>>> US Close Dow +0.17% S&P +0.39% Nasdaq +0.34% Russell +1.02%

Closing Stock Market Summary

The S&P 500 advanced 0.4% on Friday, as upbeat economic data helped extend the market's record run. The Dow Jones Industrial Average (+0.2%) and Nasdaq Composite (+0.3%) also closed at new highs, while the Russell 2000 (-0.3%) finished lower. 

Overall, it was a relatively subdued session that seemingly had the potential for even more gains. For instance, housing starts rose to their highest level in 13 years in December, China's industrial production rose more than expected in December, and a couple of influential hedge fund managers told CNBC they were bullish on stocks. 

Buyers, however, appeared exhausted after another great week of gains. There were still more buyers than sellers given the amount of positive news in the market, as nine of the 11 S&P 500 sectors finished in the green. The communication services (+0.9%) and utilities (+0.8%) sectors outperformed, while the energy sector (-0.7%) underperformed. 

The industrials sector (unch) also included its fair share of laggards. Boeing (BA 324.15, -7.85, -2.4%) extended losses on a report of another software issue, and several transportation stocks fell after issuing relatively disappointing earnings results and/or guidance. 

Expeditors International (EXPD 76.82, -4.52, -5.6%), J.B. Hunt (JBHT 114.68, -5.08, -4.2%), and CSX (CSX 76.40, -0.34, -0.4%) let investors down, while KC Southern (KSU 166.52, +4.89, +3.0%) shareholders were able to look past its earnings miss. 

Separately, Alphabet (GOOG 1480.39, +28.69, +2.0%) and Apple (AAPL 318.73, +3.49, +1.1%) benefited from a pair of positive analyst recommendations. UBS raised its GOOG price target to $1675 from $1460. Morgan Stanley raised its AAPL price target to $368 from $296.

U.S. Treasuries finished mixed amid some curve-steepening activity. The 2-yr yield declined one basis point to 1.56%, while the 10-yr yield increased three basis points to 1.84%. The U.S. Dollar Index increased 0.3% to 97.62. WTI crude increased 0.1% $58.55/bbl. 

Reviewing Friday's economic data:

  • Total housing starts surged 16.9% m/m in December to a seasonally adjusted annual rate of 1.608 million (consensus 1.380 million), driven by an 11.2% increase in single-family starts and a 30% increase in multi-unit starts. Building permits, meanwhile, declined 3.9% m/m to 1.416 million (consensus 1.460 million), with single-family permits down 0.5%.
    • The key takeaway from the report is the huge starts number and the recognition that the largest homebuilding region -- the South -- saw an impressive 11.3% increase in single-family starts. That's a good sign as it relates to potential supply coming online and it's good simply as a positive growth indicator.
  • Industrial production declined 0.3% in December (consensus +0.1%), pressured by a 5.6% decline in utilities output that stemmed from unseasonably warm weather. The capacity utilization rate fell to 77.0% from an upwardly revised 77.4% (from 77.3%) in November.
    • The key takeaway from the report is that manufacturing output increased 0.2% despite a large 4.6% drop in the output of motor vehicles and parts. Excluding the motor vehicle sector, factory output increased 0.5%.
  • The preliminary reading of the University of Michigan's Index of Consumer Sentiment for January declined to 99.1 (consensus 98.9) from 99.3 in November.
  • Job openings declined to 6.800 million from a revised 7.361 million (from 7.267 million) in November, according to the JOLTS report.

As a reminder, the market will be closed on Monday for Martin Luther King Jr. Day. 

  • Nasdaq Composite +4.6% YTD
  • S&P 500 +3.1% YTD
  • Dow Jones Industrial Average +2.8% YTD
  • Russell 2000 +1.9% YTD

WSJ : 98.6 (37C) Degrees Fahrenheit Isn’t the Average Any More

98.6 Degrees Fahrenheit Isn’t the Average Any More
Human body has changed over time, new study shows

Nearly 150 years ago, a German physician analyzed a million temperatures from 25,000 patients and concluded that normal human-body temperature is 98.6 degrees Fahrenheit.

That standard has been published in numerous medical texts and helped generations of parents judge the gravity of a child’s illness.

But at least two dozen modern studies have concluded the number is too high.

