A tumultuous day in financial markets left onlookers questioning whether the Federal Reserve had showed too little concern as longer-term interest rates crept higher — and spurred speculation that the central bank’s leadership may need to speak out against the rise.
Yields on all but very short-term government debt moved sharply higher on Thursday, driven in part by expectations that economic growth will snap back after the pandemic. Fed officials had been sanguine as rates moved up in recent weeks, pointing to the increase as a sign of growing economic confidence and downplaying the risk of a sudden increase in borrowing costs.
Still, the sudden jump Thursday rippled through financial markets, and analysts at Evercore ISI said the Fed’s message might change as a result. The jump in yields could make borrowing by the government, consumers and businesses more expensive, slowing progress toward the Fed’s economic goals.
“The Fed leadership holds some responsibility for this, as the absence of any indication of concern or — more appropriately in our view — central bankerly carefulness” in recent days “has been read in markets as a green light to ramp real yields higher,” Krishna Guha and Ernie Tedeschi wrote in a reaction note, capturing a narrative fast developing among financial analysts.
On Thursday, yields on the 10-year Treasury note surged as high as 1.6 percent. That rate was below 1 percent for much of 2020 and had been steadily increasing this year in part as investors expect that a flood of new government spending and the rollout of the coronavirus vaccine would lead to fast economic growth later this year.
Despite several public appearances in recent days, central bank officials including the Fed chair, Jerome H. Powell, and John C. Williams, the New York Fed chief, have not voiced concerns over the shift in yields. Raphael Bostic, the Atlanta Fed president, said as recently as Thursday afternoon that he did not yet see the increases as cause for concern.
“The Fed has thus far not been willing to soothe markets” and that has helped fuel the move in yields, analysts at TD Securities wrote on Thursday.
Some economists are speculating that the Fed might shift the size or style of its bond buying so that it is better-targeted at holding down longer-term interest rates.
“A change of tone at least seems warranted in our view and possibly more,” Mr. Guha and Mr. Tedeschi wrote. “This could well come in the next 24 hours.”
AT&T is spinning off part of its TV business, which consists of the DirecTV, AT&T TV and U-verse brands, to the private equity firm TPG as it looks to shed assets to deal with a burdensome debt load and focus on its mobile telephone and streaming businesses.
The deal, which will give TPG a minority stake, values the TV business at $16.25 billion — about a third of the $48.5 billion AT&T paid just for DirecTV in 2015.
AT&T carries $157 billion of debt, as of December, the result of megadeals including its purchases of DirecTV and Time Warner, which it paid $85.4 billion for in 2018. The entertainment industry has been disrupted by Netflix and an array of competitors fighting for viewers’ attention, complicating plans for DirecTV, which lost more than 3.2 million subscribers in 2020, and for HBO, considered the crown jewel of Time Warner’s business.
Investors have worried that AT&T will not be able to become profitable enough to manage the debt load. The company made about $53.8 billion in pretax profit last year, meaning it carries a little more than $3 of total debt for every dollar of pretax profit. Traditionally, AT&T prefers that ratio to be closer to 2.5 to 1.
Under the terms of the deal with TPG, AT&T will own 70 percent of the new stand-alone company, which will go by DirecTV, and TPG will own 30 percent. The board of the new entity will include two representatives from each company and the chief executive of AT&T’s video unit, Bill Morrow.
The companies hope to fix challenges facing DirecTV — namely a subscriber base that has been bleeding customers faster than most pay-TV services. Annual sales at the DirecTV group fell 11 percent last year to $28.6 billion, and operating profit decreased 16.2 percent to $1.7 billion. The company is also counting on growth of AT&T TV, the company’s new service that streams TV over the internet to a set-top box.
“We certainly didn’t expect this outcome when we closed the DirecTV transaction in 2015, but it’s the right decision to move the business forward,” said John Stankey, AT&T’s chief executive, who as an executive at WarnerMedia led both the DirecTV and Time Warner deals.
TPG has ample experience with corporate partnerships, including taking a joint stake in Intel’s McAfee computer security unit and teaming up with Humana in its deal for the hospice provider Kindred. It owns parts of Spotify, Creative Artists Agency, the cable provider Astound Broadband, and Entertainment Partners, which provides software to the entertainment and video industry.
AT&T has not ruled out more divestitures.
In its first earnings report as a public company, DoorDash showed how it has benefited from the pandemic even as it hinted that difficulties might lie ahead.
The delivery company on Thursday posted revenue of $970 million for the fourth quarter, up 226 percent from a year earlier, as total orders jumped 233 percent. The company’s fortunes have been buoyed by the pandemic, as people have stayed home to keep safe from the coronavirus and have used DoorDash to order in food and other items.
Yet it also reported a loss of $312 million, compared with a loss of $134 million a year earlier. The company, which went public in December, said it had increased spending on advertising, customer recruitment, research and development, and other expenses. DoorDash said it had also lost money because of costs associated with stock-based compensation related to its initial public offering.
More important, DoorDash warned that its boost from the pandemic might fade. The widespread availability of vaccines in the coming months, the company said, is likely to create “headwinds” to growth.
“We expect declines in consumer engagement and average order values, though the precise amount remains unclear,” the company said.
The cautionary notes sent DoorDash’s stock tumbling nearly 13 percent in after-hours trading.
