Business

We’re buying 20 shares of Estee Lauder (EL) at roughly $248.20 each. Following Friday’s trade, Jim Cramer’s Charitable Trust will own 270 shares of EL, increasing its weighting in the portfolio to 2.26% about from 2.1% Estee Lauder ‘s stock is having a tough February. Shares have fallen roughly 11% since the start of the month, and it has been almost straight lower from $280 ever since the company reported fiscal second quarter earnings . That’s kind of how Estee Lauder has traded of late. It went straight down from $280 in August to the $180s at the end of October with little reprieve in-between on concerns about new Covid lockdowns in China. Then, it rallied straight up from there through the end of the year after China reversed course and moved away from its stringent zero-Covid policy. EL 1Y mountain Estee Lauder (EL) 1-year performance The quarter for this leader in prestige beauty was solid, and earnings handily beat expectations, with the company posting adjusted earnings per share (EPS) of $1.69 versus estimates of $1.29. Although high-margin areas of its business such as skin care and travel retail remained depressed due to shutdowns in China, strong expense control and easing pressures from foreign exchange (forex) fluctuations helped it deliver a solid number . We weren’t completely surprised to see management report a big beat. This management team, led by the thoughtful CEO Fabrizio Freda, often keeps expectations conservative quarter to quarter and then crushes them — the “under promise, over deliver” style we love to see from executive teams. However, when management slashed its full-year outlook and provided a weak view for its current third quarter — adjusted EPS of 37 to 47 cents versus estimates of $1.78 — investors were quick to ring the register because Estee Lauder’s return to annual EPS growth was pushed out one quarter. The reasons behind the disappointing forecast were two-fold: a slower-than-expected normalization of inventory levels in the popular Chinese tourist destination of Hainan and a potential rollback of Covid-related supportive measures in Korea duty-free. We can’t fault anyone who wanted to take the gain after Estee Lauder’s nearly 50% rise since the start of November into the new year. We booked double-digit profits in the high $260s in early January. Looking at the stock now, it has erased all its year-to-date gains and it’s trading almost 6% below our recent sale. Estee Lauder’s business may be going through one final soft patch right now, but we haven’t lost faith in the China reopening and all that pent-up demand from people wanting to travel. With the issues plaguing the company only expected to be temporary, we think this recent weakness represents a buying opportunity. We’re upgrading our rating back to a 1 and repurchasing half of the 40 shares we sold one month ago. (Jim Cramer’s Charitable Trust is long EL. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

A father and daughter play with a digital tablet at an Estée Lauder store in Shanghai.
SOPA Images | LightRocket | Getty Images More

In December, home prices nationally were 6.9% higher year over year, according to CoreLogic.
That was the smallest annual gain since the summer of 2020, when the pandemic first induced a housing boom.
The rate of decline from November to December, however, was much smaller than the monthly declines seen last summer.

An aerial view from a drone shows homes in a neighborhood on January 26, 2021 in Miramar, Florida. According to two separate indices existing home prices rose to the highest level in 6 years.
Joe Raedle | Getty Images

The U.S. housing market cooled off pretty dramatically last year, after mortgage rates more than doubled from historic lows. Home prices, however, have been stickier.
Prices began falling last June, but are still higher than they were a year ago. Now, as demand appears to be coming back into the market, due to a slight drop in mortgage rates, prices are pushing back.

In December, the latest read, U.S. home prices were 6.9% higher year over year, according to CoreLogic. That was the lowest annual appreciation rate since the late summer of 2020. Last April, annual price appreciation hit a high of 20%.
Falling home prices were reflecting weaker housing demand, as inflation, job cuts and uncertainty in the economy piled onto the barrier put up by higher mortgage rates. But mortgage rates began to fall in December, and prices reacted immediately. The cooling continued, but not as much as in the months before.
“While prices continued to fall from November, the rate of decline was lower than that seen in the summer and still adds up to only a 3% cumulative drop in prices since last spring’s peak,” said Selma Hepp, chief economist at CoreLogic.