The findings have prompted speculation that the pioneering analysis published in 1869 by Carl Reinhold August Wunderlich was flawed.

Or was it?

In a new study, researchers from Stanford University argue that Wunderlich’s number was correct at the time but is no longer accurate because the human body has changed.

Today, they say, the average normal human-body temperature is closer to 97.5 degrees Fahrenheit.

“That would be a huge drop for a population,” said Philip Mackowiak, emeritus professor of medicine at the University of Maryland and editor of the book “Fever: Basic Mechanisms and Management.”

Body temperature is a crude proxy for metabolic rate, and if it has fallen, it could offer a clue about other physiological changes that have occurred over time.

“People are taller, fatter and live longer, and we don’t really understand why all those things have happened,” said Julie Parsonnet, who specializes in infectious diseases at Stanford and is senior author of the paper. “Temperature is linked to all those things. The question is which is driving the others.”

To test their hypothesis that today’s normal body temperature is lower than in the past, Dr. Parsonnet and her research partners analyzed 677,423 temperatures collected from 189,338 individuals over a span of 157 years.

The readings were recorded in the pension records of Civil War veterans from the start of the war through 1940; in the National Health and Nutrition Examination Survey I conducted by the U.S. Centers for Disease Control and Prevention from 1971 through 1974; and in the Stanford Translational Research Integrated Database Environment from 2007 through 2017.

Overall, temperatures of the Civil War veterans were higher than measurements taken in the 1970s, and, in turn, those measurements were higher than those collected in the 2000s.

“Two things impressed me,” Dr. Parsonnet said. “The magnitude of the change and that temperature has continued to decline at the same rate.”

A complicating factor for the comparisons is that the Wunderlich and Stanford data used different methods and instruments.

Human temperature can be measured in the mouth, armpit, ear or rectum. Ear and rectal temperatures tend to be half a degree higher than oral temperature. Axillary temperature, taken in the armpit, tends to be one degree lower.

Wunderlich preferred the axillary method but used a thermometer that was calibrated higher than normal, according to Dr. Mackowiak, who critiqued the work in the Journal of the American Medicine Association in 1992. (He recommended abandoning Wunderlich’s standard.)

The methods used in Dr. Parsonnet’s data vary. The Civil War records could have included a mixture of axillary and oral temperatures taken with mercury thermometers—the researcher couldn’t tell for sure. The precision of the instruments is also unknown. The 1970s measurements used readings from oral mercury thermometers exclusively. And the data from the 2000s used digital oral instruments.

Age, time of day, physical activity and other factors, which the researchers couldn’t always account for, also affect body temperature.

Still, Dr. Parsonnet is convinced of the validity of the aggregated data.

“Wunderlich did a brilliant job,” Dr. Parsonnet said, “but people who walked into his office had tuberculosis, they had dysentery, they had bone infections that had festered their entire lives, they were exposed to infectious diseases we’ve never seen.”

For his study, he did try to measure the temperatures of healthy people, she said, but even so, life expectancy at the time was 38 years, and chronic infections such as gum disease and syphilis afflicted large portions of the population. Dr. Parsonnet suspects inflammation caused by those and other persistent maladies explains the temperature documented by Wunderlich and that a population-level change in inflammation is the most plausible explanation for a decrease in temperature.

Although he doubts the quality of data, Dr. Mackowiak finds this hypothesis persuasive.

“The conclusion is the average temperature of Americans has dropped over that time,” Dr. Mackowiak said. “If that observation is real, her explanation is very reasonable.”

Given the accumulation of evidence, Frank Rühli, director of the Institute of Evolutionary Medicine at the University of Zurich, who peer-reviewed the Stanford study, suggested the medical establishment should respond.

“Medical norms and guidelines and thresholds for interventions need to be adjusted,” Dr. Rühli said. “That is the major issue.”

This is important for researchers and physicians who need to make decisions about when and how to treat patients. But for most of us, a thermometer reading matters less than how we feel.

“If you’re sick, you’re sick,” Dr. Parsonnet said, “regardless of your temperature.”

FT : VW close to buying large stake in Chinese battery company

VW close to buying large stake in Chinese battery company
Carmaker in talks over Guoxuan deal as it seeks more control over electric supply chain

Volkswagen is close to buying a large stake in the Chinese battery company Guoxuan as it seeks to take more control over the supply chain for electric vehicles.

