S&P 500 in Worst Daily Drop in Over a Year, Entering Correction Territory
Wall Street was hit with another wave of selling on Monday, falling deeper into a plunge that started early this year, with investors rattled by concerns that the Federal Reserve will have to remove its support for the economy much faster than expected.
The S&P 500 fell more than 3.5 percent by midday, headed for its biggest drop since June 2020. Technology stocks, which have been on the leading edge of this year’s decline, fell even further on Monday: the tech-heavy Nasdaq composite slid more than 4.5 percent.
Monday’s selling brought with it a new marker of the abrupt shift in investor thinking: The S&P 500 has now dropped more than 10 percent from its Jan. 3 record. A drop of that scale, called a correction on Wall Street, is an infrequent occurrence. The last time the S&P 500, the U.S. benchmark, fell that much was March 2020, when a panic over the emerging coronavirus pandemic gripped global markets.
This shift is happening because investors anticipate the Fed will have to raise interest rates quickly, and often, this year as it tries to tamp down inflation that’s at its highest level in 40 years. Its main policy interest rate, the federal funds rate, was slashed to near-zero in 2020 as the central bank took extraordinary measures to shore up the economy as it was hit by lockdowns. Those low rates helped fuel a massive rally in stock prices.
Now that the Fed is likely to take away that support, investors are rethinking their expectations for corporate profits and what they’re willing to pay for stocks. Higher interest rates can also dampen consumer demand because they make loans costly.
Analysts say this change in thinking has come quickly, in part because the Fed has signaled that its prepared to move fast but also because the Omicron variant of the coronavirus has proved less of a threat to growth than first expected, giving the Fed room to act without threatening the recovery.
“You’re starting to see a shift in psychology,” said John Canavan, an analyst at Oxford Economics. The Fed is holding its first policy meeting of the year this week, and while there probably won’t be any significant changes in the central bank’s policy, the attention on the meeting “focuses markets on the broader fact that the Fed is prepared to aggressively remove accommodation they hadn’t expected just a few months ago,” Mr. Canavan said.
Economists expect the that the Fed’s first interest rate increase will come in March.
The drop on Monday also came amid rising concerns about tension between Russia and Ukraine. The White House is considering deploying thousands of U.S. troops, as well as warships and aircraft, to NATO allies in the Baltics and Eastern Europe, in what would be a major shift from its restrained stance on Ukraine. On Sunday, the State Department ordered all family members of U.S. embassy personnel in Kyiv to leave Ukraine, citing the threat of Russian military action.
Heightened tension in the region threatens Europe’s energy supply, because Russia provides the continent with more than 40 percent of its natural gas and 25 percent of its oil. Fears of a disruption come as Europe is already gripped by an energy crunch, with soaring natural gas prices caused by short supplies.
The Stoxx Europe 600 and the Dax in Germany both slid 3.8 percent on Monday. The two indexes are down about 8 percent from highs in early January.
“The double whammy of risk events is proving too much for Wall Street to handle,” said Fiona Cincotta, an analyst at City Index.
Image
The District of Columbia and three states sued Google on Monday, claiming that the tech giant deceived consumers to gain access to their location data.
In separate lawsuits, the attorneys general of D.C., Texas, Washington and Indiana claimed that Google misled users of Android phones and of tools like Google Maps and its search engine by continuing to track location information of users who had changed privacy setting to prevent the data collection.
Karl A. Racine, the attorney general for the District of Columbia, led the complaints following a three-year investigation, which was initiated after a report by The Associated Press showed the company recorded users’ movements even when told not to. He said investigators found that since at least 2014, Google made misleading and conflicting claims to consumers about privacy protections offered via its account settings.
The D.C. lawsuit alleged that even when a user had changed the settings in their account or device to stop location tracking, Google still collected and stored that information through Google services, Wi-Fi data and marketing partners. The search giant also misled and pressured users to enable more location tracking, for example by claiming products would not function properly if the location services setting was disabled when in fact it was not needed to use the app, according to the suit.
“Google falsely led consumers to believe that changing their account and device settings would allow customers to protect their privacy and control what personal data the company could access,” Mr. Racine said in a statement. “The truth is that contrary to Google’s representations it continues to systematically surveil customers and profit from customer data.”