Hepp notes that some of the exurban areas that became popular during the first years of the pandemic and saw prices rise sharply are now seeing larger corrections. But she doesn’t expect that will last long.
“While price deceleration will likely persist into the spring of 2023, when the market will probably see some year-over-year declines, the recent decrease in mortgage rates has stimulated buyer demand and could result in a more optimistic homebuying season than many expected,” Hepp said.

A monthly survey of homebuying sentiment from Fannie Mae showed an increase in January for the third straight month. Consumers surveyed said they still expected to see prices either fall or flatten over the next year, but the share of those who think it’s a good time to sell a home increased to 59% from 51%.

Early spring market surge?

More inventory on the market would help bring more buyers back into the market. Anecdotally, real estate agents are reporting an earlier-than-usual surge in the spring market, with open houses seeing more foot traffic in the last few weeks. Some also reported the return of bidding wars.
The nation’s homebuilders are also reporting increased demand. Homebuilder sentiment in January rose for the first time in 12 months, the National Association of Home Builders said. Builders reported increases in current sales, buyer traffic and sales expectations over the next six months. Lower mortgage rates are driving the new demand.
“With mortgage rates anticipated to continue to trend lower later this year, affordability conditions are expected to improve, and this will increase demand and bring more buyers back into the market,” said NAHB chief economist Robert Dietz.
The NAHB’s home affordability index started this year at the lowest level since it began tracking the metric a decade ago. But lower rates are starting to turn that around.
If home prices continue to decline at the average rate they have over the past six months, annual home price growth could finally go negative sometime within the next three months, according to a new report from Black Knight. It now takes nearly $600 (+41%) more to make the monthly mortgage payment on the average priced home using a 20% down 30-year rate mortgage than at the same time last year.
Mortgage applications to purchase a home, the most current indicator of demand, rose throughout January and the first week of February, although it is still lower than the same period a year ago, when rates were nearly half what they are now.
“We can see definite signs of a January uptick in purchase lending on lower rates and somewhat lower home prices,” said Ben Graboske, president of Black Knight Data and Analytics. “But affordability still has a stranglehold on much of the market.”

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New England Patriots fans erupt as the Seattle Seahawks Russell Wilson’s pass is intercepted at the goal line to ensure the victory for the New England Patriots in Super W 49.
Bob Berg | Moment Mobile | Getty Images

In a fragmented media landscape, events like the Super Bowl are prized by advertisers for the exposure they offer.
More than 100 million people are expected to tune in this Sunday when the Philadelphia Eagles take on the Kansas City Chiefs. Many watching the game will be just as attentive to the commercials as they are to the action on the field. These commercials are an institution in and of themselves, with the ads generating conversation for weeks ahead and days after the Big Game. Well-crafted Super Bowl ads may be recalled by consumers years after their debut.

But capturing those eyeballs comes at a steep cost. This year companies are paying about $7 million for a 30-second spot — and that’s just for the air time. Layer on top of that, the cost of hiring the talent needed to produce the ad, and the costs spiral even higher.

Advertisers come and go

The value of that spending can be fiercely debated. For companies that sell beer, chips or cars, the game is often an annual ritual. But other advertisers may come and go.
This certainly is true for the crypto companies that bought up airtime last year. Cryptocurrency exchange FTX had received accolades for its ad, which starred comedian Larry David as a time-traveling skeptic, pooh-poohing inventions from the wheel to the light bulb. The commercial encouraged viewers not to doubt cryptocurrency. “Don’t be like Larry,” it said.
Months later, it seems some skepticism was warranted. FTX, now bankrupt, has collapsed in a scandal that is being investigated by federal prosecutors.
So does Super Bowl exposure truly help boost business? Going by the companies’ share prices, most didn’t have a great 2022.

Take Coinbase, another cryptocurrency exchange. Its bouncing QR-code commercial was hailed as wildly successful. It drove so many viewers to Coinbase’s app that it crashed on the night of the Super Bowl.
Coinbase’s stock is down 64% since that evening. And the company said it won’t be back for this year’s game.