The German carmaker, which already has a strategic partnership with China’s biggest battery company Contemporary Amperex Technology (CATL), is in advanced talks to buy up to a fifth of Guoxuan, according to a person briefed on the matter.

A decision is expected within weeks. The talks were first reported by Reuters.

The world’s largest carmaker is embarking on a €33bn electric vehicles offensive, but has struggled to secure the raw materials for the batteries it needs to achieve its aim of selling 3m electric cars by 2025, underlining the importance of its move to buy a stake in Guoxuan.

If VW’s longer-term plan to produce 26m electric vehicles by 2029 is to be realised, the company would have to secure more batteries than the total currently produced worldwide. 

Last year Volvo Cars, a niche carmaker that produces 600,000 vehicles a year, struck a deal to buy batteries from LG Chem and CATL until 2028, an agreement it estimated required “more or less the same amount of batteries as the whole of the global supply” during 2018.

While many carmakers have reached long-term deals to buy batteries from suppliers, VW’s pending deal is the first time that a traditional manufacturer has proposed taking a stake in a cell maker directly.

Guoxuan, which is listed in Shanghai, is based in Hefei, a city where VW’s joint venture with JAC already builds battery electric vehicles. 

China, which is the world’s largest electric car market, has targets that require carmakers to meet quotas for “new energy vehicles” that do not pollute. Tesla has already begun producing cars in the country at a new Shanghai facility.

A 20 per cent stake in Guoxuan would be worth about $560m, and make the German group the company’s second-largest shareholder after its founder, Li Zhen, who controls a quarter of its shares through a holding company.

The insertion into the supply chain is the latest unconventional move from VW, which has sought to rebuild its reputation since the 2015 diesel scandal.

This week VW’s chief executive Herbert Diess said “the time of classic car manufacturers is over” as he laid out a radical strategy that would see the car goliath, which sold almost 11m vehicles in 2019, develop its own software and remake its relationship with suppliers.

Traditionally, carmakers develop a small number of key parts — such as engines — themselves, relying on a web of supply groups to provide more commoditised items from windshields to gearboxes.

When making electric cars, most carmakers plan to build battery packs, the equivalent of an electric car’s engine, themselves, with the thousands of cells that make up the packs purchased from a third party group, such as LG Chem or CATL.

VW declined to comment on the talks with Guoxuan.

Unlike other German carmakers, VW has invested in its own battery cell facilities, joining up with Swedish company Northvolt to build a factory in Salzgitter.

FT : Tesla’s soaring share price defies the bears

Tesla’s soaring share price defies the bears
Rally leaves many analysts struggling to justify lower forecasts but raises questions

If Tesla has finally put worries about operational chaos and financial instability behind it, how high might its share price fly?

That question has transfixed Wall Street in recent weeks and offered a powerful vindication of chief executive Elon Musk following a controversial period. The US electric-car maker’s market value soared to almost $99bn several days ago, up from a low point of $32bn in the middle of last year.

The sharp rally has left most Wall Street analysts struggling to justify their much lower share price forecasts — while giving the Tesla bulls new confidence to predict that the stock will move even higher.

In the middle of 2018, Pierre Ferragu, an analyst at New Street Research, came up with the Street’s most ambitious forecast at $530 a share. That price was topped for the first time this week. Mr Ferragu now argues that the company’s clear technology and product lead over other carmakers could justify a share price of as much as $2,000.

But he also warns that failure to maintain that technology edge would turn Tesla into just another carmaker, with a mediocre valuation to match. He says the one thing that has not changed after the latest rally is that “the spread between the bull case and the bear case is going to remain extreme”.

Tesla’s share price breakout has been a painful moment for the speculators who have long bet against Mr Musk.

According to research group S3 Partners, losses suffered by short sellers since the start of the year have already topped $3.27bn. There has been relatively little short-covering in the face of the latest rally, meaning that the price spike has been the result of new bets on the company rather than a short squeeze, said Ihor Dusaniwsky, managing director at S3.


The short interest in Tesla has steadily ebbed since last summer as a more positive mood has taken over. Shares out on loan to investors betting that the price will decline have dropped from 43.7m in the middle of last year, or 24 per cent of the outstanding stock, to 26.3m at the end of 2019, the lowest level in a decade.

