Service sector

Small signs of growth in the U.S. service sector could help supply lines

Key points to remember:

  • Stocks live up to their roller coaster reputation
  • Is the service sector ready to take off?
  • Transportation stocks struggle to get back on the road

Wall Street appears to be living up to its reputation as a rollercoaster as stock futures point to a weaker open after yesterday’s rally. Inflation continues to be a concern for investors. European markets were rocked by European natural gas prices which soared 13% overnight. Rising prices helped spark a sell-off on Germany’s DAX (DAX:DBI) and London’s FTSE (FTSEMIB:FTSE).

ADP’s nonfarm payrolls were better than expected, but are unlikely to change analysts’ projections for Friday’s payrolls report. However, the positive news helped to reduce some of the losses in the futures markets ahead of the open. The travel and leisure sectors were among the biggest job gainers.

The employment news is another positive sign for the service sector. Yesterday, the non-manufacturing ISM PMI report showed a better than expected rise. The economy has benefited from increased attention from consumers in the services sector. Focusing on services rather than products should be an indispensable aid in supplying lines that are struggling with bottlenecks and stoppages.

Stocks rallied on Tuesday, recouping most of Monday’s losses. The Nasdaq Composite ($COMP) fell about 2% before closing up 1.25%. The index failed to break Monday’s high, which some investors see as a potential signal that the sell-off is not over yet. Tech stocks were able to rebound despite the rise in the 10-year Treasury yield (TNX). However, financial stocks gained on the day, with the Financial Select Sector Index ($IXM) rising more than 1.7% on the rising tide of yields.

Despite congressional hearing around Facebook

Facebook
(FB), the stock participated in the rally and rose more than 2%. The stock appeared relatively unfazed by the proceedings with whistleblower Frances Haugen. Many lawmakers have called for stronger laws and regulations protecting privacy, promoting competition on social media, protecting children, and transparency in social media algorithms. But users and advertisers remain silent about their future use of the social media giant.

The rise in yields was partly due to higher oil prices. Crude oil (/CL) rose another 1.88% on Tuesday, setting a new 52-week high. With so much attention on oil prices, Wednesday’s Crude Oil Inventories report may be the focus of attention.

Rising oil and gas prices infect food prices. The Chinese energy crisis makes the autumn harvest more difficult. Bloomberg reports that Beijing is working to secure energy supplies to help deal with power shortages. Corn, soybeans, peanuts and cotton are at risk if the harvest does not meet production targets.

Airlines See more turbulence

Rising oil prices are one of the highest input costs cited by Goldman Sachs

GS
analysts after American Airlines downgrade

AAL
(AAL) and JetBlue (JBLU) Wednesday morning. Airlines are sending mixed messages to investors as other airlines show positive signs with higher bookings.

Adobe Analytics found that flight bookings fell 24% from July to August and Thanksgiving flights were down 18% from 2019. However, two weeks ago US travel authorities announced that they would lift their foreign travel ban in November. German airline Lufthansa (DLAKY) reported that, and within a week it saw an increase in bookings.

Delta Airlines

DAL
(DAL) Chief Executive Ed Bastian told reporters at the International Air Transport Association (IATA) meeting on Sunday that the company had “hit rock bottom” in bookings and business travel were coming back. South West Airlines

LUV
(LUV) has been updated by JPMorgan analysts

JPM
last week and Barclays this week. Upgrades appear to have lifted the industry group, with the AMEX Airlines Index (XAI) up more than 12% from its September low.

Final destinations: Once you’ve flown to your location, what now? Briefing.com reported that many travel and leisure companies are struggling with labor shortages. MGM

MGM
Resorts (MGM) and Wynn Resorts

WYNN
(WYNN) increased its labor incentives to help deal with the problem and found it was able to meet the higher expenses.

Indeed, some stations have increased their forecasts. Entertainment Caesars

CZR
(CZR) Thomas Reeg, CEO, said the company was on track to set a profit record for the quarter. Travel + Leisure (TNL) will also raise its profit forecast for the year.

Other stations are counting on an increased need for corporate meetings due to a dispersed workforce. Global Apollo Management

APO
(APO) spends $2.5 billion on Las Vegas Sands hotels, casinos and convention centers

LVS
(LVS).

From the Beverage Cart: Constellation Brands beer and wine maker

ZST
(STZ) was down 2% in premarket trading after failing to meet analyst earnings estimates despite higher earnings projections. The company has fallen short of some of its peers. Yesterday, PepsiCo

DYNAMISM
(PEP) surprised analysts with better-than-expected revenue, earnings and guidance. However, the beverage company only traded a little higher that day. Keurig Dr Chilli

KDP
(KDP) received a similar reception last week while expressing optimism about its future growth. Conagra Food Company

GAC
(CAG) publishes its results Thursday morning. With the low number of companies reporting earnings, these consumer staples are getting extra attention and the fact is, few investors are getting too excited about food and drink. However, they are often one of the first places investors turn when the economy weakens.

The S&P Food and Beverage Select Industry Index ($SPSIFB) is down 7% from its June highs, but remained relatively flat throughout the previous market downturn. Many of these stocks are known for their stability and relatively high dividend yields, which can make them attractive to investors during downturns.

Take the road : If you’re one of those people who prefers the cup holder in your car, you’re used to seeing big tractor-trailers on the highways. Tight supply chains have increased the need for large rigs, but they also have supply chain issues. PACCAR

PCAR
(PCAR) is the maker of Kenworth, Peterbilt and DAF, and it’s struggling to bring trucks to market due to ongoing semiconductor shortages. Its truck deliveries in the third quarter fell by 7,000 units due to the lack of computer chips. However, investors appeared to be ready for the news as the stock rebounded 3.86% on Tuesday.

The Dow Jones Transportation Average ($DJT) has seen its growth stunted and has fallen more than 9% since its peak in May. However, the problem is not the lack of demand but the inability to meet it. Strong demand for transport sector services could mean that this group could hit the road again.

TD Ameritrade® Commentary for educational purposes only. SIPC member.