Finance

Increased living costs for the lowest earners were more than triple their annual wage growth in 2021 — $1,837 versus $578, respectively, according to a report published by researchers at the University of Pennsylvania’s Wharton School.
Middle and high earners largely broke even or came out ahead.
Savings for the lowest-income Americans are still elevated but dwindling as they spend down federal benefits like stimulus checks and child tax credit payments, according to the JPMorgan Chase Institute.

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Inflation

Consumer prices in January rose 7.5% from a year earlier, the fastest annual pace in 40 years.
However, households don’t feel those price shocks equally.
The lowest-income working households (which earn less than $20,000 a year) faced the highest inflation rate of any income group in 2021, according to an analysis by researchers at the University of Pennsylvania’s Wharton School.
These families funneled more of their budgets to necessities like energy and transportation, prices of which grew more rapidly than other goods and services.

High earners fare better

Meanwhile, the lowest-paid workers were the beneficiaries of the biggest wage growth last year, as restaurants and other generally lower-paying employers competed for scarce talent.

But higher living costs for the lowest earners were more than triple their extra annual pay — $1,837 versus $578, respectively, according to the Wharton School report published Tuesday.
The dynamic means the lowest earners felt a decline in purchasing power in 2021, unless they were able to supplement earnings with other income like government benefits, according to Alexander Arnon, Zheli He and Xiaoyue Sun, who co-authored the report.

Higher earners fared better. Most households with $20,000 to $100,000 of annual income roughly broke even, while those with more than $100,000 came out ahead, according to the analysis.
For example, those households with more than $150,000 of income saw their annual wage growth outpace rising living costs by roughly $2,000 (or, $7,431 versus $5,483, respectively).
(Of course, experiences may vary within each income cohort. The analysis measures the median worker, or the one right in the middle of a group.)
It may sound counterintuitive that the highest earners came out ahead if their wage growth lagged that of the lowest paid. But their raises came on top of higher starting incomes, amounting to more money in dollar terms than the lowest earners. Plus, high-paid workers were more likely to remain employed throughout the year and work full time, according to the study.

Savings

Further, more than 90% of households with incomes below $20,000 spent more than they earned from working in 2021, according to the research — meaning many may have had to borrow or spend from savings to finance their lifestyles.
And research suggests low earners, who saw their savings grow during the pandemic, may soon deplete that cash buffer.
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Savings among the lowest-income families were still 65% above pre-pandemic levels by the end of 2021, according to a JPMorgan Chase Institute analysis published Wednesday. (These households represent the bottom fourth of earners, with take-home income below about $26,000.)
Their accounts were mainly buoyed by government benefits like stimulus checks, monthly payments of the child tax credit since July and enhanced unemployment benefits.
But their balances had been 120% higher in March 2021 relative to two years earlier — suggesting a savings decline, according to the analysis.
“They’re still elevated, but clearly on a downward trend for lower-income families,” according to Fiona Greig, co-president of the Institute and a co-author of the study. “That implies that the pace of their income isn’t quite keeping up with the pace of their expenditures,” she added.

Plus, their savings amounted to just under $1,300 at the end of 2021, which is “not a huge amount of cash on hand [that will] fuel spending for months and months and months,” Greig said.
Expiring federal aid may stress their accounts even more. Monthly child tax credit payments lapsed at the end of 2021, and federal student loan payments are scheduled to resume in May, for example.
Conversely, savings have been relatively stable for the highest earners (with more than $65,000 of income) during the pandemic, according to JPMorgan. Their balances remain about 30% to 35% over 2019 levels, or nearly $7,000 total.
Higher earners were less likely to qualify for certain government assistance; their elevated savings were largely courtesy of reduced spending during the pandemic, on things like travel and entertainment.

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Wall Street’s top supervisor said the proposed changes would require investors to collect and submit certain short sale data to the SEC each month.
SEC Chairman Gary Gensler said that the new rules would apply to investors who hold a short position of at least $10 million or the equivalent of 2.5% or more of the total shares outstanding.
The proposed rules are the latest attempt by the SEC to magnify its oversight of short selling, which has been blamed for causing wild price swings in equities like GameStop.