After surprisingly strong quarterly earnings three months ago, the company’s vehicle delivery numbers early this month set the tone for the new year and fuelled the latest $100 leg of the share price rally. The same week, Tesla started delivering vehicles to customers in China from a new production plant in Shanghai, less than a year after it broke ground there.

China’s electric-car market is struggling as buyer incentives decline, and an economic slowdown has left a cloud over demand this year. But the speed at which Tesla has launched production stands in stark contrast to the delays in the US since the launch of the Model 3 in 2017.

The recent performance has helped to dispel worries about Tesla’s ability to operate as a volume manufacturer and increased confidence in the next steps in its expansion: the launch of the Model Y crossover this year and its first pick-up truck in 2021, with further geographic expansion planned through a plant near Berlin.

“It has become a more credible execution story,” said Philippe Houchois, an analyst at Jefferies. He attributes the success to a more mature attitude on the Tesla chief executive’s part: rather than trying to reinvent everything in the car-manufacturing process, for instance, Mr Musk has backed off from his overly ambitious automation plans, he said.

Along with the heightened confidence in its operational performance, Tesla is benefiting from a new-found confidence in its financial stability. Less than a year ago, bankruptcy rumours were rife, adding to huge volatility in the stock. They were stoked by Mr Musk’s personal insistence that Tesla would not turn to Wall Street for more money, even as its cash reserves dwindled.

In the end he capitulated, raising more than $2bn last May, including selling shares at less than half their current level. It was a climbdown, but served to end the financial doubts. Since then Tesla has strung together two quarters of positive operating cash flow totalling $1.6bn, and this year Wall Street is expecting it to report net profits of about $1bn, after losses totalling nearly $5bn over the previous five years.

If Tesla’s more reliable financial and operational performance have put the business on a stronger footing, however, it cannot entirely explain a share price that has flown so far ahead. At close to $100bn, its market capitalisation is nearly double that of General Motors, a company with net income of $8bn last year and nearly 20 times the number of vehicle sales. 

Tesla is also facing serious competition for the first time, as bigger carmakers get serious about electric vehicles. “If it remains an overly competitive industry with too many players, all the advantages will be competed away,” said Mr Houchois.

Adam Jonas, the Morgan Stanley analyst who was once among the biggest Tesla bulls, is one of those warning of a moment when Tesla loses the lustre it enjoys as a hot tech company. Late last year, he stuck to his share price target of $250, arguing that the current burst of enthusiasm for the stock will be followed by a moment when the company is seen, and valued, “more like a traditional auto OEM”.

The prospect that Tesla’s early lead in electric vehicles will erode has led some analysts to search for other reasons beyond the car market to justify its soaring shares.

Chief among these is using the fleet of privately owned Teslas already on the roads to launch a robotaxi service. Mr Musk has claimed that Tesla owners will soon be making extra money by allowing their private cars to operate as driverless taxis — something that he predicted last year would mark the company’s transition to sustained profitability for the first time.

Fund manager Ark Invest predicted this week that the robotaxi business could lift Tesla’s shares to as much as $6,000. But with the prospect of fully autonomous vehicles receding further into the future, most analysts have remained wary of attributing any value to this hypothetical new market.

A second argument for Tesla’s higher valuation lies in Mr Musk’s claim that it is set to become a broad-based alternative energy conglomerate. According to Mr Houchois, selling batteries for other uses could open up big new markets as the company capitalises on its technology and large-scale cell production. But this is yet to take shape, and another new market that Mr Musk has been enthusiastic about — selling solar roof tiles — has failed to take off. 

According to some fans of Tesla, the justification for the company’s soaring stock price comes from a more prosaic direction: its ability to produce and sell electric cars that are far better than others on the market.

Mr Ferragu argues that Tesla has established a product edge that will be much harder for rivals to match than is generally recognised given the steady improvements it has made in the seven years since the launch of its Model S. He predicts that maintaining that lead could leave it with a 30 per cent share of electric-car sales by the middle of the decade.

Given the motor industry’s low margins and price/earnings multiples, even that level of success might not justify the company’s soaring valuation.

However, fans like Mr Ferragu maintain that Tesla can change the economics of the business itself, with a new model based on things such as internet-based sales and a heavy software component that will boost the value of its cars.

