Stock Market Commentary for 5/18/2021:
- Stock Talk:
|The Winner of the Day: GameStop|
|Retail investors seem to have found their bite again. GameStop’s rally on Monday was accompanied by $AMC (+7.47%) and other familiar “Reddit” trades. The surge caused some outlets to claim that the “meme stock trade” is regaining traction.|
|What’s Moving Pre-Market: Apartment Income ($AIRC) ↑ | Evercore ($EVR) ↓|
|The Loser of the Day: Affirm Holdings|
|Affirm continues to feel the impacts of its last earnings call, and the Peloton treadmill recall. The stock has entered bear territory, as investors are starting to feel less comfortable with the growth potential of the “buy-now-pay-later” market.|
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Top Investment Story #1: Airlines Look To Recover
What is Happening?:
Covid-19 created distinct changes in consumer behavior surrounding travel. Consumers were not willing to book as far out as they once were, due to volatile virus numbers and regulation changes. In the short term, flight pricing algorithms were unable to adapt, now, they’re stronger than ever.
Why Does This Matter:
As the return to pre-pandemic life continues, many expect the coming two quarters to bring a domestic tourism boom. While analysts have pointed to pent-up demand as a catalyst for airlines and vacation planning providers, the return of predictable human behavior could arguably be more impactful.
Algorithms set to control the number of available seats for domestic flights were unable to adjust to a void of business travel and leisure vacations in 2020. The algorithms began to offer seats at record low prices, while cancellations caused ticket reimbursements and flight vouchers to cripple airlines and planning services.
The return of the algorithm, according to Benjamin Cany, head of the airline optimization group at Amadeus, shows that predictable human behavior can cause a 1% increase in total revenues for every 10% of gained flight visibility. Recent reports suggest that domestic flight visibility is still only around 15%, while international flights remain close to 0%.
Cany remarked that, prior to the pandemic, the Amazon-like algorithms were slowly being adopted. As airlines become desperate to roar back after a year of harsh losses, the technology has been aggressively implemented and trusted. The use of effective algorithmic pricing has given industry specialists a reason to believe that 5%-8% outperformance is not only possible, but quite attainable.
Consumers will not enjoy the return of the algorithm. As in the past, it will likely withhold supply, knowing that travelers will pay up if need be, in the coming months. Such dynamic pricing schemes have been harshly criticized in other industries. It will be an item to keep note of within the coming months of travel.
Meet the Authors
Top Investment Story #2: The New Big Short
What is Happening?
Michael Burry revealed a short position he holds against Tesla ($TSLA), worth over half a billion dollars.
Why Does This Matter?
Burry is more commonly know for his actions in 2008, commemorated by the book and movie “The Big Short.” Burry held a short position against mortgage securities leading up to the 2008 crisis, where he cashed in big time for him and his clients.
Shares of Tesla fell more than 4% on Monday, bringing its month-to-date losses over 20%. Burry has openly criticized Tesla on Twitter for it reliance on regulatory credits to generate profits.
Tesla historically racked up around $1.6 billion in regulatory energy credits, aiding the firm in reporting more than four consecutive quarters of profitability. This lead to Elon Musk’s automaker to be added to the S&P 500 index.
Musk has over ten million followers on Twitter, and many people believe his actions on the platform are the cause of Telsa’s recent volatility.
Tesla shares have dropped nearly 20% in 2021, after surging a whopping 740% in 2020. Burry has made bets like this in the past with massive success, so keep an eye on Tesla.