HOT AIR BALLOON FLIGHT

By Julia Horowitz • Monday, October 11

Good morning. In today's newsletter: Goldman Sachs downgrades its outlook for the US economy again. Plus, Netflix is teaming up with Walmart to sell plush toys, and investors think soaring energy prices could benefit Russia.

 

US stock futures are lower after the Dow and S&P 500 finished Friday broadly unchanged. Markets in Europe fell in early trading outside London, following stocks in China.

 

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MARKET FLASH

Goldman Sachs gets gloomier on the US economy

 

Goldman Sachs is becoming increasingly pessimistic about the US economy as coronavirus support from the government phases out and consumer spending remains on an uncertain path.

 

What's happening: Over the weekend, the Wall Street bank downgraded its forecast for America's economic growth, which is closely monitored by the investment community. Goldman Sachs now expects the economy to expand by 5.6% this year, compared to a previous estimate of 5.7%. In 2022, growth is projected to expand by 4%, down from 4.4%.

 

It's the second time Goldman Sachs has revised its 2021 forecast lower in two months.

 

Breaking it down: The bank's team of economists said two main factors drove the change in its outlook. One is that Covid-19 relief programs are set to wind down "significantly" through the end of the year, eliminating a source of income for some households.

 

The other concern is that consumers are not doling out enough money on services to compensate for a drop in spending on goods.

 

"Consumers' service spending will need to recover quickly to offset a decline in goods spending as the latter normalizes from its current elevated level," Goldman Sachs told clients. "This will likely prove challenging while Covid cases remain elevated, since many people still feel at least somewhat uncomfortable engaging in many activities that were routine prior to the pandemic."

 

It pointed to movie theater attendance as one sticking point. (James Bond film "No Time to Die" brought in $56 million at the North American box office over the weekend. That was a muted performance for the Bond brand, my CNN Business colleague Frank Pallotta reports.)

 

Goldman Sachs also thinks spending could decline as people continue to work from home, encouraging them to prepare their own lunches instead of popping into local restaurants.

 

Another view: Bank of America, for its part, has been encouraged by spending trends gleaned from US credit and debit card data. "We think the recent drop in cases has helped ease Covid concerns," said Candace Browning, head of BofA Global Research.

 

The bank found that spending at daycare centers in September was 52% above last year's levels and only 13% below the same period in 2019, which it called "an encouraging sign." It also observed that spending on travel and entertainment is "improving," though gains haven't been felt evenly across the country. People have been significantly more willing to splurge on entertainment in Florida than in states like New York and Pennsylvania.

 

Bottom line: The big picture for Covid-19 in the United States is looking a little brighter as new infections and hospitalizations decline.

 

"Hopefully it's going to continue to go in that trajectory downward," Dr. Anthony Fauci, the nation's top infectious disease expert, said Sunday.

 

But the country is still reporting about 95,000 new infections daily, which Fauci said is "way too high." That's making it difficult for economists to map out the way forward for America's economy.

 

Watch this space: US banks have strong insight on the health of US shoppers since they track money flows. Investors will closely monitor their commentary on the subject when they report earnings later this week.

VOICES

Facebook shares have plunged since early September

"I never see the stock take a prolonged dip like that in response to this sort of political news."

 

AXIOS MEDIA REPORTER SARA FISCHER

 

Read more from CNN Business.

NEWS ALERT

Netflix supercharges its retail push with Walmart deal

Netflix doesn't just want you to binge its movies and shows anymore.

 

It also wants you to buy shirts, dolls and other novelty items inspired by its original programs — generating a new source of income for the company as it sheds subscribers in North America.

 

The latest: Walmart announced Monday that it struck a deal with Netflix to sell merchandise from popular shows on its website, including a "CoComelon" bed set, "Squid Game" t-shirts and baking kits inspired by the reality show "Nailed It!"

 

"Walmart is now the official one-stop shop to bring your favorite Netflix stories home," Walmart executive Jeff Evans said in a blog post.

 

The backstory: Netflix launched an online shop in June — a sign it was interested in adopting the model perfected by competitor Disney, which makes tons of money off its intellectual property with theme parks and clothing sales.

 

The Walmart agreement indicates it's doubling down on its efforts. That makes sense.

 

While Netflix is quickly growing its international subscriber base, especially in Asia, it lost 433,000 subscribers in the United States and Canada between April and June. Partnering with Walmart opens up a new way to generate revenue — and could spur greater interest in its shows among shoppers.

 

Investor insight: Netflix shares had been struggling to break out this year. But they've recently staged a comeback, hitting an all-time high last week as investors got excited about the success of Korean thriller "Squid Game" (which I devoured, though I'm here to tell you about markets, not TV).

 

"Squid Game can help further open up the [Asia-Pacific] region," JPMorgan analyst Doug Anmuth said in a recent note to clients. "[And] it is another example of local content traveling well globally."

UP NEXT

Bond markets are closed in the United States for Columbus Day. Stocks will trade as usual.  

 

Coming tomorrow: The latest data on US job openings as employers in industries like hospitality struggle to fill vacant spots.

WHAT WE'RE READING AND WATCHING

▸ Wall Street isn't sweating a mixed jobs report (CNN Business)
▸ Severe drought adds to Afghan woes as economy collapses (WSJ)
▸ Here's which economists won the 2021 Nobel Prize (CNN Business)
▸ 'Not sustainable': What America's port crisis looks like up close (NYT)
▸ Another Chinese developer struggles to pay its debts (CNN Business)
▸ Retailers want nothing to do with Columbus Day (Axios)

FINAL WORD

Does Russia stand to benefit from the energy crunch?

A global scramble for natural gas has put Russia in a position of power. At least, that's what investors believe.

 

See here: President Vladimir Putin's indication last week that Russia could step in to alleviate pressure on European energy markets eased the massive run-up in natural gas prices. Meanwhile, the Russian ruble hit a four-month high against the US dollar Monday, and the country's main stock index reached a record.

 

Rising energy prices could be a boon for Russia's economy.

 

"As the world's largest pipeline gas exporter and an emerging significant [liquefied natural gas] exporter, Russia seems to be a winning beneficiary of the market tightening," Vitaly Yermakov, a researcher at the Oxford Institute for Energy Studies, said in a report published last month.

 

But there are questions about how much the country can realistically boost output. In a recent note to clients, Bank of America said Russian gas giant Gazprom may have "limited" ability to supply additional volumes since it's still working to meet domestic needs. Plus, it's "already producing close to a 10-year high."