60 a barrel for the first time since the pandemic shut down the economy.
Despite the bullish economic signals, some market watchers associate the gains in small companies with rising investor speculation. Many small companies that have surged in recent weeks are still struggling to cope with coronavirus restrictions, and economic data show the recovery slowing this winter.
The recent volatility in videogame retailer GameStop Corp. and other hot stocks among individual investors helped drive big swings in the Russell 2000 and small-cap benchmarks. But many investors continue to seek fast returns in smaller companies.
Following their recent surge, Russell 2000 companies are now much more expensive than those in the S&P 500 and Dow industrials, based on earnings from the past year and expectations for the year ahead. Earnings for small-cap companies were hit much harder during the pandemic last year, but that is also a reason some analysts expect them to rise more quickly moving forward.
Still, weaker profit results for small caps signal to some analysts that the surge may have already gone too far.
Amanda Agati, chief investment strategist at PNC Financial Services Group, is skeptical that small-cap leadership can continue, noting that consumer spending and other economic indicators would have to quickly return to prepandemic levels to justify the latest gains.
The climb accelerated in November, when Joe Biden was declared winner of the presidential election, and has largely continued uninterrupted—a sign to some that speculation is playing a large role.
“[It] has really been a sentiment shift,” Ms. Agati said. “It’s basically the market’s expectation that significant fiscal stimulus is coming to the rescue.”
Marriott Bets on the ‘Bleisure’ Lifestyle
In a world changed by the pandemic, the hotel chain’s key to recovery may be mixing business with pleasure
Marriott International’s MAR 3.26% late Chief Executive Officer Arne Sorenson, who died last week, told Forbes in 2019 that he wanted his company to be “as big as possible.” His boldest move came back in 2015 when he announced that Marriott would acquire Starwood Hotels & Resorts Worldwide, adding brands that appealed to travelers’ interests and values such as design, fashion, youth and productivity. Now Marriott is hoping Mr. Sorenson’s biggest deal can be its savior.
If big was Mr. Sorenson’s mission, he succeeded. Marriott’s acquisition of Starwood made it the largest hotel chain in the world. Over the course of Mr. Sorenson’s decade-plus tenure at the top, Marriott’s stock more than tripled, keeping most of his long-term shareholders happy.
Until last year, at least, when some of its portfolio’s strengths became its biggest weaknesses. Nearly half of Marriott’s hotel rooms are now in urban areas, while upscale rooms make up about a third of its portfolio. In 2019, 60% of its room nights booked were for business travel. In 2020, the coronavirus hit urban and upscale hotels the hardest in the hotel industry, according to data from hotel-analytics firm STR. Perhaps worst of all, business travel essentially evaporated overnight. At the height of the pandemic in April, Marriott temporarily had to shut more than a quarter of its hotels, while revenue per available room was down 90% year on year.
But at least some of Marriott’s die hard investors seem relatively undeterred, even while trends remain severely depressed. On Thursday, Marriott said it swung to its first full-year loss since 2009. It also said occupancy rates in the U.S. and Canada fell from the third to the fourth quarter to just 35%, less than half of the world-wide occupancy levels the company saw in 2019 overall. Meanwhile, the company declined to give a substantive 2021 outlook, except to say that the impact of Covid-19 would continue to be material to its results.
Marriott’s stock is up 44% over the past six months and is nearly back to pre-pandemic levels, signaling investors’ faith that its business will fully rebound, and quickly. There are certainly signs this could be the case: Marriott said occupancy rates in mainland China, where the virus has eased, reached 60% in July and remained above that level for the remainder of the year. However, the company also reported high volatility around renewed increases in the virus, noting occupancy in the country has fallen to 40% year-to-date for that reason. That volatility is certainly something investors should keep in mind as they bet on Marriott’s recovery: Analysts aren’t forecasting that Marriott’s revenue will recover to anywhere close to 2019 levels this year.
But beyond the virus, investors also should consider the degree to which some percentage of Marriott’s key business travel might simply never return. While Marriott has been optimistic, noting bookings for business and group travel are beginning to rebound for later this year and into next year, any hit to long-term business trends would be a big loss for Marriott given its historical reliance on the sector.
In November, Microsoft co-founder Bill Gates predicted half of all business travel wouldn’t return post-pandemic, an indication of how business leaders more broadly could scale back those expenses. And a December report published by IdeaWorks predicted business air travel, which largely necessitates a hotel stay, could decline by as much as 36%, noting the virtual work patterns formed during 2020 and 2021 are likely to be habit-forming.
To compensate, Marriott has been working to turn its hotels into “bleisure” destinations, taking advantage of a growing lifestyle trend where consumers seek to blend leisure travel with work. Through its “Work Anywhere” promotion, Marriott is offering travelers the ability to book a hotel room for just a day, or to get a full day and a night’s worth of use out of a one-night booking. It is also catering to working families, providing children’s activities, semiprivate work areas and business facilities.
Based on Marriott’s latest results, the company still has a lot of work to do to convince today’s travelers that its hotel rooms make for safe and desirable office space in addition to a coveted place to rest their heads.
If hotel “bleisure” really is the lifestyle of the future, Marriott’s remaining investors are trendsetters.
