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Sometimes stocks go down
The stock market just had its worst day since June, with a sharp sell-off in tech stocks dragging everything down. What happened? Analysts have thoughts:
A reality check: Markets had rallied despite broader economic woes, thanks to large tech companies. Some say yesterday’s retreat was a warranted pullback. “The market had gotten ahead of itself and had gotten ahead of the economy, and I think this is a little bit of a reflection of that,” William Delwiche, an investment strategist at Baird, told The Times’s Matt Phillips.
Dealers chasing their bets: Some traders have attributed the rise in tech stocks to a big spike in call options, derivative bets that those companies’ shares will rise. Dealers who sold those options — and bought shares and other hedges to cover those bets — may explain some of the rise in stock prices and a simultaneous jump in volatility indexes, which doesn’t usually happen in tandem. This dynamic also makes the market particularly vulnerable to steep drops, as dealers moved to cover option bets on falling shares, adding momentum to the sell-off.
The sputtering economy: Layoffs remain widespread, according to the latest jobless claims data, and monthly unemployment numbers coming out today are expected to show a slowdown in the recovery. “If the mind-set changes from technicals to fundamentals, then this market has further to go,” Mohamed El-Erian, Allianz’s chief economist, told CNBC. And as stimulus talks remain stalled in Washington, business groups like the U.S. Chamber of Commerce are issuing increasingly dire warnings about “the cost of inaction.”
On the other hand: Yesterday’s drop in the tech-heavy Nasdaq took it all the way down to levels seen … last Tuesday. (Futures suggest another down day for tech stocks, but not as severe as yesterday.) Bloomberg’s John Authers addressed some of the fears that another dot-com crash is in the works, noting that the tech giants behind the current rally are hugely profitable, unlike in the late 1990s, which partly justifies their heady valuations. A flood of liquidity from the Fed is another important factor, because “investors have to put it somewhere,” he added.
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Today’s DealBook Briefing was written by Andrew Ross Sorkin in Connecticut, Lauren Hirsch in New York, and Michael J. de la Merced and Jason Karaian in London.
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Here’s what’s happening
President Trump’s vaccine chief says a vaccine probably won’t be approved before Election Day. Moncef Slaoui, the top adviser for the White House’s vaccine program, said that there was a “very, very low chance” of such a treatment being ready by then. That runs counter to more optimistic assertions made recently by Mr. Trump and other officials.
Facebook will disable new political ads in the week before the U.S. elections. The social network announced the ban, along with barring candidates from claiming false victories, in an effort to halt misinformation and interference from politicians. The Trump campaign criticized the moves as censorship by “the Silicon Valley Mafia,” while others said the initiative didn’t go far enough.
Malaysian prosecutors dropped criminal charges against Goldman Sachs over the 1MDB scandal. The move came after the Wall Street giant agreed to pay $3.9 billion to settle the case; it pleaded not guilty and denied wrongdoing.
Juul is reportedly planning huge job cuts. The embattled e-cigarette maker may lay off more than half of its employees, according to The Wall Street Journal, and is considering halting sales in much of Europe and Asia. The plans come as regulators crack down on the company and rivals like Reynolds American gain ground.
The Korean pop group BTS may get even richer. Big Hit Entertainment, the label behind the boy band, plans to go public at a valuation that could surpass $4 billion. (Members of the band were given shares in the company.) Some analysts are wary that the I.P.O. could value Big Hit at 76 times projected 2020 earnings, more than double its rivals’ valuations.
Google’s antitrust fight is ahead of schedule
The Justice Department plans to sue Google over its competitive practices as soon as this month, The Times’s Katie Benner and Cecilia Kang scooped yesterday. But there’s a big question: Is this the strongest case that the government can bring against the tech giant?
Department employees were told to wrap up their work by the end of the month, suggesting that a case will be brought soon. Attorney General Bill Barr has long shown keen interest in the case, Katie and Cecilia report, having taken thick binders of documents with him even on vacation.
The department’s team thinks there’s a strong argument to be made. Career employees came to believe that there is solid evidence of antitrust violations, including Google’s controlling 90 percent of web searches, imposing its search and browsing tools as defaults on the Android operating system and capturing about a third of all online ad spending.
But they worry they’re being forced into a “half-baked” series of cases. “Some argued this summer in a memo that ran hundreds of pages that they could bring a strong case but needed more time,” Katie and Cecilia write. Disagreements persisted over how broad the case should be and potential remedies that Google could take.
• Many department lawyers feared that politics was at work: Some confided worries that Mr. Barr may have been motivated by giving President Trump a big accomplishment before the November elections. On the other hand, Mr. Barr reportedly felt the team was moving too slowly in general.
A lot is at stake. The case would be the first as part of the Trump administration’s investigations into the power of Big Tech, as government lawyers also examine whether Amazon, Apple and Facebook have also abused their market-leading positions. Whiffing here could weaken the government’s hand in other cases down the line.
Seen and heard
🥫 “We all knew that there would be a pivot eventually back to healthier recipes ... a little more comfort-oriented initially, a little more healthier now.” — Mark Clouse, Campbell Soup’s C.E.O.
⚠️ “A large portion of the demand is driven by folks who are just fearful of their personal protection and safety, starting with the pandemic and moving on to the civil unrest.” — Mark Smith, the Smith & Wesson C.E.O.
😷 “Yesterday I bought a good amount of spectacular Christmas-decorated KN95 masks. So hopefully those masks will encourage people to get close and hug their families while still protecting themselves.” — Michael Ross, Dollarama’s C.F.O.
