HOT AIR BALLOON FLIGHT

By Julia Horowitz • Monday, January 3

Good morning. In today's newsletter: Will Disney stage a comeback this year? The answer could tell us a lot about the market. Plus, Tesla just had a record quarter for vehicle deliveries, and the latest from Turkey, where consumer prices are soaring 36%.

 

US stock futures are up ahead of the first trading session of the year. Markets in Europe rose, while stocks in Asia were mixed.

 

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MARKET FLASH

Disney hopes for a fairytale ending this year

Disney did not have a magical 2021. Even as Covid-19 vaccines allowed countries around the world to lift restrictions, the company's business struggled. Attendance at its parks disappointed, and momentum from its Disney+ streaming service, once a bright spot, cooled off.

 

The company's stock dropped almost 15%, making it the worst performer in the Dow.

 

Wall Street is hopeful that Disney is set for a turnaround year. Bank of America has selected it as one of its top picks for 2022, betting that a receding pandemic will finally lift the parts of its business that have struggled.

 

Can Disney pull it off? The answer could say a lot about where stocks are headed next.

Rewind: In 2020, even as Disney was forced to shutter its theme parks and resorts for months and delay the release of blockbusters like "Mulan," the stock was carried by enthusiasm about the Disney+ streaming service, which was rapidly adding subscribers.

 

But the sheen started to come off after the first quarter of 2021.

 

Growth for Disney+ slowed as competition in the streaming space heated up, and the rest of the company wasn't bouncing back as quickly as many analysts had hoped.

 

In its most recent quarter, Disney reported revenue of $18.5 billion, compared to $19.1 billion for the same quarter in 2019.

 

There's hope that 2022 could be better.

 

Disney "remains well positioned for the recovery driven by a continued increase in capacity at theme parks and an improving content slate," Bank of America's Jessica Reif Ehrlich and Brent Navon said in a recent note to clients. They think Disney will also add more range to Disney+ after the success of its "Get Back" Beatles documentary.

 

The twist, of course, is the rapid spread of infections due to the arrival of the highly contagious Omicron variant. That could lift Disney+ subscriptions as people cancel other plans, but once again put a damper on tourism. Last week, the US Centers for Disease Control and Prevention said that even vaccinated people should no longer take a cruise vacation. 

 

Travel remained robust over the holiday period, based on the number of people moving through airports. But people could choose to stay home this winter if cases continue to spike. That would set companies like Disney back even further.

 

The big picture: Many on Wall Street are brushing aside Omicron. They think that 2022 will be a big year for stocks that were damaged by the pandemic and are now undervalued.

 

"Investors believe that Omicron, which is spreading like wildfire, may flame out sooner rather than later and provide widespread herd immunity," Ed Yardeni, president of Yardeni Research, said Monday.

 

If that's true, stocks like Disney could be back on track this year. Maybe.

VOICES

Banks tell workers to stay home as Covid cases rise

"With the increase in holiday travel and gatherings, we are allowing for more flexibility during the first two weeks of January."

 

JPMORGAN CHASE, IN A MEMO TO EMPLOYEES

 

Read more from CNN Business.

NEWS ALERT

What chip shortage? Tesla deliveries hit a record last quarter

A global shortage of computer chips has slammed automakers, forcing them to pare back production despite huge demand for vehicles.

 

But Tesla is bucking the trend. Over the weekend, the company reported record deliveries of 308,600 vehicles for the last three months of 2021, a 71% increase compared to a year earlier.

 

A big 2021: Tesla's full-year deliveries came in at 936,000, an 87% increase above 2020, my CNN Business colleague Chris Isidore reports. That's above the target set by many analysts.

 

"Taking a step back, with the chip shortage a major overhang on the auto space and logistical issues globally, these delivery numbers were jaw dropping," Tesla bull Dan Ives, an analyst at Wedbush Securities, said in a note to clients Sunday.

 

Other automakers are expected to report reduced fourth-quarter sales later this week. Cox Automotive forecasts that in the United States, sales fell 24% during the period as a shortfall of chips forced some plants to temporarily shut down. This limited the inventory of vehicles in dealerships and drove car prices to new heights.

 

"The industry ran out of vehicles, and sales stalled in the second half," said Charlie Chesbrough, chief economist for Cox Automotive. "Total sales in the second half of 2021 were the slowest in a decade. Demand is healthy, but supply and production disruptions kept the industry in check. You can't sell what you don't have."

 

How Tesla did it: Tesla hasn't been immune to problems securing semiconductors. But it's fared better than others by leaning on its software engineering expertise, which has allowed it to quickly make the tweaks needed to integrate alternative chips into its vehicles, the Wall Street Journal reports.

 

Tesla's stock is up 7% in premarket trading on Monday. The carmaker's shares soared nearly 50% in 2021, compared to an almost 27% rise in the S&P 500.

UP NEXT

The latest survey of US manufacturers from IHS Markit arrives at 9:45 a.m. ET.

 

Coming tomorrow: OPEC meets by videoconference to discuss whether it should continue to boost oil output in February.

WHAT WE'RE READING AND WATCHING

▸ Evergrande suspends trading of shares in Hong Kong (CNN Business)
▸ Crackdowns aren't hitting Chinese companies listed at home (WSJ)
▸ Holiday flight problems jump on bad weather, virus (CNN Business)
▸ Child tax credit's extra help ends just as Covid surges again (NYT)
▸ Warren Buffett says he doesn't control worker pay (CNN Business)
▸ Jury in Elizabeth Holmes trial to resume deliberations (CNN Business)

FINAL WORD

Where consumer prices are soaring 36%

Inflation in the United States is rising at the fastest pace in nearly four decades. But the challenge pales in comparison to what's playing out in Turkey.

 

The latest: Consumer prices soared 36% in December compared to a year ago, the Turkish Statistical Institute reported Monday. Prices jumped 13.6% versus the previous month.

 

The latest inflation reading for the United States showed consumer prices rising 6.8% in November compared to one year ago.

 

In Turkey, the increases were led by the cost of transportation, which skyrocketed nearly 54% year-on-year, and food and drink prices, which leaped 44%.

 

The backstory: Turkey's currency lost more than 40% against the US dollar last year, its worst performance in two decades. The collapse was fueled by President Recep Tayyip Erdogan's insistence that the country's central bank pursue a highly unorthodox policy of cutting interest rates, rather than raising them, in the face of rising prices.

 

Erdogan has been urging businesses and individuals to defend the lira.

 

"The Turkish lira, our money, that is what we will go forward with," Erdogan said on Friday in a speech in Istanbul. "Not with foreign currency."

 

But the crisis could still escalate. Eurasia Group named the situation in Turkey as one of its top risks for 2022.

 

"Erdogan will drag Turkey's economy and international standing to new lows in 2022 as he tries to reverse his plunging poll numbers ahead of elections in 2023," the consultancy said. "Unemployment and inflation are high, and the lira is weaker and more volatile, but Erdogan has rejected orthodox economic management."