Written By: Pledges Julia Roberto, Jose Rubio, Jessica Wu, and Sidd Shende
Finance
American Express Sees Higher Consumer Retail Spending
After the release of their third quarter earnings Friday morning, American Express said consumer retail spending increased whereas spending on travel and entertainment remained low. 70% of spending before the pandemic was made up of non-travel and non-entertainment, and this increased about 1% in last year’s third quarter. Chief Financial Officer Jeffrey Campbell said that this slight increase was partially due to the growth in online transactions. Despite this small climb, non-travel and non-entertainment spending growth is not where it usually is at about 7-8% each year. American Express reported a revenue net of interest expense of $8.8 billion, slightly higher than the analysts’ prediction of $8.66 billion. This is a 20% drop from last year, and is attributed to the decline in member spending and the average discount rate. Third quarter earnings reduced to $1.1 billion and $1.30 per share, compared to $1.8 billion and $2.08 per share in the previous year. During morning trading, American Express’ shares fell 2.5%. Campbell is aware of a further decline in earnings, but hopes that “things will steadily get better.”
Food
Coke Is Cancelling 200 of Their Drink Brands
Coca-Cola recently announced on Thursday that they will be discontinuing 200 of their brands. The company had already mentioned getting rid of some of their drinks such as Tab, Zico, and Odwalla, but this was the first time they officially announced how many they were cutting. This will mean that Coca-Cola will be able to focus on their more profitable drinks, as this change will reduce half of Coca-Cola’s portfolio. Which brands will remain has not been finalized yet, but CEO James Quincey said that “hydration” brands will likely see cuts in their category, since their volumes fell 11% in the third quarter. The 200 beverages being cut make up only 2% of Coca-Cola’s total revenue, so this will allow the company to free up capital to invest in more popular drinks. Restaurant closures due to the pandemic have led to hard declines in Coca-Cola’s net revenue, declining by 9% to $8.7 billion at the end of the third quarter.
Retail
Gap Moves Outside of Malls
Gap Inc. recently used its 2020 investor day to outline a strategy called the Power Plan 2023. If successful, it will close 350 Gap and Banana Republic stores all across North America between fiscal 2019 and fiscal 2023. As leases expire, the company is gearing towards lowering annual rent and anticipates that by 2023, 80% of its stores will be outside of malls. After this shift, Gap expects to pay $45 million less in rent for the stores that it will continue to operate. Additionally, Gap is aiming to increase it’s Athleta brand by $1 billion and bring it up to 70% of net sales by 2023. This event has sent shares to soar by 13.7% in Thursday trading and Gap stock has gained approximately 20% for the year to date. CEO of Gap, Mark Breitbard, states that Gap has been “overly reliant on low-productivity, high-rent stores,” and that this change will accelerate the company and better focus on consumer interests. Some analysts, however, aren’t certain that Gap targets look too optimistic and believe that Athleta is a wild card as it faces an increasingly saturated market from more companies shifting over to athletic apparel. As of now, though, Gap shares now trade above their pre-pandemic level and many of its targets look enticing to investors.
Politics
DOW increases 153 points after Nancy Pelosi suggests stimulus deal is close
House Speaker and prominent Democrat told reporters that negotiations on another round of the COVID-19 fiscal stimulus were “just about there…” which led to a jump in 153 points in the DOW. This news was announced on Thursday, October 22, offsetting an early decline of US stocks in the previous weeks after news of the negotiations on another round of fiscal stimulus showed progress and her comments were released to the public. This jump in the DOW is most likely due to the recent positive comments about the stimulus package that were made by Pelosi - as compared to the negative and conflicting news that was provided in the previous weeks. Yet, there are still many obstacles surrounding the stimulus portion of US politics before the November election - because there is staunch opposition from Republicans against a massive stimulus package targeted at COVID-19 relief - causing potential ups and downs in the stock market in the near future.
Banks
Federal Reserve Boost
After a decade of low interest rates, major banks like JPMorgan Chase, Bank of America and Wells Fargo, have recently received a boost from federal reserves rate hike after the potential win from Trump in November. The rollback of the post-financial crisis could add momentum to the bank lenders benefiting them, although challenges remain with the tax reform affecting specific markets such as the auto loan market. The international political volatility such as the fallout from Brexit and the trade backlash could increase activity from banks like JPMorgan, Goldman Sachs and Morgan Stanley this also means lending banks such as Citigroup with international exposure could be affected negatively.
Works Cited
Lee, Jinjoo. "Gap's Story Looks Too Good to be True; Retailer's Plans for its Portfolio of Brands are Promising but Ambitious." Wall Street Journal (Online), Oct 23, 2020. ProQuest, http://ezproxy.lib.utexas.edu/login?url=https://www-proquest-com.ezproxy.lib.utexas.edu/docview/2453650542?accountid=7118.
Prang, Allison. “American Express Sees Higher Consumer Retail Spending.” The Wall Street Journal, Dow Jones & Company, 23 Oct. 2020, www.wsj.com/articles/american-express-sees-higher-consumer-retail-spending-11603458785?mod=markets_lead_pos3.
Wiener-Bronner, Danielle. “Coke Is Canceling 200 Drink Brands.” CNN, Cable News Network, 22 Oct. 2020, www.cnn.com/2020/10/22/business/coke-zico-tab/index.html.
Fox, Matthew. “Dow Climbs 153 Points after Nancy Pelosi Suggests Stimulus Deal Is Close | Markets Insider.” Business Insider, Business Insider, 22 Oct. 2020, markets.businessinsider.com/news/stocks/stock-market-news-today-sp500-dow-gain-pelosi-stimulus-optimism-2020-10-1029712421.
Staff, Ibd. “Banks And Financial Stocks: Latest News And Analysis.” Investor's Business Daily, 23 Oct. 2020, www.investors.com/news/banks-and-financial-stocks-news-and-analysis-bofa-wellsfargo-jpmorgan-goldmansachs/.