The Super Bowl ad curse

FactSet Universal Screening

Symbol
Name
Stock Exchange
Sector/Industry
Market Value
Price change since 14/2/2022
$ lost/made if invested $10,000
Upside to avg PT (%)
(%) Buy Rating

CVNA
Carvana, Class A
NYSE
Consumer Cyclicals
2,645.8
-90.0
-9,000.0
-23.4
11.1

VRM
Vroom
NASDAQ
Consumer Cyclicals
163.0
-82.9
-8,290.0
13.7
0.0

COIN
Coinbase Global, Class A
NASDAQ
Finance
15,760.5
-64.4
-6,440.0
-5.0
26.7

AMCX
AMC Networks, Class A
NASDAQ
Consumer Services
775.4
-57.4
-5,740.0
7.4
0.0

FVRR
Fiverr International
NYSE
Technology
1,599.6
-47.6
-4,760.0
-8.4
60.0

EXPE
Expedia Group
NASDAQ
Consumer Services
18,598.2
-39.6
-3,960.0
5.1
46.7

MNDY
Monday.com
NASDAQ
Technology
6,423.8
-37.1
-3,710.0
1.4
88.2

PARA
Paramount Global Class B
NASDAQ
Consumer Services
14,696.1
-36.0
-3,600.0
-14.9
24.1

AMZN
Amazon.com
NASDAQ
Consumer Non-Cyclicals
1,025,238.0
-35.5
-3,550.0
32.3
76.8

GOOGL
Alphabet, Class A
NASDAQ
Technology
1,276,392.0
-26.7
-2,670.0
29.2
74.0

DKNG
DraftKings, Class A
NASDAQ
Consumer Services
14,875.7
-20.4
-2,040.0
13.9
48.4

INTU
Intuit
NASDAQ
Technology
118,477.5
-20.3
-2,030.0
10.7
71.4

CRM
Salesforce
NYSE
Technology
169,630.0
-17.8
-1,780.0
6.7
66.7

META
Meta Platforms, Class A
NASDAQ
Technology
475,590.5
-15.7
-1,570.0
8.8
56.9

GM
General Motors
NYSE
Consumer Cyclicals
57,975.1
-14.1
-1,410.0
11.2
54.2

MSFT
Microsoft
NASDAQ
Technology
1,985,486.0
-9.6
-960.0
5.1
72.5

PLNT
Planet Fitness, Class A
NYSE
Consumer Services
7,456.9
-9.6
-960.0
11.6
88.2

NFLX
Netflix
NASDAQ
Technology
163,366.5
-7.5
-750.0
-3.5
42.2

BKNG
Booking Holdings
NASDAQ
Consumer Services
94,067.4
-4.7
-470.0
-2.0
50.0

PEP
PepsiCo
NASDAQ
Consumer Non-Cyclicals
235,808.7
2.7
270.0
10.0
34.8

K
Kellogg
NYSE
Consumer Non-Cyclicals
22,934.1
3.8
380.0
7.6
9.5

WMT
Walmart
NYSE
Consumer Non-Cyclicals
378,145.3
4.7
470.0
13.9
54.8

YUM
Yum! Brands
NYSE
Consumer Services
37,019.4
8.3
830.0
7.2
33.3

TMUS
T-Mobile US
NASDAQ
Telecommunications
178,921.8
14.6
1,460.0
22.9
75.8

HOLX
Hologic
NASDAQ
Healthcare
21,107.5
21.8
2,180.0
3.3
38.1

Source: CNBC; FactSet

Shares of online auto sellers Carvana and Vroom have fared even worse. Their stocks are down 90% and nearly 83%, respectively. Neither will advertise during the game this year.
Of course, the steep declines of some of last year’s advertisers speak to broader declines in the market last year, with a number of tech names on the list faring the worst.