TechCrunch : Elon Musk shares details about SpaceX’s Starship, including estimat

Elon Musk shares details about SpaceX’s Starship, including estimated 20 to 30 year service life


Elon Musk appears to be pretty focused on Starship right now, sharing photos of the work being done on the orbital Starship prototype designed ‘SN1,’ which is currently under construction at SpaceX’s Boca Chica, Texas facility. The CEO answered a volley of questions over Twitter on Thursday evening, providing more details about Starship and how it will eventually need to work in order to achieve Musk’s goal of making humans an interplanetary species with a colony on Mars.

He’s discussed some of this before, but Musk reiterated that Starship will need to operate on a brisk schedule ferrying many megatons per year of cargo to the Red Planet in order to establish and maintain a human presence there. Musk said that the spacecraft is being designed with the plan of flying it for an average of three flights per day, each carrying over 100 tons per flight, for a total of over 1,000 flights per year per vehicle.

Ultimately, Musk says that he hopes to achieve a construction rate of 100 Starships being produced per year, with a goal of hitting 1,000 in total in service over the course of the next decade, which can transport as much as 100 megatons per year in cargo, or about 100,000 people “per Earth-Mars orbital sync” in terms of human passengers. That translates to a schedule of roughly once every two years, when Earth and Mars are closest to one another because of the coincidence of their respective orbits around the Sun.

Musk clarified in response to another question that the way this will work will be getting the Mars fleet into a staging orbit above Earth, where they can be refuelled in space prior to their synchronized departure. Then, once every 26 months approximately 1,000 ships will all depart over the course of 30 days for their Mars transit. While Starship will require an in-orbit refuel to make the trip to Mars leaving from Earth, because of how much boost is need to exit Earth’s atmosphere, the same is not true for the reverse trip, Musk pointed out.

SpaceX’s goal, according to Musk, is to ultimately send one million people to Mars by 2050, something Musk also confirmed in another reply to a Twitter use. The goal is to make it common enough and affordable enough that “anyone can go if they want, with loans available for those who don’t have money.” Plus, Musk also noted that there “will be lots of jobs on Mars” for potential colonists.

As Musk has emphasized at every step of SpaceX’s development, reusability in the Starship system is key. Each Starship will have a target useful life of around 20 to 30 years – similar to commercial aircraft today, he noted. That’s required if the company hopes to be able to operate at the scale described above, while doing so in a way that’s anywhere near economically viable.

Starship is currently in development, with a new prototype under construction at its Texas facility. The company already built a subs-scale demonstrator without a nose cone to test the new engines it’s working on for Starship, and demonstrated those working successfully for controlled low-altitude flight. It built a larger prototype that it originally said would be used for high-altitude testing, but that one failed during an early pressure test and now it has moved on to a third version with a refined and improved design, which the company says will be used for orbital flight testing this year.

NYT : The Bernie Sanders Fallacy

The Bernie Sanders Fallacy
No, Virginia, there is no class war.

This is a golden age for “Theyism.” This is the belief that there is some malevolent, elite “they” out there and “they” are destroying life for the rest of us.

There is Donald Trump’s culture-war Theyism: The coastal cultural elites hate genuine Americans, undermining our values and opening our borders. And there is Bernie Sanders’s class-war Theyism: The billionaires have rigged the economy to benefit themselves and impoverish everyone else.

Each of these stories takes a genuine tension in society and blows it up into an all-explaining cartoon in which one part of America is trying to destroy the other part.

The G.O.P. has been swallowed by Trump’s culture war, and many Democrats seem to be rushing to join Sanders’s class war.

These Democrats are doing this even though it’s political suicide. Class-war progressivism always loses to culture-war conservatism because swing voters in the Midwest care more about their values — guns, patriotism, ending abortion, masculinity, whatever — than they do about proletarian class consciousness.

Democrats are doing this even though the Sanders class-war story is wrong.

Sanders starts with a truth: Workers need more bargaining power as they negotiate wages with their employers. But then he blows this up into an all-explaining ideology: Capitalism is a system of exploitation in which capitalist power completely dominates worker power. This ideology crashes against the facts.

In the first place, over the past few years wages for workers toward the bottom of the income stream have been rising faster than wages for those toward the top. If the bosses have the workers by the throat, how can this be happening?