💻 Zoom reported a huge rise in profit this week, generating effusive praise from analysts on its conference call, including “another incredible quarter,” “a truly outstanding quarter” and “another just phenomenal quarter.” Others thanked the videoconferencing company for more fundamental reasons:
“Just thank you for keeping everybody connected.” — Heather Bellini of Goldman Sachs
“I echo my congratulations and gratitude all around, and it’s nice to see everybody.” — Brad Zelnick of Credit Suisse
“First, I want to say thank you from the analyst community and as a parent, as a husband. Yes, you’ve made a substantive difference in all our lives.” — Alex Zukin of RBC Capital Markets
Will Oracle’s lobbying efforts pay off?
Like most large tech companies, Oracle has a formidable lobbying presence in Washington. But the business software giant’s close ties to the Trump administration set its influence operations apart from rivals, The Times’s David McCabe writes.
Oracle’s embrace of the White House could be helpful in its pursuit of TikTok, as it bids against Microsoft and others for the U.S. operations of the Chinese-owned social network, which President Trump ordered to be divested on national security grounds. Oracle’s representatives in Washington have also taken on rivals like Google and Amazon with “grudge-match intensity,” David writes.
• He expanded on that for us, and on the nature of Oracle’s singular approach to working with Trump’s White House:
Oracle’s operation is perhaps best-known around Washington for its ability to engage in protracted campaigns against other companies. Take its fight with Google: It has fought for years with its rival over a technical copyright issue. But Oracle has also engaged in a lengthy campaign alleging it violates privacy online.
It’s that aggressiveness — combined with Oracle’s relationships in the Trump White House and elsewhere — that marks its lobbyists’ fights with much larger companies. And as one person said during our reporting, because they run a business that serves other businesses, they can take risks in Washington without alienating customers in a way a consumer-facing brand cannot.
In the papers
Some of the academic research that caught our eye this week, summarized in one sentence:
• Working women who were among the first to be diagnosed with Covid-19 felt acute “shame, hate and guilt” and thought their companies could have done more to help. (Dide van Eck and Eline Jammaers)
• The P.R. industry sometimes harnesses “disinformation as a commercial opportunity,” and that’s a problem for society. (Lee Edwards)
• If the revenue generated by college sports were shared equally with players, football and men’s basketball players would make $360,000 to $500,000 per year, on average. (Craig Garthwaite, Jordan Keener, Matthew Notowidigdo and Nicole Ozminkowski)
Hedge fund founder is arrested over Neiman Marcus bankruptcy
Daniel Kamensky, the founder of the hedge fund Marble Ridge Capital and a former Paulson & Company partner, was arrested yesterday and charged with securities fraud and obstruction of justice.
His pursuit of the retailer’s e-commerce operations got him into trouble. Since 2018, his fund had fought a decision by Neiman’s private equity owners to transfer ownership of its crown jewel e-commerce business, MyTheresa, to other unsecured creditors. When the retailer filed for bankruptcy protection this year, Mr. Kamensky, who was a member of the unsecured creditors committee, was granted an opportunity to bid on MyTheresa.
• According to a criminal complaint filed in federal court in Manhattan, he illegally pressured an investment banker from Jefferies against submitting a higher bid, threatening to stop doing business with the bank if it did. The S.E.C also announced civil charges against Mr. Kamensky. Some key quotes from the accusations:
“DO NOT SEND IN A BID.” Kamensky is said to have messaged a Jefferies banker after finding that the bank was working with another buyer for MyTheresa at a higher price.
“They’re going to say that I abused my position as a fiduciary, which I probably did, right?” After word of their conversation leaked, Mr. Kamensky is said to have called the banker to say that he had meant the bank should put in a bid only if it was serious. “This conversation never happened,” he said.
“Maybe I should go to jail. But I’m asking you not to put me in jail,” Mr. Kamensky is alleged to have said in the same conversation. “Today, we’ve removed the ‘maybe,’ and forced him to answer for his conduct,” the F.B.I.’s William Sweeney said in a statement announcing the charges.
The speed read
Deals
• SoftBank is reportedly weighing a bid for TikTok’s operations in India. (Bloomberg)
• Two big Spanish banks, CaixaBank and Bankia, are weighing a merger, potentially creating one of the country’s largest lenders and kicking off a wave of consolidation among Europe’s banks. (MarketWatch)
Politics and policy
• House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin reportedly have a plan for a short-term spending bill to avoid a government shutdown this month. (Politico)
• Senator Chuck Schumer derided a Republican economic stimulus proposal as “emaciated” and “completely inadequate,” suggesting that a compromise remains far off. (CNN)
Tech
• Palantir disclosed in a regulatory filing that it won’t have an independent board for up to a year after going public. It’s another sign that the data-mining consultancy does things its own way. (TechCrunch, FT)
• Apple delayed new privacy features for its iOS operating system until next year after developers like Facebook argued that they would hinder putting personalized ads on iPhones. (WSJ)
Best of the rest
• Big gains in the shares of Black-owned businesses around Juneteenth proved fleeting. (WSJ)
• One family in Maine has delivered mail by boat for the past 115 years. Is this the last? (NYT)
• “Remembering David Graeber, a Force Behind Occupy Wall Street.” (Bloomberg)
We’d love your feedback. Please email thoughts and suggestions to dealbook@nytimes.com.
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September 04, 2020 at 01:58PM
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Three Thoughts on the Stock Market’s Stumble - The New York Times
"Market" - Google News
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