‘Not a good look’

Deb Gabor, CEO and founder of Sol Marketing, said given the high cost of advertising during the game, companies need to be mindful of the broader economy. For the most part they are, she said, citing Toyota as an example, since the automaker is skipping the game for the first time since 2017.
This year’s list of advertisers is filled with snack food and booze, she said. “People are going to need comfort,” she said. “And snack food and booze are one place they are going to find it.”
Gabor is watching Bay Area tech company Workday closely. The maker of human resources software doesn’t seem like a natural fit for a glitzy Super Bowl commercial, but it’s spending big on a 60-second spot that riffs on how companies often call their top employees rock stars. Its ad is chock full of music legends, from Ozzy Osbourne to Joan Jett and Kiss frontman Paul Stanley, among others.
Gabor said she’s not sure how the company will leverage this multimillion dollar spot beyond the Super Bowl. However, she said, the company has attracted some bad press since word of the commercial came out around the time that it announced plans to cut about 3% of its staff.
“It’s not a good look,” Gabor said.

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Adidas could lose around 1.2 billion euros ($1.3 billion) in revenue in 2023 if it is unable to sell its existing Yeezy stock. 
Shares of Adidas were down 11% around 9 a.m. London time following the news.
“The numbers speak for themselves. We are currently not performing the way we should,” Adidas CEO Bjørn Gulden said in a press release.

“The numbers speak for themselves. We are currently not performing the way we should”, Adidas CEO Bjørn Gulden said in a press release.
Jeremy Moeller / Contributor / Getty Images

Adidas could lose around 1.2 billion euros ($1.3 billion) in revenue in 2023 if it is unable to sell its existing Yeezy stock.
The German sportswear company scrapped its partnership with rapper and fashion designer Ye, formerly known as Kanye West, the face of Yeezy, in October after he made a series of antisemitic comments.

The company said late Thursday that it is assessing what to do with the Yeezy inventory, adding it has already accounted for the “significant adverse impact” of not selling the products.
Operating profit would drop by about 500 million euros if the company fails to shift the products, and Adidas expects sales to decline at a high single-digit rate in 2023. Adidas could opt to write off its remaining Yeezy products.
Shares sank 11% Friday morning as traders reacted to the announcements.
The company also forecast one-off costs of up to 200 million euros, leaving Adidas’ worst-case scenario for the year as a 700 million euro loss for 2023.
“The numbers speak for themselves. We are currently not performing the way we should,” Adidas CEO Bjørn Gulden said in a press release.
Adidas’ revenues increased 1% in 2022, based on unaudited numbers, while operating profit dropped from almost 2 billion euros in 2021 to 669 million euros in 2022.

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Disney CEO Bob Iger told CNBC that “everything was on the table” with regard to Hulu’s ownership.
Disney currently owns 66% of Hulu. Comcast owns the remainder.
Comcast executives believe Hulu could supercharge its streaming efforts beyond Peacock, sources said.
Iger and Comcast CEO Brian Roberts have a strong working relationship, according to sources.

Disney CEO Bob Iger’s apparent openness to selling Hulu marks a stark reversal in strategy for the company — and an even more surprising shift if Iger sells the streaming service to Comcast.
Iger said Thursday in an exclusive CNBC interview with David Faber that “everything is on the table” with regard to Hulu’s future.

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“We are intent on reducing our debt,” Iger said. “I’ve talked about general entertainment being undifferentiated. I’m not going to speculate if we’re a buyer or a seller of it. But I’m concerned about undifferentiated general entertainment. We’re going to look at it very objectively.”
Disney currently owns 66% of Hulu, with Comcast owning the rest. The two companies struck a deal in 2019 in which Comcast can force Disney to buy (or Disney can require Comcast to sell) the remaining 33% in January 2024 at a guaranteed minimum total equity value of $27.5 billion, or about $9.2 billion for the stake.
Just five months ago, then-Disney CEO Bob Chapek said he’d like to own all of Hulu “tomorrow” if he could. Chapek’s strategy revolved around eventually tying Hulu together with Disney+ to give consumers a “hard bundle” option in which viewers could watch programming from both the family friendly Disney+ and the adult-focused Hulu. Comcast’s stake in Hulu prevented Disney from moving forward with his plans.
“I would like nothing more than to come up with that solution for an early agreement,” Chapek said in a September interview with CNBC. “But that takes two parties to come up with something that is mutually agreeable.”