Second, wages are still generally determined by skills and productivity. For example, Edward Lazear of Stanford University finds that between 1989 and 2017, productivity in mostly high-skill industries rose by roughly 34 percent and wages in those industries rose by 26 percent. Productivity in industries with mostly less-skilled workers rose by 20 percent while wages grew by 24 percent.

As Michael Strain of the American Enterprise Institute puts it, capitalism is doing what it’s supposed to do. It’s rewarding productivity with pay, and some people and companies are more productive. If you improve worker bargaining power, that may help a bit, but over the long run people can’t earn what they don’t produce.

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Third, and most important, most of the increase in earnings inequality has happened between companies, not within them. As John Van Reenen of M.I.T. has found, all over the world superstar businesses are racing ahead of their competitors. As those companies grow more productive, they earn more profit per employee and pay their workers more. Companies that can’t match that productivity don’t, and their workers lag behind.

A recent Brookings Institution/Chumir Foundation report also notes that there is a growing productivity gap between superstar companies and everybody else. Whether it is in tech, retail, manufacturing, utilities or services, productivity growth at the leading companies in each industry has remained very strong. Those productive businesses are capturing larger and larger market shares. But productivity is not growing fast among the lagging companies. Workers in those businesses suffer.

Today’s successful bosses are doing what they should be doing: increasing productivity, growing their businesses and offering great service. A side effect of their efficiency is they spend a smaller share of their revenue on labor even while raising their workers’ wages. In a global information-age economy, the rewards for being best are huge.

Thus, the core problem is not capitalists exploiting their workers; it’s the rise of productivity inequality. It’s the companies and individuals who don’t have the skills to take advantage of new technologies.

The real solution, therefore, is not class war to hammer successful businesses. It’s to boost and expand productivity for everybody else. That’s done the old-fashioned way — by having better schools and better vocational training, by having more open competitive markets, by creating incentives to expand investment, by making sure superstar businesses don’t use lobbyists to lock in their advantages.

I understand if you want to stick to an us-versus-them political ideology. It’s emotionally satisfying to base your political ideology on blaming people you dislike. In fact, I strongly recommend Michael Lind’s new book, “The New Class War,” which is the best version of us/them.

Lind makes a lot of vague generalizations about the “managerial elite,” which he blames for our problems. But at least he’s interesting and provocative. At least he understands that a politically plausible “Theyism” is economically left and socially right — combining the culture war and class war into a tidy narrative.

But if you want to deal with our real problems, stop the us/them warfare and start dealing with productivity inequality.

Successful executives are doing what’s best for their companies, gathering as much talent as they can. This isn’t evil. It’s not exploitation.

The job of public policy is to make it easier for everybody to do what successful people are doing. Productivity is the key to national prosperity. Every time we increase productivity for one person, we all thrive a little more, together.

>>> US Gapping down

Gapping down
In reaction to disappointing earnings/guidance:

  • EXPD -7.8%, JBHT -5.6%, OZK -5.1%, CSX -2.9%, FAST -2%, CDE -1% (Q4 production and sales), PBCT -0.8%

Other news:

  • BYND -0.8% (SYY launches meatless burger patty)

Analyst comments:

  • UNFI -4% (downgraded to Underweight from Equal Weight at Wells Fargo)
  • SFM -3.4% (downgraded to Underweight from Equal Weight at Wells Fargo)
  • ARMK -3.2% (downgraded to Hold from Buy at Berenberg)
  • CDW -2.6% (downgraded to Underweight from Equal-Weight at Morgan Stanley)
  • CAKE -2.1% (downgraded to Underweight from Equal-Weight at Morgan Stanley)
  • EBAY -1.4% (downgraded to Underweight from Equal Weight at Wells Fargo)
  • TWTR -1.3% (downgraded to Neutral from Buy at UBS)
  • IBM -1.1% (downgraded to Equal-Weight from Overweight at Morgan Stanley)
  • PII -1% (downgraded to Neutral from Outperform at Wedbush)
  • ADSK -0.6% (downgraded to Perform from Outperform at Oppenheimer)

Bus. Of Fashion : What's Really Driving Success in the Fine Jewellery Market?

What's Really Driving Success in the Fine Jewellery Market?
From Cartier to Boucheron, established houses are doubling down on entry-price, 'affordable' items in order to boost their top lines.

