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Need to Know: The customer is never wrong and will steer $2.2 trillion to these hospitality stocks, says Jefferies

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So Wall Street decided to stop fretting over inflation, backed up by equally soothing comments by some Federal Reserve officials. The gains look set to carry on Tuesday.

One question investors may be asking right now is how much of the post-COVID-19 pandemic reopening play is priced into markets. For one hard-hit sector, the spending may have only just begun, says our call of the day from Jefferies.

“Jefferies U.S. economics team estimates that households have accumulated U.S. $2.2 trillion in additional savings since the beginning of 2021 — above and beyond what they would have saved assuming a 7.5% savings rate,” said a team led by global equity strategist Sean Darby, in a note on Tuesday.

The team estimated those savings have mostly sat untouched this year, with the bulk concentrated among higher earners. “This savings rate spike was largely driven by a shortfall in service spending, which in turn was largely driven by higher income households,” said Darby and the team.

“If the potential for a turnaround in service spending is high, so is the set up for a massive swing in earnings for the S&P 1500
SP1500.253010,
+1.52%

hospitality” sector, said Darby and the team. Their charts show the outsize COVID-19 pandemic hit for those stocks in terms of sales and net income:

Darby said mobility data show the sharp turnaround they forecast is already under way, such as in the once COVID-19 hot spot of New York, where the number of seated diners from real-time online reservation network OpenTable is strengthening.

“Not only did the volume of customers sink, but hospitality was one of the few sectors that experienced outright price deflation. The good news is that the sharp decline in new COVID-19 cases is being accompanied by improving expectations for the labor markets,” said Darby and the team.

“The bottom line is that the S&P 1500 hospitality sector is seeing sweeping changes
to earnings assumptions. Indeed, the turnaround is akin to a cyclical movement,
as pricing power is restored,” he said. The below chart shows the companies Jefferies covers:

Among the buy-rated companies highlighted by Jefferies, shares of online travel giant Booking
BKNG,
+2.40%

and coffee giant Starbucks
SBUX,
+1.44%

are up about 5% so far this year, casino and resort group Las Vegas Sands
LVS,
+0.03%

has lost 3%, and hotel chain Marriott
MAR,
+2.07%

is up 7%.

Wells Fargo’s senior economist Tim Quinlan had this to say about pent-up leisure spending, in a note to clients on Monday.

“Our forecast puts the level of services spending roughly $700 billion higher than it was in the first quarter of this year by the end of 2021. Matching the growth rate from the prior expansion, that’s equivalent to more than four and a half years of typical spending packed into nine months,” said Quinlan.

Years.

Bitcoin bump, home prices and a Hollywood deal?

Stock futures
ES00,
+0.30%

YM00,
+0.26%

ES00,
+0.30%

are up and European equities
SXXP,
+0.39%

hit record highs, boosted by a $22 billion German property deal. In Asia, China’s CSI 300 index
000300,
+3.16%

climbed over 3%, a day after moves by officials to cool commodity prices.

Read: Why demand for Fed’s reverse repo facility is surging again

The CoreLogic Case-Shiller national home price index is ahead, followed by the consumer confidence index and new home sales.

“I think there will come a time when we can talk more about changing the parameters of monetary policy, I don’t think we should do it when we’re still in the pandemic,” said St. Louis Fed President James B. Bullard, to Yahoo Finance. He also warned investors to tread carefully with cryptocurrencies. “We have a couple of thousand of these around, most of them are worthless,” he said

Bitcoin
BTCUSD,
-5.43%

and other cryptocurrencies have been rising, after Elon Musk, the founder of electric-car maker Tesla
TSLA,
+4.40%
,
said he was working with bitcoin miners over sustainability issues.

Online retailer Amazon.com
AMZN,
+1.31%

is nearing a deal to buy Hollywood studio MGM Holdings for almost $9 billion, say sources.

Members of the family of George Floyd, who was murdered by a Minneapolis police officer, will be guests at the White House on the one-year anniversary of his death on Tuesday.

The European Union has banned its airlines from using Belarus’ airspace, after a Ryanair
RYA,
+1.54%

jet was forced to land there and an opposition journalist, Roman Protasevich, was arrested. He apparently surfaced on Belarusian state television, where he admitted to organizing protests:

Random reads

Kansas University and the brain of theoretical physicist Albert Einstein may be connected.

A trove of lost Brontë family literary gems is headed to broker Sotheby’s.

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