The Week Ahead on Wall Street

Economic Data

There are no economic reports scheduled for today. However, the September NFIB small-business index and consumer price index are due tomorrow morning. The consumer price index, or CPI, is a gauge designed to keep track of the average prices of a basket of goods and services. Medical care, food, and transportation are some examples. CPI is the most watched measure of inflation, therefore government officials and central bankers like Fed Chair Jerome Powell will be closely following the report.

On Wednesday, the producer price index for September is released. Similar to its consumer counterpart, the producer variation tracks price changes from the perspective of industries that manufacture products.

On Thursday, October’s Philly Fed Index and Empire State Index are due. The September import price index will also be published. The most watched pair of statistics, however, will be the weekly initial jobless claims and continuing claims reports. Last week, another 840,000 Americans filed for unemployment benefits. This figure was worse than economist expectations of 825,000 jobless claims. Although this figure has been above 800,000 every week since mid-March, investors took solace in the improving continuing claims figure last week. This stat measures those who have already filed an initial claims report, and last week it fell by just over 1 million to 10.98 million. Regardless, both measures highlight the long road ahead for the labor market.

Finally, on Friday, investors will be watching September retail sales figures. It's been a tough year for the retail sector given store closures and lockdown measures. However, businesses that are digitizing their sales efforts have been able to adapt to the “new normal.” In August, retail sales rose 0.6%, which was viewed as a step in the right direction. But this was below economist expectations of 1% growth, and below July's reading of 0.9%. Some analysts believe this had to do with the expiration of enhanced unemployment benefits in July.

Earnings to Watch

Third quarter earnings season steps into high-gear this week. Some of the biggest companies in the United States and the world will highlight their performance over the past three months. Tomorrow is jam-packed with reports from Johnson & Johnson (JNJ), Citigroup (C), BlackRock (BLK), First Republic Bank (FRC), JPMorgan Chase & Co (JPM), and Delta Air Lines (DAL). Last week President Donald Trump said he would delay stimulus talks until after the election, but then added he would be in favor of standalone fiscal measures to support aspects of the American economy like the airline industry. Investors will be curious to see what Delta says about forward guidance in light of the turbulent stretch they've endured. Analysts will compare these remarks with those from United Airlines (UAL), which reports on Thursday.

In addition to JPMorgan Chase & Co. and Citigroup’s reports on Tuesday, a handful of banks will hand in their report cards on Wednesday. Bank of America Corp (BAC), Wells Fargo & Co (WFC), and Goldman Sachs Group Inc (GS) are some of the big names to watch. US Bancorp (USB) and PNC Financial Services Group Inc (PNC) also provide updates. Historically low rates have made it harder for banks to generate earnings since it narrows the spread they can earn on certain loan products. These are giant firms, however, that have multiple business units. For example, in July, Goldman Sachs reported blockbuster second quarter results thanks to its trading division. In fact, it was the investment bank's biggest outperformance in almost a decade. Investors will be tuned in to reports from these financial institutions to see how they did this past summer.

On Thursday, Taiwan Semiconductor Manufacturing Co Ltd (TSM), Walgreens Boots Alliance Inc (WBA), and Morgan Stanley (MS) report among others. Last week, Morgan Stanley said it was buying fund-manager Eaton Vance for $7 billion. The acquisition highlights Morgan Stanley’s transition away from trading and into the asset management business. Morgan Stanley also recently closed its all-stock takeover of E*Trade, which was valued at $13 billion when it was announced in February. Analysts will be eager for more color on these transactions and future plans for these new businesses.

To end the week, a host of other companies highlight their results on Friday, including Bank of New York Mellon Corp (BK), VF Corp (VF), and Kansas City Southern (KSU). Roughly a month ago, Kansas City Southern turned down a $20 billion takeover bid led by Blackstone Group (BX) and Global Infrastructure Partners. The consortium priced their offer at $208 per share, which the railroad operator said was too low. Investors will want to learn more about this bid during the call.

The Week Ahead at SoFi

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Advanced Micro Devices Eyes Xilinx

New Deal Could be Worth $30 Billion

In the fast-moving semiconductor industry, one giant deal could come together and reshape the landscape as early as this week. Advanced Micro Devices Inc. (AMD) appears poised to purchase its competitor Xilinx Inc. (XLNX) in a blockbuster $30 billion deal.