LONDON, United Kingdom — Roman mythology is more likely to appear in the narratives of luxury houses than in their business memos. Yet the two-faced god Janus Bifrons is a fitting allegory for the strategy behind many of today's most successful jewellery brands.

In recent years, these companies have serviced the super-rich with lavish, gem-encrusted pieces priced over $100,000 – items defined as "high" jewellery – while sating the masses’ voracious appetite with designs that start at $1,500, sometimes even less.

As the middle class grows in developing countries, sales of entry-level jewellery pieces are expected to balloon. Cultivating desirability at opposite ends of the price spectrum propelled the branded jewellery market to €21 billion ($23 billion) in 2019, up 133 percent from €9 billion in 2010, according to Bain & Company. (Total fine jewellery sales, including unbranded jewellery — or items sold at mom-and-pop stores without a label — were €200 billion last year.)

Because so much of the jewellery sold in the world remains unbranded, there is room for major names to grab additional market share. The past few years, however, have shown that the opportunity lies in entry-price lines, not six-figure pieces. Products above $100,000, while important, typically represent just 5 percent to 20 percent of established jewellers’ overall sales, according to estimates by market sources, while pieces that are priced above $30,000 represent about 30 percent.

That upper-end segment of the fine jewellery market is “volatile,” said Jean-Christophe Babin, chief executive at Italian jewellery house Bulgari, which LVMH acquired in 2011. “One year it can grow by 50 percent and the following decline by 30 percent.”

On the other hand, “precious” jewellery — more affordable items, including engagement rings, gold bracelets and the like — typically make up more than half of a house’s sales and are a more consistent business, with consumers purchasing multiple items over the course of a lifetime.

“Iconic products are what make an international jewellery brand,” said Boucheron Chief Executive Hélène Poulit-Duquesne, whose $3,957 “Quatre” ring is the Kering-backed brand’s bestseller. “The daily business is sustained with icons.”

In January 2019, Boucheron launched "Jack," a bracelet that fastens like a cable cord and starts at $4,620 for the 18K yellow gold version. “Jack is also important for us in terms of storytelling and the expression of our brand,” Poulit-Duquesne said. “We want our jewellery to be playful and to express the personality of the women who wear them."

For Jack’s launch, Boucheron installed photo booths in its stores where clients could snap — and crucially share — pictures of themselves wearing the new design, following the examples of the influencers such as Doina Ciobanu, with whom the brand partnered.

Status symbol products — such as the Cartier “Love” bracelet, which starts at $4,050 for the small version in yellow gold, or a Tiffany solitaire diamond, which can be purchased for as little as $1,420 for the classic Tiffany “Setting” in gold — are associated with important life milestones, from births and birthdays to weddings and anniversaries.

“An entry product has the potential to become the first [purchase] in a lifetime of branded memories,” said Rebecca Robins, global luxury lead at Interbrand and co-author of Meta-Luxury: Brands and the Culture of Excellence.

Of course, entry-price lines have long been a moneymaker for fine jewellery brands. American jeweller Tiffany & Co., which LVMH made a deal to acquire in 2019 for $16.2 billion, is best known for its silver offering, and relies heavily on its engagement and entry-price lines. Engagement jewellery alone made up 26 percent — or nearly $1.2 billion — of the brand's $4.4 billion in net sales in its 2018 fiscal year.

But several more houses, many of which traditionally sit further upmarket than Tiffany, have also introduced a range of more affordable designs over the past two years. Dior Joaillerie added more accessible designs to its “Rose des Vents” line, including single earrings starting at $920 around the 2019 holiday season. This month, Chaumet is introducing “Jeux de Liens Harmony,” a collection of medallions priced from $1,490.

In the fall of 2019, high-jewellery specialist Graff launched its diamond collection “Threads,” which starts at $8,500 for a diamond pendant and is aimed at clients who “wear diamonds not just for special occasions but as everyday jewels also,” said Chief Executive François Graff.

While there are far more expensive items in the collection — including a $95,000 bracelet — advertising Threads' entry-price pendant has enabled the London-based, family-owned company to lure a wider audience into its stores, sparking a rise in enquiries via the brand's website, as well as its social platforms. Graff noted a "marked increase in self-purchasing, especially across our jewellery collections, with women no longer waiting to be gifted diamonds."