Chapek held a conversation in 2021 with Comcast CEO Brian Roberts to try to escalate the sale of Hulu, according to people familiar with the matter. Roberts floated a number of possible ideas, including Disney selling ESPN to Comcast, said the people, who asked not to be named because the discussions were private. No substantive conversations have occurred since, the people said.

Despite the shrinking pay-TV subscriber base, ESPN and many cable networks still rake in a lot of profit, something Disney wasn’t willing to give up, especially as it helps to fund the streaming business, the people said. Iger said this week that while a spinout was considered in his absence, it was concluded ESPN should stay with Disney. He said discussions about a sale were not taking place.
Another proposition floated to Disney was to have Comcast buy out Hulu. Comcast executives believe Hulu could supercharge its streaming efforts beyond Peacock, the company’s flagship streaming service, according to people familiar with the matter. They remain open to a variety of possibilities with Hulu, the people said. Peacock has about 20 million paying subscribers. Hulu has about 48 million subscribers. Both services are only available in the U.S. and U.S. territories.
Spokespeople for Comcast and Disney declined to comment.
Comcast executives walked away from those discussions resigned to taking Disney’s money in 2024 rather than gaining full ownership of Hulu, as CNBC reported in September.

Iger’s shift

Those circumstances may have shifted with Iger’s return. It’s possible Iger’s comments Thursday were just posturing. Threatening to be a seller of Hulu rather than a buyer may lower the price of the streaming asset, which would behoove Disney if it were to actually buy the 33% stake from Comcast.
Iger has previously championed Hulu as part of Disney’s strategy to offer three relatively low-priced services (Disney+, Hulu and ESPN+) rather than one mega-product that would likely be the most expensive streaming service. His thinking had been that giving subscribers too much content in one product may lead to what happened with cable TV — consumers begin feeling they’re paying too much money for content they’re not watching.
Selling Hulu would unwind this strategy, and it also may lead to cancellations of Disney+ and ESPN+. Disney has pushed its bundle of the three services for $12.99 per month (with ads). That’s about a 50% discount to buying the three services separately, which would cost nearly $26.
Still, publicly acknowledging Disney could be open to selling Hulu is a bold move. It puts Hulu employees on high alert and adds uncertainty to Iger’s own company. Iger’s comments may also be meant to draw a reaction from shareholders.

Competitive dynamics

Iger’s Hulu commentary also challenges one of his long-held edicts: don’t strengthen Comcast at Disney’s behest.
When Iger acquired the majority of Fox’s assets for $71 billion in 2019, one of his primary motivating factors was to make sure Comcast didn’t acquire a majority stake in Hulu. Activist investor Nelson Peltz, who Thursday dropped his proxy fight to get a Disney board seat, had been arguing that Iger dramatically overpaid for Fox. Iger’s defense of that deal was passing on it would have strengthened Comcast and weakened Disney in the streaming wars, according to people familiar with his thinking.
Competitive tension between Comcast and Disney isn’t new. Roberts made a hostile bid to acquire Disney for $54 billion in 2004. Previous NBCUniversal CEO Steve Burke left Disney to come work for Roberts in 1998. In a streaming environment, Disney’s products take eyeballs and subscription revenue away from Peacock, and vice versa.
Still, Iger and Roberts have a strong working relationship, according to people familiar with the matter. Iger even spoke at an internal NBCUniversal event last year.
Both companies will need to work closely together to agree on any conclusion for Hulu. Even if Disney buys the remaining stake of Hulu, the sides must agree on fair market value. Iger’s comments Thursday may be the starting gun on what could be months of negotiations to follow.
WATCH: Watch CNBC’s full interview with Disney CEO Bob Iger

Disclosure: Comcast owns NBCUniversal, the parent company of CNBC.

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Vita Coco is launching a canned cocktail with Diageo and teaming up with DoorDash in a bid to market its coconut water as a mixer and hangover cure.
It’s also developed a non-dairy milk for coffee in a partnership with Alfred Coffee.
Coca-Cola’s and PepsiCo’s exits from the coconut water category in 2021 have opened up new opportunities for Vita Coco.

