The Treasury secretary, Janet Yellen, is expected to meet with the heads of financial market regulators, including the Federal Reserve and Securities and Exchange Commission, this week to discuss the market volatility created by retail traders in “meme stocks” such as GameStop, according to a Treasury official.
The meeting will take place as early as Thursday, the official said. It is also expected to include representatives from the Commodity Futures Trading Commission and the Federal Reserve Bank of New York. The meeting was earlier reported by Reuters.
The meeting is a sign of heightened scrutiny in Washington toward the frenzy in trading over the past 10 days. Shares in GameStop, a video game retailer, recorded a remarkable surge last week but have since fallen from their dizzying heights, testing the will of investors who joined in the fervor as a challenge to Wall Street investors. Since Friday, the price of GameStop stock has plummeted from $325 to $90.
The shares rose about 11 percent in early trading Wednesday. AMC Entertainment, another company whose shares were embraced by online traders, rose about 7 percent, coming off a 41 percent drop the previous day.
The retreat on Tuesday had allayed concerns that the big hedge funds who were on the losing end of GameStop’s surge would have to sell shares of other, larger companies to make up for the losses.
Many companies announced across-the-board halts in donations via political action committees after the Capitol riot on Jan. 6. These pauses were mostly meant to be temporary, so intense internal debates are now taking place across corporate America about what to do as the self-imposed deadlines approach.
Companies are separating into three main camps:
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Impose targeted bans. After reviewing their policies, some companies said they would suspend giving only to the 147 Republican members of Congress who objected to certifying the election results. That’s what Walmart and Google have done.
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Stop all political donations. The brokerage firm Charles Schwab decided to close its PAC, concluding that “a clear and apolitical position is in the best interest of our clients, employees, stockholders and the communities in which we operate.”
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Pause then restart. Many companies that paused all giving have yet to announce what happens next, and one possibility is that they simply go back to what they were doing before. “If they’re doing it hoping this issue goes away, I think that’s not very smart,” said Doug Pinkham, president of the Public Affairs Council.
Companies that have yet to say what they’ll do after an initial pause in all giving include Microsoft, which set a Feb. 15 deadline to decide; American Airlines, which is taking a three-month break; BP, which is pausing for six months; and Hilton, which said it was halting all giving “indefinitely.”
Corporate advisers, lobbyists and executives say that employees are often the ones exerting the greatest pressure on directors as they consider their options. Democratic officials are criticizing businesses for “both sides-ism” and privately threatening to limit access to policymakers for companies that paused all donations. But Democratic control of Congress is narrow, and Republicans can still press their case for relevance.
Several companies are discussing governance changes and greater transparency around the actions of their corporate PACs. But consider this: Microsoft paused its PAC for a few months in 2019 in response to employee pressure, eventually making changes like adding an employee advisory council and monthly reporting on donations. It is now rethinking its approach (again) after the election challenges and storming of the Capitol.
“You spend your evenings going to these dinners, and the reason you go is because the PAC writes a check,” Brad Smith, Microsoft’s president, said in recent remarks about the political donations, referring to the work of the company’s government affairs team. But out of that effort, he added, a relationship with lawmakers “evolves and emerges and solidifies.”
The pandemic has been disastrous for the overall economy. But for companies peddling much needed entertainment for bored consumers trapped at home, it has been a bonanza.
Take Sony of Japan. On Wednesday, the company reported that its profit leapt almost 20 percent, to $3.4 billion, during the three month period that ended in December, compared with the same period a year earlier.
The windfall was largely driven by the company’s entertainment and gaming divisions. Demand for its newest game system, the PlayStation 5, helped raise sales for games and other digital content, the company said in an announcement of its quarterly financial results.
Over the last decade, Sony, once known as the world-beating, A-to-Z provider of high-end consumer electronics, has increasingly relied on its PlayStation console to fuel its results.
The release of the much-anticipated fifth iteration of the gaming system in mid-November has been a rousing success, with eager fans sometimes fighting to get their hands on one of the devices. The company had sold 4.5 million units by the end of December, Sony said.
Sony’s profit comes not from the machines themselves, but the content they power. Quarterly revenue from software and network fees increased 40 percent to $8.4 billion, the company said, powered by a 30 percent increase in total playtime on its network service compared with the same period in 2019.