Google said the allegations brought by the attorneys general were false and that the company had put in place many changes to its privacy policies to help users protect their location data.
“The attorneys general are bringing a case based on inaccurate claims and outdated assertions about our settings,” said Jose Castaneda, a spokesman for Google. “We have always built privacy features into our products and provided robust controls for location data. We will vigorously defend ourselves and set the record straight.”
Google is also fighting an antitrust lawsuit led by Texas in which states have accused the company of obtaining and abusing a monopoly over the systems that allow publishers to auction off ad space to marketers. On Friday, Google asked a federal court to dismiss the lawsuit.
The lawsuits add to a mounting offensive by regulators to curtail the power and business practices of Silicon Valley giants like Google, Facebook, Amazon and Apple. State and federal regulators have filed dozens of antitrust, consumer protection, privacy and trade lawsuits in an attempt to curb the business models or break up the companies. A Senate committee last week advanced potentially landmark antitrust legislation that tries to weaken the dominance of the internet giants.
The attorneys general of D.C., Texas, Washington and Indiana said their suits, filed under local consumer protection laws, sought to fine Google and to stop its practice of collecting location data collection for users who have opted out. The attorneys general also have joined on other antitrust lawsuits against Google for allegedly harming competition in search and advertising technology.
“Google has prioritized profits over people,” the Indiana attorney general, Todd Rokita, said. “It has prioritized financial earnings over following the law.”
Image
When a company’s stock starts to drag, activist investors often swoop in to shake things up, pressuring laggards to cut costs, shed poorly performing assets or even consider selling itself altogether.
Sensing opportunity for investment profits at a time when the stock market has been rocky, activists have taken aim at their latest targets: the multinational consumer goods company Unilever, the fitness equipment maker Peloton and the department store chain Kohl’s.
Unilever faces a new challenge from a prominent activist.
Only days ago, Unilever suffered a big defeat when it was forced to drop its $68 billion bid for GlaxoSmithKline’s consumer health business.
Now it must deal with one of Wall Street’s most prominent activist investors, Nelson Peltz, who has amassed a stake in the consumer products giant via his investment firm, Trian Fund Management, two people briefed on the matter said on Sunday. Mr. Peltz has experience taking on big consumer companies: He won a seat on the board of Procter & Gamble in 2017.
It is unclear how much of a stake Trian owns or what it is calling for, though one of the people said the firm had begun buying shares in Unilever before the company’s pursuit of the GlaxoSmithKline business became public. Shares in Unilever were up nearly 7 percent in London. READ MORE
Peloton is pushed to sell itself and drop its chief executive.
In a letter to the embattled at-home fitness equipment maker, Blackwells Capital called for directors to fire the company’s chief executive, John Foley, who is also a co-founder, and to weigh a sale as its shares tumble amid falling sales and growing inventory. The company’s stock has fallen nearly 4 percent in premarket trading.
The company is in worse shape now than before the pandemic propelled its growth, Blackwells said, with “high fixed costs, excessive inventory, a listless strategy, dispirited employees and thousands of disgruntled shareholders.” Still, any fight might be an uphill battle: Peloton has two shares of stock, where Class B shareholders have drastically more voting power — and Mr. Foley alone controls nearly 40 percent of shareholder votes. A representative for Peloton did not immediately respond to a request for comment.
Kohl’s comes under pressure with a bid to go private.
The department store Kohl’s has received a roughly $9 billion offer to go private in a deal with an investment consortium backed by the activist hedge fund Starboard Value, according to two people familiar with the matter. The private equity firm Sycamore Partners has also reached out to Kohl’s about a potential deal.
Kohl’s on Monday confirmed it had “received letters expressing interest in acquiring” the company. Its shares are up more than 30 percent than premarket trading.
Kohl’s is already under pressure to improve its share price. The activist firm Macellum Advisors, which has a 5 percent stake in Kohl’s, urged the retailer in a letter last Tuesday to explore strategic alternatives, including a sale. That was after it raised similar criticisms over Kohl’s stock performance last year. The hedge fund Engine Capital has also been calling on Kohl’s to consider a sale, along with other strategic initiatives. READ MORE
Image
Sarah Palin has tested positive for the coronavirus, forcing the delay of her defamation trial against The New York Times until next week. The trial, which was set to begin with jury selection on Monday morning, is now scheduled to start on Feb. 3.