Vita Coco water.
Tim P. Whitby | Getty Images

For nearly two decades, Vita Coco has sold its coconut water to health-conscious consumers as a fresh way to hydrate. This year, it’s changing the pitch.
The beverage company is pushing its namesake brand into new use cases and occasions, partnering with Diageo on a canned cocktail and marketing the drink as a hangover aid.

Co-founder Mike Kirban compared Vita Coco’s transformation to that of Ocean Spray, the agricultural cooperative that sells cranberry products.
“Ocean Spray is a brand that’s four times our size, that’s all based on one ingredient,” the company’s executive chairman told CNBC. “And we should be bigger than Ocean Spray pretty quickly, because I think the coconut is cooler than the cranberry.”
Founded in 2004, Vita Coco started as a coconut water brand but has since expanded into other beverage categories, like energy drinks and water. Its namesake brand still accounts for three-quarters of the company’s revenue, which reached $335.8 million in the first nine months of 2022.
The company went public in October 2021, just before the market for initial public offerings dried up as inflation, the war in Ukraine and economic uncertainty weighed on investors.
Vita Coco’s stock is up less than 1% since its IPO, but it’s fared better than many other consumer companies that went public around the same time, like Sweetgreen and Allbirds.

In May, Kirban transitioned from co-CEO at the company to his current role, leaving Boston Beer veteran Martin Roper as the sole chief executive — another step of Vita Coco’s evolution.

Coke and Pepsi’s loss, Vita Coco’s gain

Just months before Vita Coco’s IPO, both Coca-Cola and PepsiCo exited coconut water. Coke sold Zico back to its founder as it slimmed down its portfolio, and Pepsi offloaded O.N.E. as part of the $3.3 billion sale of its juice business.
Despite the beverage giants’ size, they had been unable to compete with Vita Coco, which is credited with bringing coconut water to the U.S. and still holds 50% share of the market, excluding its private-label business.
Their exits from the segment opened a new distribution avenue for Vita Coca. As long as Coke and Pepsi were in the coconut water business, their contracts with venues ranging from stadiums to college campuses shut Vita Coco out.
With the momentum of new growth opportunities, Vita Coco is now pushing into bars and restaurants. Step one of the plan is teaming up with Diageo for three canned cocktails mixing Captain Morgan rum and Vita Coco coconut water: a mojito, a piña colada and a strawberry daiquiri.
“If you go to Brazil or Southeast Asia, coconut water is what you mix with cocktails,” Kirban said. “The idea is to start getting consumers used to drinking coconut water cocktails with the ready to drink with Diageo partnership.”
Kirban said Vita Coco would be partnering with a spirits company for its broader on-premise expansion plans, but declined to name the partner.
Over the last few years, alcohol and nonalcoholic beverage companies have been teaming up, leaning on each others’ brand equity and expertise to gain so-called “share of throat.” For example, Captain Morgan can introduce itself to Vita Coco’s health-conscious, younger consumers, while Vita Coco benefits from the rum’s mass market appeal.

The morning after

Vita Coco has also been leaning into its reputation as a hangover “cure.”
Since late 2019, the brand has used New Year’s Day as way to pitch hangover recovery kits and subscriptions that feature its products in collaborations with Postmates, Lyft and Reef Kitchens.
This year it’s partnering with DoorDash for a promotion Monday morning following the Super Bowl.
The marketing strategy is something of a reversal, after years of resisting the association.
“With our board, there was always a discussion,” Kirban said. “When you talk marketing, do we want to talk about hangovers? Is that OK for us to talk about?”
And it’s not done there. After the hangover subsides, Vita Coco wants to be the non-dairy milk in your coffee.
In late January, the brand announced it’s partnered with Alfred Coffee, a high-end chain with locations in California and Texas, to create a non-dairy coconut milk for its baristas to use.
Vita Coco plans to expand the product designed specifically for coffee — separate from the coconut milk it sells in supermarkets nationwide — to other coffee shops and eventually to store shelves.

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The FTSE 100 has smashed through three intraday records over the last week.
The make-up of the index kept it resilient through recent global market turmoil and bumper profits reported by energy, financial and commodities firms have taken it to new heights.
This is despite a host of gloomy predictions on the U.K. economy; and with warnings that millions are facing dire circumstances due to inflation.