The segment accounted for about one-third of the company’s profit in the first nine months of this fiscal year.
Sony also saw significant growth in profit from its music and film segments, the company said.
The windfall, which included surprise growth in sales of its consumer elections, led Sony to raise its financial forecast by about one-third to $8.5 billion for fiscal year 2020, which in Japan runs through March.
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Google’s parent company, Alphabet, said on Tuesday that sales in the fourth quarter rose 23 percent from a year earlier to $56.9 billion, a record high for a quarter, and net profit rose 43 percent to $15.2 billion. Alphabet benefited from a continued rebound in its core business, advertisements on search results. Revenue from search advertising rose 17 percent to $31.9 billion in the fourth quarter, Alphabet said.
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Amazon on Tuesday posted a record $125.6 billion in sales for the fourth quarter, while profit more than doubled to $7.2 billion from a year earlier. It was the first time the company had exceeded $100 billion in sales in a single quarter. On a call with investment analysts, Brian Olsavsky, Amazon’s finance chief, said Amazon would continue spending more on cloud computing infrastructure and groceries, and expand its logistics operations — especially its rapidly growing last-mile delivery network, which depends on half a million contract drivers to deliver packages.
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In the worst year for the company in four decades, Exxon said it lost $22.4 billion in 2020, compared with a profit of $14.3 billion in 2019. A big chunk of the company’s losses came from $19.3 billion in write-downs in the last three months of the year as the company marked down the value of U.S. natural gas fields acquired when gas prices were far higher before fracking flooded the market a decade ago.
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BP on Tuesday reported its first loss in at least a decade, taking a $5.7 billion loss for the year compared with a $10 billion profit for 2019. The company said it eked out a $115 million profit for the fourth quarter of 2020, representing a year-on-year decline of about 95 percent. BP blamed the decline on a host of factors, including low demand for its refined products because of the economic slowdown brought on by the pandemic, as well as low prices for oil and natural gas.
United States
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Stocks on Wall Street rose for a third day, following gains in most European and Asian indexes, after more strong earnings reports from the tech sector.
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Alphabet, Google’s parent company, and Amazon both reported record sales in the past quarter. Japan’s Sony said its profit jumped 20 percent as its entertainment and gaming divisions helped alleviate the boredom of consumers stuck at home.
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The S&P 500 rose 0.3 percent in early trading, while the tech-heavy Nasdaq composite gained 0.7 percent. Alphabet jumped 7 percent, and Amazon, which had also said its founder Jeff Bezos would step down as chief executive this summer, gained about 0.6 percent.
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The S&P 500 has gained more than 3 percent this week, rebounding from a similar sized drop last week. Those gains have come in part as shares of GameStop and other stocks with social media-fueled gains retreated, allaying concerns that big hedge funds that were on the losing end of the surge would have to sell shares of other, larger companies to make up for the losses.
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On Wednesday, GameStop rebounded slightly from its recent plunge, climbing about 11 percent in early trading. The stock had fallen 72 percent over the previous two days.
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Treasury yields rose as Democratic lawmakers took steps to push through President Biden’s $1.9 trillion economic rescue plan without Republican support. Democrats also continue to negotiate with Republicans over a possible stimulus bill, but have said they will proceed without Republican support if needed.
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Crude oil prices also continued their rally, reflecting optimism about the economy and after reports that stockpiles fell last week. West Texas Intermediate, a U.S. benchmark, climbed past $55 a barrel, to its highest point in over a year.
Europe
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Italy’s stock market was the best performing in Europe, with the FTSE MIB index rising 2.6 percent on Wednesday, after Mario Draghi was tapped to be the next prime minister and form a new government. Mr. Draghi, a former head of the European Central Bank, was instrumental in steering the region out of a debt crisis just under a decade ago.
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The Stoxx Europe 600 gained 0.6 percent, while the FTSE 100 in Britain was slightly lower.
Asia
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The Nikkei 225 in Japan climbed 1 percent, while the Hang Seng Index in Hong Kong climbed 0.2 percent. Sony’s shares climbed 1.6 percent after its earnings report.
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Alibaba said on Tuesday that it was conducting internal reviews of its business in response to an antitrust investigation by the Chinese government. Alibaba saw a 37 percent increase in sales in the latest quarter, with $12.2 billion in profit on $33.9 billion in revenue.
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