U.S. Securities and Exchange Commission (SEC) Chair Gary Gensler testifies before a Senate Banking, Housing, and Urban Affairs Committee oversight hearing on the SEC on Capitol Hill in Washington, September 14, 2021.
Evelyn Hockstein | Pool | Reuters

The Securities and Exchange Commission said Friday that it’s considering a new rule and changes to existing regulations that would force short sellers to make more frequent disclosures about their bets.
Wall Street’s top supervisor said the proposed changes would require institutional investors to collect and submit certain short sale data to the SEC each month. The commission would then make aggregate data about large short positions, including daily short sale activity, available to the public for each security.

When short selling, a trader who wants to bet against a company borrows shares of its stock and then sells them on the market. The trader will in theory buy those shares back at a lower price later and return them to the brokerage or asset manager that lent them the equity.
Asset managers lend those shares to short sellers in exchange for regular fees.
“I am pleased to support this proposal because, if adopted, it would strengthen transparency of an important area of our markets that would benefit from greater visibility and oversight,” SEC Chairman Gary Gensler said in a press release.
The proposed changes to Regulation SHO, a collection of SEC rules on short selling, would keep the identities of managers and individual short positions confidential.
Gensler noted in his remarks that the new rulemaking would apply to institutional managers who hold a short position of at least $10 million or the equivalent of 2.5% or more of the total shares outstanding.

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“It’s important for the public and the Commission to know more about this important market, especially in times of stress or volatility,” he added. “The proposed rule would help the Commission address future market events, striking a balance between the need for transparency and the price discovery process.”
The newly proposed rules are the latest attempt by the SEC to magnify its oversight of the practice, which has been blamed by lawmakers in recent years for causing wild and dangerous price swings on Wall Street.  The practice came under scrutiny in early 2021 when individual investors banded together on social media to juice stocks like GameStop that had garnered heavy interest from short sellers.
Late last year, the SEC proposed a rule that would require brokerages and asset managers that lend securities to short sellers to report data on each loan to an oversight body like the Financial Industry Regulatory Authority within 15 minutes of making the loan.
The SEC said it is extending the public comment period on that rule in light of its latest rule change proposals.

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Check out the companies making headlines before the bell:
Foot Locker (FL) – Foot Locker shares slumped 16.1% in the premarket after the athletic apparel and shoe retailer gave a weaker-than-expected full-year profit and comparable-store sales outlook. The company cited changes in its vendor mix as well as a decline in fiscal stimulus versus a year ago. Foot Locker reported better-than-expected results for its fiscal fourth quarter, including an unexpected rise in comp sales.

Cinemark (CNK) – Cinemark jumped 3.7% in the premarket after the movie theater operator reported an unexpected quarterly profit and revenue that beat Wall Street forecasts. Attendance jumped as Covid-19 restrictions loosened.
Dell Technologies (DELL) – Dell tumbled 9% in premarket action after saying it expected its order backlog to swell this quarter, with supply chain issues limiting its ability to fulfill strong order demand.
Block (SQ) – Block surged 16.5% in premarket trading after the payments company formerly known as Square reported better-than-expected profit and revenue for its latest quarter. Block also gave an upbeat forecast for the current quarter and the full year amid growing success for its Cash App.
LendingTree (TREE) – The financial services company’s stock added 2.6% in the premarket after reporting a narrower-than-expected loss and revenue that exceeded analyst forecasts. LendingTree saw strong performance in its consumer segment during the quarter.
Coinbase (COIN) – Coinbase reported quarterly earnings of $3.32 per share, well above the consensus estimate of $1.85, with the cryptocurrency company’s seeing revenue also topping Wall Street forecasts. However, Coinbase said volatility in the cryptocurrency market will result in lower transactions volume this quarter. Coinbase fell 2% in premarket trading.