However, the biggest splash may have been made by Cartier, whose “Clash” line launched in the spring of 2019 and, starting at $2,120 for a ring, is already a certified hit for the Richemont-owned brand.

The growing middle class, especially in Asia, is enthralled. According to the latest luxury market report released by Bain & Company, entry-price jewellery will fuel the luxury jewellery customer base growth until 2025.

For jewellers, scaling an entry-price line is also easier from a production perspective. While an item of high jewellery can take thousands of hours to be completed and sometimes many years — especially when sourcing unique precious stones — semi-accessible precious jewellery is easier to craft.

And while high jewellery often requires a great deal of pomp and circumstance in order to close a sale — Bulgari recently privatised the whole island of Capri to present its new flamboyant “Cinemagia” collection to about 200 clients — affordable icons sell effortlessly in stores or with a few clicks online.

They are also sold through different channels. While high jewellery brands tend to prefer doing business in their owned boutiques and select multi-brand department stores, the retail plan for these lighter lines is looser. Cartier launched “Clash” in the UK via a pop-up store in Millennial magnet Selfridges and in Russia at multi-brand fashion boutique Aizel.

But perhaps more than anything, these gateway purchases serve as a marketing tool similar to the way a keychain does at a leather goods label. They are also advertised differently, with campaigns featuring social media stars like Bella Hadid, who fronts Bulgari’s “B. Zero1” collection, Cara Delevingne (Dior’s “Rose Des Vents”) and Gigi Hadid (Messika).

“Cultivating desirability, but excluding affordability, would lead only to frustration,” said Jean-Marc Mansvelt, chief executive of Chaumet, who added that many clients first buy affordable items then trade up to more expensive creations. “Commitment grows with time.”

Diffusion lines may have proven good for business, but can their ubiquity undermine the brand’s promise of exclusivity and ultimately diminish the fantasy? Some jewellery houses with “price depth” have managed to maintain credibility while selling items across price points. But this magic can only be achieved when “innovation remains key, and a good balance is maintained between high-end and entry-price,” said Luca Solca, an analyst at Bernstein Research.

It’s a challenge that LVMH faces with Tiffany, which has a bifurcated business that doesn’t always jibe into one brand message. Some argue that accessible silver jewellery, costing as little as $135 for Paloma Picasso's "Graffiti" single earring, diminished the desirability of its pricier offering, which reaches well into the six figures. Now under the LVMH fold and protected from the pressure of delivering quarterly results, the American jeweller may be able to define a clearer identity that properly reflects both sides of the story.

>>> US Gapping up

Gapping up
In reaction to strong earnings/guidance:

  • PRGS +10.5%, FHN +5%, GPS +4.6% (provides upbeat guidance; also co cancels its previously announced plan to spin-off Old Navy), STT +4.1%, RIO +3.2% (provides production update), SLB +3%, CFG +2.7%, BEDU +1.3%

Select metals/mining stocks trading higher:

  • SBGL +3.4%, BBL +2.4%, BHP +2%, GFI +1.2%, FCX +0.9%, MT +0.7%, GDX +0.6%, . 

Other news:

  • TLRD +12.8% (to sell the Joseph Abboud Trademarks to WHP Global for $115 ml)
  • LNDC +2.4% (Legion Partners increases holding and discloses 5.15% active stake)
  • LDOS +0.7% (awarded contract by U.S. Army)
  • SYY +0.7% (launches Plant-Based Meatless Burger Patty in the US)
  • NVO +0.5% (FDA approves additional indication for Ozempic)

Analyst comments:

  • PINS +4.6% (upgraded to Overweight from Equal Weight at Wells Fargo)
  • GRPN +3.2% (upgraded to Buy from Neutral at UBS)
  • ZEN +2.8% (upgraded to Outperform from Perform at Oppenheimer)
  • WDC +2.2% (upgraded to Outperform from Neutral at Wedbush)
  • YUM +1.8% (upgraded to Overweight from Equal-Weight at Morgan Stanley)
  • AA +1.2% (upgraded to Buy from Hold at Deutsche Bank)
  • QCOM +1.2% (upgraded to Buy from Neutral at Citigroup)
  • ADBE +0.9% (upgraded to Outperform from Perform at Oppenheimer)