The outlook for a rebound in travel this year has dimmed after the global pandemic ravaged the industry and hurt tourism-dependent economies, with travelers postponing plans amid vaccine delays and border restrictions.
Tourist destinations from Thailand to Iceland had been hoping Covid-19 vaccines would allow countries to reopen their borders and drive a much-needed recovery in 2021. Now, with vaccine rollouts delayed in some places and new virus strains appearing, it is looking more likely that international travel could be stalled for years.
After declaring that 2020 was the worst year for tourism on record, with one billion fewer international arrivals, the United Nations World Tourism Organization says prospects for a 2021 rebound have worsened. In October, 79% of experts polled by the agency believed a 2021 rebound was possible. Only 50% said they believed that in January, and some 41% didn’t think travel would reach pre-pandemic levels until 2024 or beyond.
James Sowane, who owns a transportation company catering to tourists in Fiji, called a staff meeting earlier this month and told employees to start looking for other jobs. He recently took advantage of a government-assistance program and had brought back some laid-off workers, optimistic that vaccines could spark a travel rebound as early as April.
But now Mr. Sowane doesn’t think tourists will return until next year, and he and his wife can’t afford to keep paying wages at their company, Pacific Destinations Fiji. He is borrowing from his bank to keep a few core employees.
When America’s amusement parks and baseball stadiums no longer must serve as COVID-19 mass vaccination sites, some investors believe that households pocketing pandemic financial aid from the government might start to splurge.
While a consumer splurge could initially boost the parts of the economy devastated by the pandemic, a bigger concern for investors is that a sustained spending spree also could cause prices for goods and services to rise dramatically, dent financial asset values, and ultimately raise the cost of living for everyone.
“I don’t think inflation is dead,” said Matt Stucky, equity portfolio manager at Northwestern Mutual Wealth Management Company. “The desire by key policy makers is to have it, and it’s the strongest it’s ever been. You will see rising inflation.”
Wall Street investors and analysts have become fixated in recent weeks on the potential for the Biden Administration’s planned $1.9 trillion fiscal stimulus package that targets relief to hard-hit households to cause inflation to spiral out of control.
Economists at Oxford Economics said on Friday they expect to see the “longest inflation stretch above 2% since before the financial crisis, but it’s unlikely to sustainably breach 3%.”
Severe inflation can hurt businesses by ratcheting up costs, pinching profits and causing stock prices to fall. The value of savings and bonds also can be chipped away by high inflation over time.
Another worry among investors is that runaway inflation, which took hold in the late 1970s and pushed 30-year mortgage rates to near 18%, could force the Federal Reserve to taper its $120 billion per month bond purchase program or to raise its benchmark interest rate above the current 0% to 0.25% target sooner than expected and spook markets.
At the same time, it’s not far-fetched to argue that some financial assets already have been inflated by the Fed’s pedal-to-the-metal policy of low rates and an easy flow of credit, and might be due for some cooling off.
U.S. stocks, including the Dow Jones Industrial Average
DJIA,
+0.09%,
S&P 500 index
SPX,
+0.47%
and Nasdaq Composite
COMP,
+0.50%
closed on Friday at all-time highs, while debt-laden companies can now borrow in the corporate “junk” bond, or speculative-grade, market at record low rates of about 4%.
Read: Stock market stoked by stimulus hopes — what investors are counting on
In addition to rallying stocks and bonds, home prices in the U.S. also have gone through the roof during the pandemic, despite the U.S. still needing to recoup almost as many jobs from the COVID-19 crisis as during the worst of the global financial crisis in 2008.
This chart shows that jobs lost to the pandemic remain near to levels seen in the aftermath of that last crisis.
Job losses need to be tamed
LPL Research, Bureau of Labor Statistics
Fed Chairman Jerome Powell said Wednesday that he doesn’t expect a “large or sustained” outbreak of inflation, while also stressing that the central bank remains focused on recouping lost jobs during the pandemic, as the U.S. looks to makes serious headway in its vaccination program by late July.
Treasury Secretary Janet Yellen on Friday reiterated a call on Friday that the time for more, big fiscal stimulus is now.