Beyond Meat (BYND) – Beyond Meat slid 10.8% in the premarket after reporting a wider-than-expected quarterly loss and revenue that fell slightly short of Wall Street forecasts. The maker of plant-based meat substitutes also issued a weaker-than-expected forecast as it expects a temporary disruption of U.S. retail growth.
Etsy (ETSY) – Etsy shares surged 17.4% in premarket action after the online crafts marketplace beat quarterly estimates and issued a strong forecast. Etsy earned $1.11 per share for its latest quarter, compared with a consensus estimate of 79 cents, as it continues to see elevated demand that first developed during the pandemic.
Zscaler (ZS) – Zscaler took an 11.6% hit in the premarket despite beating quarterly estimates on the top and bottom lines. Investors are focusing on the cybersecurity company’s weaker-than-expected outlook, although it reported its strongest year-over-year revenue growth in three years.
Farfetch (FTCH) – Farfetch soared 30.5% in premarket action even though its adjusted quarterly loss of 3 cents per share merely matched estimates and revenue fell below the consensus estimate. The luxury fashion seller was profitable on an adjusted basis for 2021, encouraging investors after a recent tumble in the stock’s price.
KAR Auction Services (KAR) – Carvana (CVNA) is buying KAR Auction Services’ vehicle auction business in the U.S. for $2.2 billion, as the online used-car seller moves to boost its physical presence. KAR soared 66.2% while Carvana rose 0.8% in the premarket.

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In the hours after Russia invaded Ukraine, the U.S., U.K. and European Union announced new sanctions aimed at isolating Moscow from the global economy.
China’s foreign ministry said Thursday the country’s trade with Russia and Ukraine would remain “normal” and refused to call the attack an “invasion.” Meanwhile, the customs agency approved wheat imports from Russia.
China is the largest trade partner for both Russia and Ukraine.

Russia’s Deputy Prime Ministers Yuri Trutnev, Tatyana Golikova, Andrei Belousov, Alexander Novak and Dmitry Chernyshenkosign joint documents following a video conference call between Prime Minister Mikhail Mishustin and China’s Premier Li Keqiang at the House of the Government.
Dmitry Astakhov | Tass | Getty Images

BEIJING — China’s trade with Russia isn’t enough to offset the impact of U.S. and European sanctions on Moscow, according to the White House.
In the hours after Russia invaded Ukraine on Thursday, the U.S., U.K. and European Union announced new sanctions aimed at isolating Moscow from the global economy. The sweeping measures did not include restrictions on purchases of Russian oil and gas — a significant driver of the local economy.

In Beijing, China’s foreign ministry said Thursday the country’s trade with Russia and Ukraine would remain “normal” and refused to call the attack an “invasion.” Meanwhile, the customs agency approved wheat imports from Russia.
China and Russia’s share of the global economy is far less than that of the Group of Seven countries — which includes the U.S. and Germany. That means China “cannot cover” the impact of the sanctions, U.S. press secretary Jen Psaki told reporters late Thursday in Washington.
China accounted for 17.3% of global GDP in 2020, versus Russia’s 1.7% and the G-7’s 45.8%, according to World Bank data.

China is the largest trade partner for Russia and Ukraine. Both countries are part of the Belt and Road Initiative — a regional infrastructure development plan widely seen as Beijing’s effort to increase global influence.
Trade between China and Russia reached a record high of $146.9 billion in 2021, up 35.8% year-on-year, according to China’s customs agency. China’s imports from Russia exceeded exports by more than $10 billion.

From current levels of imports and exports, trade would need to grow by an additional 37% to reach Moscow and Beijing’s goal of $200 billion by 2024.
China’s trade with Ukraine rose by 29.7% last year to $19.31 billion, also a record high, and split fairly evenly between imports and exports, according to customs data.
“China and Russia are comprehensive strategic partners. China and Ukraine are friendly partners,” Assistant Foreign Minister Hua Chunying said Thursday in Mandarin, according to a CNBC translation.
“Thus China will conduct normal trade cooperation, on the basis of [China’s] Five Principles of Peaceful Coexistence [for international relations] and the basis of friendly relationship with both countries,” she said. “This of course includes cooperation on energy.”

