The Dow Jones industrial average is getting a makeover at the end of the month: Amgen, Honeywell and Salesforce will be added to the index, replacing Exxon Mobil, Pfizer and Raytheon.
Apple’s stock split is to blame. The 124-year-old stock index is price-weighted, a quirk that means the influence of its 30 components is based on their share prices, not their market values. Apple’s upcoming four-for-one stock split, which significantly lowers its share price, will reduce its weight in the Dow from about 12 percent to 3 percent, despite no change in the tech giant’s $2 trillion market capitalization.
In response, the index committee made changes to weights and membership to “better reflect the American economy,” it said. The three largest Dow components after the reshuffle will be UnitedHealth, Home Depot and Amgen; Apple drops to 17th.
Exxon is the Dow’s longest-serving member: It joined the index in 1928, as Standard Oil of New Jersey. Its replacement by Salesforce is an apt reflection of the times, with data in the cloud gaining prominence over oil in the ground. The companies are now worth roughly the same in market value.
The Dow has recently lagged the S&P 500, which is weighted by market value, as the latter is more representative of today’s tech-dominated stock market. For all the attention that the Dow gets as a proxy for the broader market, assets tracking the index were worth about $31 billion at the end of last year, a small fraction of the $11 trillion tracking the S&P 500.
Ant Group, the payment- and finance-focused sister company of the Chinese e-commerce titan Alibaba, filed paperwork on Tuesday to list shares in Hong Kong and Shanghai, the first steps toward what could be a blockbuster initial public offering.
Online finance has exploded in China in recent years, and Ant’s flagship service, Alipay, has been a key driver. Here’s what the filing revealed:
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Ant said it generated $17 billion in revenue last year, a jump of more than 40 percent from 2018. More than half of its 2019 revenue came from financial services such as lending, wealth management and insurance that were offered through Alipay.
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The company said that transactions worth $16 trillion took place on Alipay last year, a one-fifth increase from the year before. It also noted that the platform had enabled $290 billion in credit to individuals and small businesses, as well as $500 billion in investments.
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Unlike some other fast-growing tech companies that have listed shares in recent years, Ant is not losing money and had a profit last year of around $2.5 billion.
Ant’s choice of Chinese exchanges over American ones is meant to capitalize on the interest of local investors, for whom Alipay is a household name. Alibaba held a giant share sale in New York in 2014 and a second listing in Hong Kong last year.
But it also reflects the uneasy state of affairs for Chinese technology companies in the United States. President Trump has vowed to restrict apps including WeChat and TikTok in the name of safeguarding Americans from data gathering by the Chinese Communist Party.
The “blank check” acquisition funds known as special purpose acquisition companies, or SPACs, have raised more than $30 billion so far this year, versus $13 billion in all of last year. Can they keep it up? In today’s newsletter, DealBook spoke with some of the most plugged-in SPAC bankers and lawyers on Wall Street, and they cited three factors driving the boom:
1️⃣ Valuations are soaring for popular SPAC targets
“The pipeline is heavily weighted to technology and growth companies,” said Niron Stabinsky, who leads SPAC deals at Credit Suisse.
SPAC offerings will be “incredibly active post Labor Day,” said Paul Tropp, the co-head of Ropes & Gray’s capital markets group. That’s part of a “significant uptick” in listings expected to hit the market before election-related uncertainty sets in: Yesterday, the tech firms Asana, JFrog, Snowflake and Unity all filed to go public.
2️⃣ SPACs aren’t just an alternative to traditional I.P.O.s
“SPACs have become a new way of doing an M.&A. deal,” said Jeff Mortara, the head of equity capital markets origination at UBS. A merger with a SPAC allows the target company’s investors to retain a stake while gaining liquidity, and deal negotiations can be done directly, secretly and quickly. SPACs typically have two years from their I.P.O. date to complete a merger.
3️⃣ The flood of money to SPACs means better terms for targets
“Everything is negotiable,” the venture capitalist Bill Gurley wrote in a detailed case for SPACs on his blog. As competition between SPACs intensifies, “sponsors are continuing to negotiate deals that look better for the companies they buy,” he said.
Why? Some SPAC sponsors are open to a smaller “promote” — the stake the sponsor gets essentially free after a merger. (Traditionally, a sponsor takes 20 percent.) SPACs also award warrants to the vehicle’s investors, which give them the right to buy larger stakes in the merged company at a discount; these are becoming less dilutive as sponsors shift their terms to be more favorable to the target company.
Mr. Gurley predicted that SPAC fund-raising this year could be four times higher than the previous record, set in 2019, implying another $20 billion or so to come. The standard-bearer of a new approach for SPACs is the $4 billion fund sponsored by Bill Ackman’s Pershing Square, the largest to date.
— Lauren Hirsch
Germany’s economy has continued to recover from the effects of the pandemic, but the rebound is starting to slow, data published Tuesday showed.
The Ifo Index of business sentiment, which is considered a reliable economic weather vane, showed that German managers’ assessment of the economy is almost back to where it was in February before the pandemic. In addition, Germany’s official statistics office said the downturn in the second quarter of this year was not quite as bad as previously reported.