In Santa Clara, California AMD produces chips for both desktop and laptop computers in addition to parts used in gaming consoles like the increasingly-popular Xbox and PlayStation. Nearby in San Jose, Xilinx makes chips for cell phone communications, data centers, and the auto and airplane industries.

Xilinx’s sales have suffered in recent months, as it depends heavily on Chinese markets for its business. Before the Trump administration hit pause on business with Huawei, the Chinese tech company was responsible for 6% to 8% of Xilinx’s total revenue, according to analysts.

Chip Industry Grows During Pandemic

AMD has seen robust gains this year. While many industries suffered decreased growth and other challenges during the COVID-19 pandemic, demand for PCs and gaming consoles is at an all time high. In the second quarter of 2020, AMD’s revenue surged 26%, hitting $1.93 billion. AMD’s stock climbed nearly 90% over the course of this year, causing its market value to swell to $100 billion. Given those dynamics, industry watchers believe it’s possible AMD will acquire Xilinx in a stock transaction.

The acquisition of Xilinx will help AMD compete more effectively with rival Intel Corp. (INTC). Both Intel and Xilinx produce special microchips called FPGAs, which stands for field-programmable gate arrays. As their name implies, these chips can be programmed in the field after they’ve left the factory. FPGAs are extremely valuable in 5G infrastructure, military work, and radar systems.

Merger Activity Comes Back to Life

Mergers and acquisition activity was quiet at the start of the pandemic, but this new deal is yet another sign that companies once again feel emboldened to make moves. For example, another deal to look out for involves NextEra Energy Inc. (NEE), which began talks with Duke Energy Corp. (DUK) recently. These discussions could potentially result in this year’s biggest deal at $60 billion.

Many analysts thought mergers would slow even more as the election approached, but the potential AMD and Xilinx deal suggests acquisitions could continue—at least in the semiconductor industry, which may end up with three of the largest deals this year. Other deals include Nvidia Corp. (NVDA), which acquired Arm Holdings for $40 billion, and Analog Devices Inc. (ADI), which bought Maxim Integrated Products Inc. (MXIM) for over $20 billion.

Sam's Club Adapts to a Highly Unusual Holiday Season

Downsized Dinner Parties

Holiday tables could look a little different this year as the pandemic continues and many Americans stay away from vulnerable family members. As a result, grocery stores could look a little different, too. Sam’s Club, the warehouse store known for multi-packs and supersized items, said it will stock stores with smaller options to fit this year’s more subdued celebrations.

The company, owned by Walmart (WMT), experimented with smaller packages of brownie and cake mix at the start of the pandemic when lockdown orders meant Americans were spending more time with immediate family and less with friends. The smaller packages were a success, so Sam’s Club CMO Megan Crozier said they will continue with this strategy for holiday offerings.

Shapeshifting to Fit Smaller Budgets

Like many retailers trying to control crowds and avoid supply chain issues, Sam’s Club is launching holiday sales this month instead of around Thanksgiving. In fact, Sam’s Club’s first holiday sale began on October 4.

The extended sales and smaller portions certainly have their place in a public health crisis, but they’re also driven by Americans' budget-conscious mindset. As many experience economic uncertainty, smaller portions can help consumers celebrate the holidays on a more manageable scale.

Another advantage to smaller offerings is portion control. As Americans aim for healthier diets, slimmer snack bags can help. In many cases, analysts say shrinking initiatives can benefit both companies’ profit margins and customers’ diets and wallets.

Tinier Turkeys and Trimmings

Nearly half of Americans plan to eat Thanksgiving dinner at home with their immediate family this year instead of traveling to see cousins, grandparents, and distant relatives. It’s not yet clear how that will impact the estimated 40 million turkeys Americans traditionally gobble up for Thanksgiving. With that said, the National Turkey Federation hopes to help families figure out how to cook simple breasts, thighs, or smaller turkeys for a smaller table.

The smaller turkey will also come with smaller trimmings. As it relates to Sam’s Club, the company will sell a pack of side dishes—sweet potatoes, green beans, and mac and cheese—to feed a family of four instead of an overstuffed table. If Americans do decide to downsize their holiday group settings due to precautionary measures in light of COVID-19, retailers are ready to adapt with food items at all prices and sizes.