Scale of economic impact still unclear

Just under two-thirds of China’s imports from Russia were energy products in 2021, according to Chinese customs data. Russia is China’s largest source of electricity and second-largest source of crude oil, the agency said.

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“China’s lifting of restrictions on Russian wheat and barley imports are clearly intended to offset the impact of sanctions, but it remains to be seen if this will primarily be a symbolic gesture or if it will have meaningful economic impact,” said Stephen Olson, senior research fellow at the Hinrich Foundation, a nonprofit organization focused on trade issues.
“China’s ability to offset the impact of Western sanctions will be determined by the scale and scope of sanctions ultimately agreed to by the U.S. and its partners,” Olson said. “At this point, the West has not yet put all its cards on the table, leaving open the option of tightening the screws later, if need be.”
The Russian ruble plunged to record lows against the U.S. dollar on Thursday as the invasion began.
Western sanctions on Russia have stopped short of cutting the Kremlin off from SWIFT, the international payments network. As of January, the Chinese yuan was the fourth most-used currency for global payments, up from sixth place two years ago, according to SWIFT.
China’s Hua on Thursday criticized the U.S. for providing military assistance to Ukraine and said Russia does not need such support from Beijing or others.
Ties between Russian President Vladimir Putin and Chinese President Xi Jinping strengthened earlier this month with a high-profile meeting of the leaders in Beijing just before the Winter Olympics in the city.
In an official readout, the Chinese side said the two countries need to “strengthen their strategic partnership on energy” and “advance cooperation on scientific and technological innovation.”
On the same day, Russian energy giants Gazprom and Rosneft signed deals with the China National Petroleum Corporation to supply oil and natural gas to China.
“As long as China continues to implement its trading relationship, those measures would already be very helpful to Russia,” said Tong Zhao, a senior fellow in the nuclear policy program at the Carnegie Endowment for International Peace, based in Beijing.
Zhao, who emphasized he is not an expert on economic issues, said that if China took additional measures to support Russia, “it is likely to do those measures in a very low-profile manner in order to mitigate the provocations seen from European and other countries.”

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The world’s leading private equity firm suggests the U.S. the ultimate safe haven play.
According to Blackstone’s Joseph Zidle, it’s largely insulated from the Russia-Ukraine war fallout.

“The U.S. is an island of growth,” the firm’s chief investment strategist told CNBC’s “Fast Money” on Thursday. “The U.S. is one of the only major economies in the world that has this cushion of $6 trillion in stimulus.”
Zidle notes the vast benefits are in household and corporate balance sheets.
“It means the U.S. has this tremendous cushion for growth as the rest of the world faces these headwinds,” said Zidle.
Wall Street may be getting the message. Stocks staged a massive turnaround in the final hour of trading. The Dow, S&P 500 and tech-heavy Nasdaq finished in positive territory.
He acknowledges rising input prices tied to commodities to coordinated central bank hikes remain risks, too. But the strong labor market, said Zidle, is giving the U.S. a major advantage.

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It’s one of the top reasons why Zidle is a long-term bull on housing, a group that has gotten swept up in the selling. The SPDR S&P Homebuilders ETF, which tracks the industry, is off 21% so far this year.
“Personal income has gone up more than the increase in the mortgage rates,” he noted. “It’s important to consider… [the] strong labor markets and rising wages. And, historically housing ends up being more correlated to labor than it is to mortgage rates.”
Zidle also expects job security and rising home values to favor consumer stocks.
“Now, the consumer has got a lot of issues that they’re facing in terms of these higher input prices and there’s a lot of different things competing for wallet share. But I think a strong labor market can end up offsetting a lot of that,” Zidle said.
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