“Broadly, the guide is, does it cost me more to live a year from now than a year prior,” Jeff Klingelhofer, co-head of investments at Thornburg Investment Management, said about inflation in an interview with MarketWatch.
“I think what we need to watch is wage inflation,” he said, adding that higher wages for upper income earners were mostly flat for much of the past decade. Also, many lower-wage households hardest hit by the pandemic have been left out of the past decade’s climb in financial asset prices and home values, he said.
“For the folks who haven’t taken that ride, it feels like a perpetuation of inequality that’s played out for some time,” he said, adding that the “only way to get broad inflation is with a broad overheating of the economy. We have the exact opposite. The bottom third are no where near overheating.”
Klingelhofer said it’s probably also a mistake to watch benchmark 10-year Treasury yields for signs that the economy is overheating and for inflation since, “it’s not a proxy for inflation. It’s just a proxy for how the Fed might react,” he said.
The 10-year Treasury yield
TMUBMUSD10Y,
1.209%
has climbed 28.6 basis points in the year to date to 1.199% as of Friday.
But with last year’s sharp price increases, is the U.S. housing market at least at risk of overheating?
“Not at current interest rates,” said John Beacham, the founder and CEO at Toorak Capital, which finances apartment buildings and single family rental properties, including those going through rehabilitation and construction projects.
“Over the course of the year, more people will go back to work,” Beacham said, but he added that it’s important for policy makers in Washington to provide a bridge for households through the pandemic, until spending on socializing, sporting events, concerts and more can again resemble a time before the pandemic.
“Clearly, there likely will be short-term consumption increase,” he said. “But after that it normalizes.”
The U.S. stock and bond markets will be mostly closed on Monday for the Presidents Day holiday.
On Tuesday, the only tidbit of economic data comes from the New York Federal Reserve’s Empire State manufacturing index, followed Wednesday by a slew of updates on U.S. retail sales, industrial production, home builders data and minutes from the Fed’s most recent policy meeting. Thursday and Friday bring more jobs, housing and business activity data, including existing home sales for January.
The author of the Cracked Market blog, Jani Ziedins, last week warned the traders piling into the videogames retailer GameStop not to get greedy — or more specifically, not to be a pig.
Well.
As the chart shows, that short squeeze worked until it didn’t. Momentum fizzled after Robinhood and other brokerages limited access to trading in GameStop
GME,
-42.11%
and other securities that were surging in popularity. As to why, there will be Congressional hearings to find out the culprit — hedge funds or good-old-fashioned margin requirements — but the end result is the same.
GameStop may still have its moments. “As for what comes next, GME will be insanely volatile for weeks and even months. That means 50% and 100% moves in both directions. But at this point, a 50% bounce only gets us back to $75. Maybe we get back to $100 or even $125, but waiting for anything higher is just wishful thinking,” Ziedins says.
Here’s Ziedins’ advice now. “For those that still have money left in the market, there is no reason to ride this all the way into the dirt. Cash in what you have left, learn from this lesson, and come back to the market better prepared next time,” says the Cracked Market blogger.
Cue, Frank Sinatra.
And those traders are inexperienced. Cardify, a consumer-data firm, did a survey of 1,600 self-directed investors in GameStop and cinema chain AMC Entertainment
AMC,
-20.96%
and found that most were inexperienced investors — 44% having less than 12 months of experience, and another quarter with one to two years’ experience. Nearly half made their biggest-ever do-it-yourself trading investment in the last four weeks, according to the survey that ended on Monday.
Why? Of these overwhelmingly young and male investors, 45% said for quick financial profits. Nearly 20% said it was part of a long-term investing strategy, and 16% said to spite big hedge funds and institutional investors, according to Cardify.
The buzz
The U.S. added 49,000 nonfarm payrolls jobs in January while the unemployment rate fell to 6.3%, according to the Labor Department.