The sun rises over the city on Feb. 6, 2023 in London, United Kingdom.
Leon Neal | Getty Images News | Getty Images

LONDON — The U.K. is facing the weakest growth prospects in the G-7 and a catalogue of cost-of-living pressures that are pushing the poorest into crisis and intensely squeezing the budgets of middle-income households.
At the same time, more investor money has never been pumped into the U.K.’s biggest companies. The FTSE 100 index has smashed through three intraday records over the last week, starting last Friday and hitting new heights in Wednesday’s and Thursday’s sessions.

That’s also coming off the back of a year in markets that was dominated by doom and gloom, with risk assets selling off and indexes from the pan-European Stoxx 600 to the U.S. S&P 500 to Shanghai’s SSE Composite emerging bruised.
The most recent uptick for the FTSE 100 shows that, as well as occurring despite harsh cost-of-living pressures, they are also linked to them.
Energy firms such as Shell and BP have reported record profits and promised higher shareholder dividends, boosting their share prices (with calls for higher windfall taxes to support consumers struggling with higher bills doing little to dampen their appeal).
Thursday’s FTSE climb to an all-time high of 7,944 points at midday in London was boosted by gains at Standard Chartered, one of many banks that have seen profits jump as a result of higher interest rates.
Meanwhile, the strong performance of commodity stocks has also lifted the index higher as they have been boosted by a rise in prices, supply constraints and, recently, the prospect of China’s Covid-19 reopening.

Stock chart icon

FTSE 100 chart.

“The U.K. FTSE 100 is not about the U.K. domestic economy,” said Janet Mui, head of market analysis at RBC Brewin Dolphin, noting over 80% of firms’ corporate revenue exposure is derived from overseas.
Mui told CNBC a confluence of factors had taken the index to a record high, including the plunge in sterling helping those overseas revenues (collected in dollars); its heavy weighting in energy, commodities and financials; and the relatively strong performance too of defensive staples in consumer products — such as Unilever — and health care — such as AstraZeneca.

What the U.K. stock market has frequently been criticized for — a lack of new, buzzy tech firms and preponderance of stalwarts of the “old economy” — has been a boon as monetary and financial cycles have turned.
The wider FTSE 250 does have stronger domestic links but still has 50% of revenue exposed to overseas, Mui added.
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said that among other factors, the FTSE’s rise could be explained by glimmers of hope in the economic picture, such as housebuilder Barratt reporting a “modest uplift” in reservations of new homes. She also pointed to forward-looking signals of Europe avoiding a recession and an abating of the energy crisis.
Banks would perform even better if their net income margins improve but bad loans don’t come through, she noted.

Stock chart icon

Shell share price.

Among the factors weighing on the U.K. public are interest rate rises increasing borrowing costs, grocery price inflation at a record high of 16.7% and overall inflation above 10%.
A report published Wednesday by the National Institute of Economic and Social Research argued the U.K. was likely to avoid a technical recession this year — though growth would be near zero — but that one in four households will be unable to fully pay their energy and food bills, and middle-income households will face up to a £4,000 ($4,873) drop in disposable income.
And the disjunct between stock market gains and the dire outlook still facing many households jars for many.
“It is a cruel paradox that on the day that the FTSE 100 index hit a record high, campaigners on behalf of up to 7 million people on lower incomes in the UK were calling for the government to extend the support provided to them with regard to their energy bills,” Richard Murphy, professor of accounting practice at Sheffield University Management School, told CNBC.
In March, the U.K. government is set to end a broad household energy bill compensation program that has run through the winter. It comes as many governments attempt to wind down fiscal support to rein in public spending, with the European Central Bank recently arguing that maintaining support packages risks maintaining inflation.
But Murphy said that without the support, and with bills still elevated, “many will not be able to make ends meet and will go hungry, cold or even homeless as a result.”
“The picture that this provides of a country enormously divided by differing incomes and wealth is almost Victorian in its starkness,” said Murphy.

