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The Week's Top Stories: Inflation, Virgin Galactic, and Big Bank Earnings

From Wall Street to Silicon Valley, these are the top stories that moved markets and had investors, business leaders, and entrepreneurs talking this week on Cheddar.

DOW DOWN

The Dow was unable to close above 35,000 despite strong retail sales numbers after kicking around near the milestone all week. The broader market spent the week digesting an onslaught of corporate earnings — more on that below — while also contending with economic data that had investors pumping the brakes. An important measure of inflation jumped sharply in June for the largest year-over-year gain since 2008. The consumer price index — a measure of what people pay for all goods and services — climbed 5.4 percent, due to soaring prices for things like airline tickets and used cars. For some cars, it is now literally cheaper to buy a new model right off the assembly line than one that’s a couple years old — if you can find a new ride, that is. The ongoing semiconductor shortage that has been battering the automakers and leaving dealer lots empty is finally expected to start to ease in the coming months, according to chip giant Taiwan Semiconductor.

BOFFO BANK PROFITS

Earnings season is off to a monster start, with companies from PepsiCo to UnitedHealthcare reflecting the ongoing economic reopening in their Q2 numbers. But it was the banks that blew the cover off the ball, thanks to strong consumer spending and a busy dealmaking season on the Street. JPMorgan Chase and Goldman Sachs were among the first to exceed profit expectations for the quarter (JPM more than doubled its profit from the same time a year ago.) Morgan Stanley beat expectations for all three of its investment banking, wealth management, and investment management divisions. Wells Fargo and Citigroup also beat — and yet, the sector traded sideways or lower for most of the week as investors questioned whether the momentum that took the big banks through the worst of the pandemic can last in a post-COVID world. 

YOU’RE WELCOME, DELTA

Delta Airlines reported its first quarterly profit of the COVID era — $652 million on $7.1 billion in revenue —  thanks largely to the American taxpayer. Delta says it expects to be profitable in the second half of 2021 without federal aid as leisure and business travel comes back. Delta’s load factor, a measure of how many butts it put in seats, came in above expectations at 69 percent in a sign that more passengers are returning to the skies. CEO Ed Bastian acknowledged that the rebound in air travel has been bumpy, saying call volume is higher than it’s ever been and hold times are expected to remain high until the fall due to labor shortages. Bastian also expressed frustration with the Biden administration for not opening up the country to international travel from Europe, despite "all the science why it’s safe."

BACK TO THE GYM

As more people venture out in public, what does that mean to the stocks of companies that exist to make us feel better about our bodies? It’s looking like a double-edged sword. For Peloton, which was among the hottest "stay-at-home" stocks of the pandemic, an analyst downgrade this week sent shares falling 5 percent. Wedbush warned of a "substantial deceleration" in engagement as the company now needs to compete again with gyms. It was the opposite for Lululemon, which gained after Goldman Sachs added the athleisure giant to its 'conviction list.' Goldman slapped a $447 price target on Lulu, saying its huge strides in e-commerce during the pandemic has put it in a position to thrive across channels coming out of the pandemic. Lululemon shares are up 5 percent YTD while the XRT retail ETF is up close to 50 percent on the year. 

BUMPY RIDE

Virgin Galactic completed an historic milestone last weekend, sending billionaire CEO Richard Branson to the edge of space in a flawless test flight aboard its VSS Unity ship. Investors reacted by sending the stock — which had been up 200 percent in the run-up to the mission —  back down to Earth. Shares ended the week about 39 percent lower since Branson touched suborbital space, largely due to a $500 million secondary offering that the company issued as a way to raise funds for capital expenditures (turns out building a spaceship from scratch is expensive). It is typical that a secondary offering would ding a company’s share price as it dilutes the value of shares outstanding, though the timing of Virgin’s announcement overshadowed its crowning technical achievement. Jeff Bezos and his privately held Blue Origin continue the new space era with an unpiloted civilian mission on Tuesday. (Check out Cheddar's full coverage!)
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