Ms. Palin’s in-person testimony in a federal courtroom in Lower Manhattan this week was expected to be one of the focal points of the trial. Ms. Palin sued The Times in 2017 after it published an editorial that erroneously asserted a link between her political rhetoric and the mass shooting in Tucson, Ariz., in 2011 that left six people dead and gravely wounded Gabrielle Giffords, then a Democratic member of Congress. The Times later corrected the editorial.
Ms. Palin’s lawyer, Kenneth G. Turkel, said in court on Monday that his client, the former Alaska governor, was still eager to appear.
“She wants to be here for jury selection, she wants to testify live,” Mr. Turkel told the judge, Jed S. Rakoff. Ms. Palin has had three tests, all of which came back positive, according to the judge. He also said that she was not vaccinated.
It is uncommon for a defamation case against a major news organization like The Times to advance to the point that it reaches a jury. It is even less common for The Times to lose one of these cases — that has not happened in 50 years in an American court.
The law offers robust protections to journalists and news outlets when a public figure like Ms. Palin accuses them of defamation. The Supreme Court has said that it is not enough for a public figure to prove that their reputation was damaged; the publisher of the damaging report must have acted with “actual malice” by either knowing the information was false or displaying a reckless disregard for the truth.
But Ms. Palin’s lawyers have argued in court filings and in public that the law is too broad in shielding journalists from liability. The larger constitutional questions about the limits of press protections won’t come up in this trial, but they loom over the case, which is being watched closely by media organizations and First Amendment scholars.
Image
Boeing on Monday announced an additional $450 million investment in Wisk Aero, expanding its bet on autonomous, electrified flight. The funding will help to fuel ambitious growth plans at Wisk, which is working to develop a self-flying electric air taxi.
“With this investment, we are reconfirming our belief in Wisk’s business and the importance of their work in pioneering all-electric, A.I.-driven, autonomous capability for the aerospace industry,” Marc Allen, Boeing’s chief strategy officer, said in a statement. Self-flying aircraft are “key to unlocking scale” in passenger and cargo flight, he added.
Boeing declined to share the size of its previous investment in Wisk, a joint venture of Boeing and Kitty Hawk, which is financed by Larry Page, who co-founded Google. A spokesman for Wisk, which is based in Mountain View, Calif., declined to say how much total investment it had received so far, but said Boeing had been the company’s largest investor since the joint venture was formed. Wisk employs about 360 people and plans to increase that work force by about 70 percent over the next year.
The niche market for electric aircraft that take off like helicopters, fly like planes and can carry a handful of passengers short distances has attracted billions of dollars in investment in recent years, in the hope that the technology could supplement and supplant urban transportation and help airlines to offset their greenhouse gas emissions.
A handful of air taxi start-ups, including Archer Aviation, Joby Aviation, Lilium and Vertical Aerospace, went public last year and have a combined valuation of about $6 billion today.
American Airlines, a major Boeing customer, invested in Vertical Aerospace and has said it plans to buy up to 250 of that company’s aircraft. United Airlines, another major Boeing customer, invested in Archer and plans to buy up to 200 aircraft from it. Wisk sued Archer last year, accusing it of stealing trade secrets and infringing on its patents.
Wisk is developing its sixth-generation aircraft. If that autonomous vehicle is certified for flight, the company plans a fleet allowing it to carry out millions of annual zero-emission flights in nearly two dozen cities, it said. The Federal Aviation Administration has yet to approve any electric air taxi, autonomous or not, for flight, and experts say it could still be years before such aircraft are ready for public use.
Tuesday
-
Microsoft earnings: The tech giant is scheduled to publish its earnings report for the last three months of the year. Investors are waiting to hear more details from its chief executive, Satya Nadella, on the company’s $70 billion acquisition of Activision Blizzard, its biggest deal ever, which was announced on Tuesday.
-
I.M.F. World Outlook: The International Monetary Fund will provide an update for its biannual report on the outlook for a global economic recovery, which was published in October. Economists are expecting to hear revised forecasts for global growth, inflation and the effects of the Omicron variant on the economy.