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“Consumers appear more willing to increase spending on hotel accommodation for their trips vs. pre-Covid, with 20% citing it as their top travel expense compared to 17% each in 2017 and 2020,” Morgan Stanley analysts said.
Their report cited a proprietary survey from Jan. 29 to 31 of about 2,000 consumers across China’s larger cities in 19 provinces.
Back in September, UBS analyst Xin Chen and a team said they expected that after Covid passed, people in China would pay up for hotels.

Consumers in China plan to pay up when it comes to hotels, a Morgan Stanley survey found in late January.
The research points to growing demand for high-end and luxury hotels in China now that the country has ended domestic travel restrictions — and a Covid wave has passed.

“Consumers appear more willing to increase spending on hotel accommodation for their trips vs. pre-Covid, with 20% citing it as their top travel expense compared to 17% each in 2017 and 2020,” Morgan Stanley analysts said.
The report released Tuesday cited a proprietary survey from Jan. 29 to 31 of about 2,000 consumers across China’s larger cities in 19 provinces.

The report said that “37% of the consumers prefer higher star-rated hotels, up from 18% in 2020, with higher-income consumers showing even stronger appetites for luxury hotel stays (47% vs. 31% in 2020).”
“Mentions of budget hotels and mid-range hotels fell universally.”

Savings soared

Consumers’ penchant to save soared to record highs during the pandemic. Retail sales lagged overall economic growth in China in the face of uncertainty about future income.

Morgan Stanley said the survey found a similarly muted appetite for shopping, despite it ranking as the top expense for travelers. The shopping budget for travelers was 9,405 yuan ($1,387), slightly higher than in 2020 but still well below the 2017 level of 13,782 yuan, according to surveys over the past few years.
“The majority of the consumers expect to keep their overall spending unchanged in the next six months (70% vs. 73% last month),” the report said.
But 24% of respondents said they planned to spend more to “upgrade their lifestyles” — an attitude that typically results in buying higher quality products. That’s up from 20% a month ago, the report said.
“The increase in the number of consumers looking to upgrade their lifestyle with higher spend is universal.”

On leisure spending in China: “We don’t see them slowing down.”

Christopher J. Nassetta
CEO, Hilton Worldwide

Per capita disposable income in China grew by 2.9% in 2022 to 36,883 ($5,439) when excluding price factors, according to the National Bureau of Statistics. For urban households, disposable incomes rose more than $1,000 above the national level, the data showed.

An opportunity for international brands

Back in September, UBS analyst Xin Chen and a team said they expected that after Covid passed, people in China would pay up for hotels.
“The growing mid-/high-income population in China will fuel continued growth in demand for upscale hotels,” the UBS report said. “At present, the number of upscale and luxury hotel guest room contribution and brand penetration rate in China are both lower than in North America.”
It may be an opportunity for international brands.
“We believe it will be challenging for China hotel groups to enter the upscale market,” UBS said.
“China’s hotel groups are still exploring the upscale hotel market, and we think acquisition of established overseas upscale brands may be their best option, and that founding joint ventures with real estate developers could provide property management resources for expansion into the upscale hotel market.”
InterContinental Hotels Group announced this week it signed two hotel deals in Shanghai, including the first hotel in Greater China under its luxury Vignette Collection brand. The hotels are set to open in the first half of 2024, according to a release.
InterContinental, Marriott International and Wyndham Hotels & Resorts are due to release earnings later this month.
Hilton Worldwide Holdings said in its fourth-quarter earnings report overnight that an industry measure of revenue for China showed business was still down by 37% compared to 2019 levels. China’s Covid controls also prevented the company from expanding as much as it had planned in the fourth quarter.

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“You’re already starting to see significant travel within China in terms of uptick,” Hilton Worldwide CEO Christopher J. Nassetta said in an earnings call.
“And we expect, particularly in the second half of the year, you’re going to have a big tailwind from that,” he said, according to a StreetAccount transcript.
“There continues to be broader pent-up demand across all segments. I mean, you could argue in the leisure side … people have been doing a lot of it, but we don’t see them slowing down.”
— CNBC’s Michael Bloom contributed to this report. More