Gapping down
In reaction to earnings/guidance:
- MGI -17%, VTRS -10.1%, ATO -4.4%
M&A news:
- FAII -13.6% (Advent International-backed ATI Physical Therapy set to go public through business combination with Fortress Value Acquisition Corp. II)
- GT -3.9% (Cooper Tire to be acquired by Goodyear Tire & Rubber (GT) in cash and stock deal for implied consideration of $54.36 per share)
- NGAC -0.9% (NextGen Acquisition Corp. has entered into a definitive business combination agreement that will result in Xos becoming a publicly listed company)
Select index ETFs showing weakness:
- QQQ -1.4%, IWM -0.9%, SPY -0.8%, DIA -0.6%
Other news:
- OTIC -52.5% (announces that the Phase 3 clinical trial of OTIVIDEX in patients with Ménière's disease did not achieve the primary endpoint, which was the count of definitive vertigo days in Month 3 for OTIVIDEX vs. placebo for the intent-to-treat population using the Negative Binomial Model)
- EBIX -32% (informs market of resignation of co's independent registered public accounting firm)
- PBR -16.6% (discloses it informs that it received a letter from the Ministry of Mines and Energy, requesting measures to convene an extraordinary general meeting in order to promote the election and replacement of a Board of Directors member, and to appoint Joaquim Silva e Luna to replace Roberto da Cunha Castello Branco)
- MOGO -12.1% (prices At-the-Market direct offering of 5,346,536 common shares at a purchase price of $10.10 per common share)
- CDXC -6.1% (entered into a securities purchase agreement for the sale of $25.0 mln of its common stock in a private placement)
- EVGN -3.6% (files for $200 mln mixed securities shelf offering)
- VLDR -3.4% (announces that Dr. Joseph B. Culkin, who has served as a member of Velodyne Lidar's Board of Directors since September 2016, has been appointed Chairman of the Board, effective immediately, succeeding David Hall)
- BA -2.8% (United (UAL) BA 777 flight experienced an engine problem)
- DIS -1% (report that NFL wants a 100% price increase, according to CNBC)
Analyst comments:
- SPWR -4.9% (downgraded to Underperform from Neutral at Credit Suisse)
- USM -2.5% (downgraded to Neutral from Overweight at JP Morgan)
- FTI -2.1% (downgraded to Equal Weight from Overweight at Barclays)
- CRON -2% (downgraded to Neutral from Sector Outperform at CIBC)
- TDS -1.9% (downgraded to Neutral from Overweight at JP Morgan)
- PSX -1.5% (downgraded to Neutral from Overweight at JP Morgan)
- VMI -1.4% (downgraded to Perform from Outperform at Oppenheimer's Kansas City Capital)
LVMH signs champagne deal with rap star Jay-Z
Luxury house plans to help musician’s Armand de Brignac brand expand globally
Luxury giant LVMH has teamed up with Jay-Z to expand the champagne house he owns in a bet that the maker of Veuve Clicquot and Krug can help the rapper’s high-end bubbly Armand de Brignac go global.
The 51-year-old musician and entrepreneur announced on Monday that he had sold half of his champagne company to Moët Hennessy for an undisclosed price.
The deal caps a successful run for the rapper with Armand de Brignac, who touted its “gold bottles of that Ace of Spade” in a 2006 music video before acquiring the company in 2014. Through savvy marketing tinged with hip-hop glitz, the brand grew to sell 500,000 bottles in 2019, which are usually priced from $300 to $950 with specially made vintages costing $100,000.
Jay-Z, whose given name is Shawn Carter, said Moët Hennessy was the “natural partner” to take Armand de Brignac to “the next level of taste and distribution”.
“We want the brand to outlast of all us,” said the 22-time Grammy winner in an interview over Zoom from his California home.
The tie-up is the latest in a string of deals between celebrities and spirits and wine companies eager to exploit the higher-priced, “prestige” end of the market. Diageo bought Canadian actor Ryan Reynolds’ minority-owned Aviation Gin brand and three other spirits for $610m last year, and in 2017 it bought George Clooney’s Casamigos tequila for $1bn.
Rapper Sean Combs has also backed Cîroc vodka and jointly invested in premium tequila brand DeLeon with Diageo.
Jay-Z disputed the idea that Armand de Brignac was a “celebrity-helmed brand”, saying the company had patiently built its fan base through word of mouth, brand ambassadors, and social media. “If this was a celebrity brand, I’d have been on billboards,” he said. “We don’t cut corners or lean on fame to sell the product. We’ve built it through passion and integrity.”
For LVMH, the partnership with Jay-Z is another example of how the group controlled by billionaire Bernard Arnault is searching for ways to expand the audience for luxury goods from Louis Vuitton handbags to premium Hennessy cognac. It recently stepped back from a partnership with pop star Rihanna on ready-to-wear clothing, but will continue to back her cosmetics and lingerie lines.
Philippe Schaus, chief executive of Moët Hennessy, said Jay-Z’s champagne brand could still grow further without losing its exclusive edge. “In the coming years, we can increase the volumes given Moët Hennessy’s 16,000 hectares of vineyards to supply grapes in the Champagne region.”
Schaus said Jay-Z’s involvement had helped broaden the appeal of champagne. “They have disrupted the category and opened it up to a new market.”
The agreement comes as champagne sales contracted sharply last year after Covid-19 shut down nightclubs and restaurants globally. Volumes were down 18 per cent to 245m bottles in 2020, while revenue contracted almost a quarter to €4bn, according to the trade group, Comité interprofessionnel du vin de Champagne.
LVMH’s wines and spirits sales fell 15 per cent to €4.8bn in 2020, while operating profit declined 20 per cent to €1.4bn.