The U.S. Senate in the early hours of the morning approved a budget resolution that will allow for a fast tracking of the $1.9 trillion coronavirus relief plan proposed by the Biden administration to be approved without Republican support. Vice President Kamala Harris cast the tiebreaking vote. Johnson & Johnson
JNJ,
+0.93%
meanwhile submitted its coronavirus vaccine for Food and Drug Administration approval.
Pinterest
PINS,
+0.91%
shares jumped 11% in premarket trade, as the art-sharing social-media service reported forecast-beating earnings on a 76% jump in revenue during the fourth quarter. Another social-media service, Snap
SNAP,
-1.60%,
also beat expectations. Besides using social media, people stuck at home were playing videogames, as Activision Blizzard
ATVI,
-0.10%
gained 8% after it reported stronger earnings and bookings than expected, increased its dividend by 15%, and authorized a $4 billion share buyback plan.
Ford Motor Co.
F,
+1.52%
reported a surprise profit and topped expectations.
Exercise-bike maker Peloton Interactive
PTON,
+7.04%
slumped 7% as it did beat on earnings but flagged a rise in shipping and other costs. T-Mobile US
TMUS,
+0.95%,
the mobile service operator, also beat earnings expectations but guided to a softer 2021 than expected.
Luckin Coffee, the U.S.-listed Chinese coffee retailer, filed for bankruptcy protection, less than a year after an accounting scandal.
The market
After the S&P 500
SPX,
+1.09%
ended Thursday at a record for the sixth time in 2021, U.S. stock futures
ES00,
+0.37%
NQ00,
+0.20%
pointed to another day of gains.
The yield on the 10-year Treasury
TMUBMUSD10Y,
1.158%
moved up to 1.16%, after ending Thursday at its highest in 11 months.
The chart
The more things change, the more they stay the same. Today’s technology giants are following a similar trajectory to the radio makers of the 1920s, as well as the dot-com era around the turn of the century. “So the point is that you can be a firm believer in tech’s ability to transform our lives but still think valuations might be in a bubble,” said Jim Reid, strategist at Deutsche Bank.
Random reads
This local government meeting over Zoom
ZM,
+2.50%
turned into a chaotic, internet sensation.
Chocolate sales were 40% to 50% higher in areas with an increased number of COVID-19 cases, according to confectioner Hershey
HSY,
+0.44%.
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Shares of AMC Entertainment Holdings Inc. Cl A
AMC,
+53.65%
rocketed 53.65% to $13.26 Friday, on what proved to be an all-around dismal trading session for the stock market, with the NASDAQ Composite Index
COMP,
-2.00%
falling 2.00% to 13,070.69 and Dow Jones Industrial Average
DJIA,
-2.03%
falling 2.03% to 29,982.62. AMC Entertainment Holdings Inc. Cl A closed $7.10 short of its 52-week high ($20.36), which the company achieved on January 27th.
Trading volume (590.8 M) eclipsed its 50-day average volume of 97.8 M.
Editor’s Note: This story was auto-generated by Automated Insights using data from Dow Jones and FactSet. See our market data terms of use.
U.S. stock futures dropped, putting Wall Street on course to extend losses amid investor concerns about a slowing economic rebound and froth in markets, exemplified by the wild trading in retailer
GameStop.
Futures tied to the S&P 500 fell 0.2% after the benchmark stocks gauge posted its biggest two-day decline since October. Contracts for the Nasdaq-100 declined 0.8%, after earnings from several technology giants including
Apple
underwhelmed investors late Wednesday. Futures tied to the Dow Jones Industrial Average, which has fallen for five-consecutive days in its longest losing streak since February, were roughly flat.
The stumble in stocks follows a strong start to the year that some investors say had pushed share prices beyond levels justified by corporate fundamentals. The selloff has taken place amid wild swings in individual stocks including GameStop and
AMC Entertainment,
fueled by a battle between day traders and hedge-fund professionals.
“There is some over-excitement in the market,” said
Olaf van den Heuvel,
chief investment officer for
Aegon
Asset Management in the Netherlands, pointing to the surge in GameStop shares as one example. “It was bubble territory.”