Wednesday
-
F.O.M.C. meeting: The central bank’s Federal Open Market Committee will meet for the first time this year. Economists think Federal Reserve officials will use the meeting to signal that interest rate increases are coming in March. Some think there is even a chance that officials will slow bond buying more quickly than they previously planned.
-
Boeing earnings: Investors will be looking for an update on when Boeing will resume shipping its 787 Dreamliner after quality concerns led the company to slow production and suspend deliveries. The company said last week that it sold a net 535 new planes last year after factoring in cancellations, capping its best year of sales since 2018.
-
Tesla earnings: With a major computer chip shortage slowing vehicle production for many companies, investors will want to hear more on how Tesla increased its deliveries 87 percent in 2021. The earnings report will also cover a period when Tesla’s market value exceeded $1 trillion for the first time, making it more valuable than General Motors, Ford Motor, Toyota, BMW and several other automakers combined.
Thursday
-
G.D.P. growth: The Commerce Department will publish data on gross domestic product growth in the United States. Some experts estimate that the global chip shortage alone knocked off a full percentage point from the U.S. G.D.P. last year, and they estimate an overall annual growth of 5 to 6 percent.
-
Southwest earnings: Investors will want to learn more about how the Omicron variant of the coronavirus upended Southwest Airlines during the busy holiday season, as well as the company’s forecast for the year. A series of winter storms, coupled with staff shortages as employees called in sick, prompted a wave of flight cancellations by several airlines at the end of 2021.
-
Apple earnings: Analysts expect the company to share more about the effects of an update that allows Apple users to choose not to be tracked across apps and websites, which has disrupted companies that used that information to target ads. Shareholders will also want to learn more about the demand for the iPhone 13 over the holidays.
-
McDonald’s earnings: With fast food prices rising at their fastest pace in more than 20 years, economists are looking for insight into how much longer the American chain will keep passing on the higher costs of ingredients to consumers.
Friday
-
Chevron earnings: The oil giant will report its earnings for the end of the year, giving investors more details on new drilling strategies and its profits as oil and natural gas prices rose throughout 2021. The report will cover a time when Chevron pledged to slash operational emissions to net zero by 2050.
-
Employees at an REI store in Manhattan filed for a union election on Friday, making the outdoor equipment and apparel retailer the latest prominent service-industry employer whose workers have sought to unionize. The filing at the REI store in SoHo asked the labor board for an election involving about 115 employees, who are seeking to be represented by the Retail, Wholesale and Department Store Union, the same union that has overseen the union campaign at the Amazon warehouse in Alabama.
Image
Prices are rising faster than they have in 40 years, taxing consumers’ wallets and befuddling policymakers. It’s not clear if this is because of temporary disruptions in supply and demand during the pandemic, or the result of some long-dormant force that will push prices higher for longer.
The New York Times asked readers for their questions about inflation, and received hundreds of responses. Jeanna Smialek, who covers the Federal Reserve, put the queries to economists and other experts for answers. Here are a few:
Why isn’t competition keeping prices in check?
Competition should keep prices in check. But Matthew Luzzetti, the chief U.S. economist at Deutsche Bank, said the problem is uncertainty. It’s a risky time to jump into any market, or ramp up supply to take advantage of higher prices that might be temporary.
Even if companies wanted to produce new or more products, supply chain issues are a barrier. Until new competitors can produce and transport enough of a given product to meet demand, incumbents will be able to raise prices without much risk of losing customers to a rival.
Won’t inflation lift wages?
Wages increased sharply alongside inflation in the 1970s and 1980s, but in the decades since, pay has struggled to keep pace with price increases. Nonetheless, intensifying competition in lower-wage service industries in recent months has led to higher pay for workers. Factors like unionization, worker bargaining power and the state of the labor market all affect whether companies pay more.
Can price controls keep inflation in check?
Richard Nixon was the last president to embrace price controls. His efforts worked for a time, but prices rocketed up when they were lifted, and the move got a bad rap among economists. But some think they should be tried again: A vocal minority of economists say the 1970s experience unfairly tarnished the idea and that it might be worthwhile to reopen the debate.
Source: https://www.nytimes.com/live/2022/01/24/business/stock-market-economy-news