With an early lockdown, widespread testing and mask requirements, Germany was more successful than Britain, France, Spain or the United States in reducing infection rates. That allowed the German economy, Europe’s largest, to get going sooner and bounce back faster.
But the number of infections in Germany has been growing lately, and the increase in the Ifo Index was less than analysts expected. The decline in German gross domestic product, 9.7 percent compared to an estimate of minus 10.1 percent in July, was still the country’s worst on record.
While sectors such as retail and manufacturing have come back strongly, restaurants, airlines and hotels are still deep in crisis.
“The path to recovery is still long,” economists at Oxford Economics said in a note.
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Global stocks were buoyed on Tuesday by signs of warmer trade relations between the United States and China. On Wall Street, futures pointed to a rise in the S&P 500 when trading starts later today.
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In Europe, the benchmark Euro Stoxx 600 gained 0.5 percent. In Asia, Japan’s Nikkei closed 1.4 percent higher, the Kospi in South Korea gained 1.6 percent, while China’s Shanghai Composite lost 0.4 percent.
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The United States 10-year Treasury note slumped in price, oil benchmarks were mixed as traders watched the progress of tropical storms in the Gulf of Mexico, and gold was slightly lower.
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Ant Group, the payment- and finance-focused sister company of the Chinese e-commerce titan Alibaba, filed paperwork on Tuesday to list shares in Hong Kong and Shanghai. It’s the first step toward what is expected to be a blockbuster initial public offering.
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Top trade officials from the United States and China spoke on Monday, part of a six-month checkup on the status of a trade deal that both countries signed in January. Both countries issued fairly upbeat statements afterward.
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“The fact that the conversation happened is positive, showing that trade is still moving ahead despite the current tensions between the two countries,” said He Weiwen, a former Ministry of Commerce official who still plays an active role in Chinese advisory councils.
On Monday, a judge in the U.S. District Court of Northern California heard arguments about whether to grant Epic Games, the creator of the wildly popular video game Fortnite, a restraining order against Apple. Epic sought the order last week after Apple cut off its support for an Epic software development tool, Unreal Engine, an action that Tim Sweeney, chief executive of Epic, called an “existential threat” to Epic’s $17 billion business.
At root are the fees Apple and Google charge app developers to sell apps in their marketplaces — a 30 percent cut. This month, Epic started encouraging Fortnite’s mobile-app users to pay it directly, rather than through Apple or Google. That violated Apple’s and Google’s rules that they handle all such app payments so they can collect their commission.
In response, Apple banned Fortnite from its store; Google later did the same. Epic was ready. It rallied its fans around the hashtag #FreeFortnite and published a video satirizing Apple’s famous “1984” ad, which had portrayed Apple as the underdog. The parody included a villain wearing the same sunglasses as Apple’s chief executive, Tim Cook.
In an interview last month, Mr. Sweeney said the stakes of the antitrust investigations into tech giants like Apple and Google were no smaller than the future of humanity. “Otherwise you have these corporations who control all commerce and all speech,” he said.
Mr. Sweeney said that he had discovered that the fees from the app stores meant that Apple and Google could sometimes make more money on a game than its creators.
“That’s totally unjust,” he said. “That shows the market is out of control.”
Black homeowners say their homes are consistently appraised for less than those of their neighbors, stymying their path toward building equity and further perpetuating income equality in the United States, reports Debra Kamin:
Home appraisers, who work under codes of ethics but with little regulation and oversight, are often all that stands between the accumulation of home equity and the destruction of it for Black Americans.
After the first appraisal came up short on his house in an affluent, racially mixed suburb of Hartford, Conn., Stephen Richmond, an aerospace engineer, took down family photos and posters for Black movies and had a white neighbor stand in for him on a second appraisal. He was hoping to refinance; with the second report, he saw his home’s value go up $40,000 from the initial appraisal just a few weeks earlier.
In response to the coronavirus pandemic, a federal ruling issued in March allowed appraisals for homes that were being sold to be done remotely in certain circumstances, temporarily pausing the need for interior home inspections. Those looking to refinance, however, still must complete an in-person appraisal.
In 2018, researchers from Gallup and the Brookings Institution published a report on the widespread devaluation of Black-owned property in the United States, which they discussed in a 2019 hearing before the House Financial Services Subcommittee. The report found that a home in a majority Black neighborhood is likely to be valued for 23 percent less than a near-identical home in a majority-white neighborhood; it also determined this devaluation costs Black homeowners $156 billion in cumulative losses.
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Delta Air Lines said in an internal memo that it will need to furlough nearly 2,000 pilots in October. The furloughs would mostly affect pilots who are newer to the company, though some or all could be spared if the Delta pilot’s union agrees to an across-the-board cut, said John Laughter, Delta’s senior vice president of flight operations. On Friday, the pilot’s union, the Delta Master Executive Council, said that 1,806 pilots had signed up for early retirement, with most expected to leave the company on Sept. 1.
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Permanently repealing the payroll tax, which President Trump has repeatedly insisted that he wants to do, would deplete the trust fund used to pay for Social Security by the middle of 2023, according to a review by the fund’s actuary. “Under this hypothetical legislation, benefit obligations could not be met after the depletion of the asset reserves and elimination of payroll taxes,” said Stephen C. Goss, the chief actuary at the Social Security Administration.
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