HOT AIR BALLOON FLIGHT

By Julia Horowitz • Monday, November 22

Good morning. In today's newsletter: The fate of Federal Reserve Chair Jerome Powell could be decided this week. Plus, Thanksgiving travel may boost flagging airline stocks, and why CVS is closing stores.

 

US stock futures are up slightly after the Nasdaq Composite finished Friday at a record high. Markets in Europe were mixed in early trading, following stocks in Asia.

 

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EYE ON WASHINGTON

Could Fed Chair Jerome Powell be replaced?

 

When it comes to influence over the global economy, few people in the world are more powerful than Jerome Powell, chair of the US Federal Reserve.

 

This week, investors may learn whether he's tapped for another four-year term or out of a job.

 

What's happening: President Joe Biden is expected to announce his decision on who should lead the Federal Reserve any day now.

 

On Sunday, Brian Deese, who heads up the National Economic Council, reiterated that a choice could be made in the "coming days."

 

"The president's been spending a lot of time on this issue," Deese said on "Fox News Sunday."

 

Powell, a Republican who was appointed by former President Donald Trump, has steered the US economy through the Covid-19 pandemic and early recovery, unleashing unprecedented amounts of stimulus to help avert an even deeper downturn.

 

He's a familiar face, and Wall Street thinks it's more likely than not that Powell will be asked to stay on. But it's not a given.

 

Democratic Senators Sheldon Whitehouse and Jeff Merkley on Friday criticized Powell's climate credentials, arguing that he "refuses to recognize climate change as an urgent and systemic economic threat." Senator Elizabeth Warren has called Powell a "dangerous man" to lead the Fed because of his track record on Wall Street regulation.

 

A recent ethics scandal which caused the Fed to change its rules on investing by senior officials has also eroded support for Powell.

 

Lael Brainard, who currently serves as a governor on the Fed board, is viewed as the top alternative. Biden met with Powell and Brainard earlier this month.

 

"Acknowledging Powell's strengths, I still think the big threat to his re-appointment is a smart, savvy woman, known to markets, expert at monetary policy AND regulation, climate risk, and financial tech," tweeted Sheila Bair, who led the Federal Deposit Insurance Corporation from 2006 to 2011. "If this Administration prioritizes diversity, seems Brainard is a no-brainer."

 

Yet Powell still has backers. 

 

"I think Jerome Powell has a proven track record and Chairman Powell should get reappointed," Democratic Senator Jon Tester said on NBC's "Meet the Press" Sunday.

 

Watch this space: With inflation rising at the fastest clip in three decades, generating debate over whether the Fed should move faster to pull back support for the economy, investors are closely watching Biden's decision. 

 

Brainard is "judged to be a little more dovish than Powell," according to ING's Robert Carnell. That could mean she favors waiting longer to raise interest rates from near-zero.

 

"In our view, relative to Powell Brainard would focus more on the inclusive employment mandate and be willing to keep policy more accommodative for longer," Citi strategists said in a recent research note.

 

But they note that markets still think Powell "is the path of least resistance" and has the edge.

VOICES

China may need to juice its economy soon

"The concern for growth slowdown is clearly rising among technocrats at different government agencies."

 

LARRY HU, MACQUARIE GROUP HEAD OF CHINA ECONOMICS

 

Read more from CNN Business.

NEWS ALERT

Air travel leaps ahead of Thanksgiving holiday

Airports haven't been this busy since the start of the pandemic, with travel jumping in the days before Thanksgiving.

 

The latest: The Transportation Security Administration screened more than 2.2 million travelers across the United States on Friday, the agency announced over the weekend.

 

Spokesperson Lisa Farbstein said it was "the highest checkpoint volume since passenger volume tanked in early 2020 as a result of the pandemic."

 

Another 2 million people were screened on Saturday, Farbstein said.

 

Investor insight: Airline stocks rallied as the United States prepared to open its doors to fully vaccinated international travelers earlier this month. Since then, however, they've lost some ground.

 

One factor could be high oil prices, which executives expect to crimp earnings in the coming quarters.

 

"The key headwind for the fourth quarter, aside from just inefficiencies as we continue to ramp up, is a significant increase in jet fuel prices," incoming Southwest CEO Bob Jordan told analysts late last month.

 

Investors are also worried about the return of Covid-19 restrictions in Europe as cases surge in the region.

 

"The now textbook trade of selling the reopening stocks is also going on with airlines and hotel stocks in particular," Peter Boockvar, chief investment officer at Bleakley Advisory Group, told clients on Friday.

 

The busy travel period could provide a lift — though to what extent remains to be seen. Shares of Delta Air Lines and American Airlines are up 0.7% in premarket trading Monday, while United Airlines is up 0.6%.

UP NEXT

Urban Outfitters and Zoom Video report results after the close.

Also today: Existing US home sales for October post at 10 a.m. ET.

 

Coming tomorrow: Earnings from Abercrombie & Fitch, Best Buy, Dick's Sporting Goods, Dollar Tree, J.M. Smucker, Dell, Gap and Nordstrom.

WHAT WE'RE READING AND WATCHING

▸ Why gas is so cheap at Costco and Walmart (CNN Business)
▸ Elizabeth Holmes to resume testimony in her own trial (CNN Business)
▸ Power struggle over cobalt rattles clean energy revolution (NYT)
▸ Monster Beverage explores deal with Constellation (Bloomberg)
▸ KKR makes $37 billion bid for Telecom Italia (FT)
▸ El Salvador plans the world's first 'Bitcoin City' (Reuters)

FINAL WORD

CVS should be thriving. So why is it closing stores?

CVS' recent announcement that it will close 900 stores over the next three years — around 10% of its pharmacies — may have caught some shoppers off guard, my CNN Business colleague Nathaniel Meyersohn points out.

 

Isn't CVS doing really well right now? Haven't lots of people gone to drug stores during the pandemic to stock up on hand sanitizer, cleaning wipes and toilet paper? What about all those Covid-19 vaccine shots CVS gives out?

 

Actually, the closures shouldn't come as a surprise. They're the latest moves in the long-running contraction of the US retail pharmacy sector.

 

Step back: CVS, Walgreens and Rite Aid have been shuttering stores for years, while independent pharmacies have come under pressure from bigger players.

 

CVS closed 244 stores between 2018 and 2020, but it still has more than 9,900 locations. That's more than Walmart, Target, Kroger and Costco combined.

 

CVS has also been revamping its retail strategy to focus on health care. Its stores will now have three distinct models. Some will offer primary care services. Others will be health hubs with on-site dieticians, nurse practitioners and lab services. A number of traditional locations will still focus on selling candy, shampoo and other small items.

 

"You'd much rather be selling health care services that are high-dollar value, high-margin versus greeting cards," said Deutsche Bank analyst George Hill.

 

Yet the business decision may have a social cost. Drug store closures can hurt local communities, making it harder for people to access medications and other essentials.