Individual stocks remained volatile ahead of the bell in New York. GameStop shares jumped 28%, having rocketed 135% Wednesday. AMC clawed back earlier losses to climb 6.1%, extending Wednesday’s gains of more than 300%.
The stumble in stocks has taken place amid wild swings in individual shares, including GameStop and AMC Entertainment.
Photo:
Courtney Crow/Associated Press
The slow vaccine rollout and Covid-19 restrictions in major economies have prompted investors to take some money off the table, Mr. van den Heuvel added. He said Aegon would likely view the selloff as a chance to buy risky assets when markets settle down.
Technology stocks dropped ahead of the bell in New York. Shares of Apple fell 2.9% after the iPhone maker reported its most profitable three months on record but didn’t provide specific revenue guidance for the current quarter.
Tesla dropped 6.1% after the electric-vehicle maker—whose shares have soared in recent months—posted its first full-year profit but missed Wall Street’s expectations.
Facebook,
which posted record net income but warned that uncertainty from regulatory probes and ad-targeting limits could create headwinds, fell 0.8% in premarket trading.
In one sign of rising risk aversion, the yield on the benchmark 10-year U.S. Treasury note dropped below 1% for the first time since Jan. 6, before climbing back to 1.008%, according to
Tradeweb.
Bond yields fall as prices rise. Falling yields are often an indicator that investors see the economic outlook weakening.
The dollar strengthened against various currencies including the Australian dollar and the Korean won. The WSJ Dollar Index, which measures the greenback against a basket of other currencies, rose 0.2%.
Comcast,
American Airlines
and
Mastercard
are scheduled to publish results before markets open. Investors will also parse data on jobless claims—due to be published at 8:30 a.m. ET and expected to show that the number of workers seeking benefits declined last week—for fresh clues about how the economy is weathering the pandemic.
The Federal Reserve maintained its easy money policies Wednesday, saying that business activity has softened with the resurgence of Covid-19 cases.
“Any removal of fiscal stimulus any time soon could lead to a falter in the recovery,” said
Mary Nicola,
a portfolio manager for PineBridge Investments.
The selloff in U.S. stocks extended overseas. The pan-continental Stoxx Europe 600 fell 0.7%, led lower by shares of oil-and-gas and financial companies.
Shares in several heavily-shorted European stocks that shot up Wednesday, when the short squeeze spread beyond the U.S., came under pressure. Commercial real-estate firm
Unibail-Rodamco-Westfield
lost 2.4% and German drugmaker
Evotec
fell 4%.
“It is nerve-racking,” said
Remi Olu-Pitan,
a fund manager at Schroders, referring to the big moves in stock prices fueled by day traders swapping tips online. She said the volatility likely induced some professional investors, including those caught with loss-making short positions, to take money off the table, weighing on broader markets.
“You will see more violent pullbacks,” Ms. Olu-Pitan said. “There are parts of the market that are in a bubble.”
Among other individual movers,
Prudential
dropped 7.5% after the insurer said it was weighing an equity offering and would separate off its Jackson National arm in the U.S. Diageo gained 4.8%, as analysts cheered strong first-half sales in North America by the alcohol producer.
Markets broadly retreated in Asia. Hong Kong’s Hang Seng dropped 2.6%, the Shanghai Composite Index fell 1.9% and Japan’s Nikkei 225 declined 1.5%. Container-shipping giant Cosco Shipping led losses in mainland China, sliding 10%.
In a sign of jitters in Chinese markets, money-market rates continued to rise. The one-week Shanghai interbank offered rate rose 0.012 percentage point to 2.981%, its highest since 2015, according to FactSet.
Short-term borrowing costs have risen in recent days as the People’s Bank of China unexpectedly drained funds from the financial system. Earlier this week, a major business newspaper also published remarks by
Ma Jun,
an adviser to the central bank, who warned of asset bubbles emerging due to loose monetary policy.
Tai Hui,
chief Asia market strategist at J.P. Morgan Asset Management, said new pockets of coronavirus outbreaks in China had also dented investor sentiment.
Write to Joe Wallace at Joe.Wallace@wsj.com and Chong Koh Ping at chong.kohping@wsj.com