Beyond the short-term effect of the pandemic, DoorDash faces other challenges. Restaurant owners have complained that its fees, often 30 percent of orders, are too high to allow them to cover their costs. Some cities, including Cleveland, Denver and Chicago, have passed temporary measures to curb the fees that delivery apps charge restaurants during the pandemic. DoorDash has responded by charging customers extra fees in those cities.
In an earnings call, DoorDash executives said they were focusing on long-term success and growth. Tony Xu, the chief executive, said that even when restaurants reopened, people were likely to continue to rely on DoorDash’s deliveries because they had become “habituated to a convenience economy.”
“This business is even more critical as we come out of the pandemic,” he said.
Airbnb, which has faced sky-high expectations since its blockbuster initial public offering in December, posted declining revenue and a whopping $3.9 billion loss on Thursday in its first earnings report as a publicly traded company.
The company brought in $859 million in revenue in the last three months of the year, down 22 percent from a year earlier. Its loss was driven by $2.8 billion in costs associated with stock-based compensation related to its I.P.O., as well as an $827 million accounting adjustment for an emergency loan it took out last year to weather the pandemic.
Airbnb’s loss approaches the $5.2 billion lost by Uber in its first full quarter as a public company and renewed questions about whether unprofitable tech start-ups can turn a profit. Although most money-losing tech companies say that they are spending money to fuel fast growth, Airbnb’s shrinking revenue makes that argument a harder sell.
Airbnb presented its declining revenue as a show of resilience in a year when travel came to a standstill because of the pandemic. Last spring, the company lost $1 billion in bookings, laid off staff and raised emergency funding in response to lockdowns and other restrictions. By the summer, bookings had bounced back, though not enough to make up for the hole in revenue.
In December, the company went public and raised $3.5 billion, valuing it at more than $100 billion. Since then, its valuation has risen as high as $120 billion on investor expectations that a fast vaccine rollout would spur a new boom in travel.
Ron Josey, an analyst with JMP Securities, said Airbnb’s revenue was higher than anticipated. That showed the company was ready to take advantage when people begin traveling again.
“Nobody knows how quickly demand comes back,” he said, but when it does, “Airbnb is a share gainer.”
Airbnb’s stock rose 2 percent in after-hours trading.
Yet even if travel bounces back this year, Airbnb faces challenges. Its hosts, who provide its inventory in the form of property listings, have become increasingly frustrated with the company and are seeking to list their rentals independently. Its problems with “party houses” worsened in the pandemic and the company has rushed out new rules. And regulators around the world continue to scrutinize the “Airbnb effect” of turning housing stock in residential areas into hotels.
In a call with analysts, Brian Chesky, Airbnb’s chief executive, said the company’s priority was to prepare for a rebound in travel with efforts including marketing, recruiting hosts and improving its customer service.
“Travel is coming back,” he said. “We believe people are yearning for what’s been taken away from them.”
By: Ella Koeze·Data delayed at least 15 minutes·Source: FactSet
The S&P 500 had its worst single-day drop since late January on Thursday as major technology stocks fell and bond yields continued to rise.
The benchmark U.S. index fell about 2.5 percent. Tesla was one of the S&P 500’s worst-performing stocks, losing 8 percent. Apple, Amazon, Alphabet and Facebook each dropped more than 3 percent, and Microsoft fell 2.4 percent.
The drop came as yields on the 10-year Treasury note jumped to as high as 1.56 percent, up from 1.38 percent on Wednesday. The yield has risen each of the past three weeks, and analysts at Bank of America raised their forecast, expecting the 10-year yield to be at 1.75 percent at the end of the year because of stronger economic growth. Last month, they forecast 1.5 percent for year-end.
That sudden jump may also reflect concerns in the bond market about inflation, or that the rebounding economy will prompt the Federal Reserve to cut back on its measures to bolster the financial system. Either would be bad news for stocks, and trading has been turbulent all week as investors react to the sudden moves in bond yields.
Fed officials have generally dismissed the run-up in longer-term interest rates as a problem.
“I’m not worried about that — we’re going to keep an eye out,” Raphael Bostic, president of the Federal Reserve Bank of Atlanta, told reporters during a phone call on Thursday. “I’m not expecting that we’ll need to respond, at this point, in terms of our policy.”
Nor are Fed officials, who are charged with keeping price gains slow and steady, worried about runaway inflation.
“With our economy and the global economy still far below full strength, I expect underlying inflationary pressures to remain subdued for some time,” John C. Williams, president of the New York Fed, said Thursday afternoon.
David Lefkowitz, a strategist at UBS, said rising rates reflected rising optimism about the economy, which is generally good news for stocks.
“While very large and rapid moves in rates can create some short-term equity-market volatility, we would expect this to be very transient,” Mr. Lefkowitz wrote in a recent note to clients.
But the increase in yields has prompted investors to sell their high-flying technology investments in favor of shares of companies like banks and industrial companies that could benefit from growth. That was evident in Thursday’s trading, with the technology-heavy Nasdaq composite index falling 3.5 percent, while the Dow Jones industrial average fared much better, with a decline of about 1.8 percent.
Jeanna Smialek contributed reporting.
GameStop One-Week Share Price
Shares of GameStop surged again on Thursday, in the second straight day of volatile trading for the video game retailer that was at the center of a trading frenzy last month.
On Wednesday, GameStop’s shares doubled to $91.71, and the volume of trading was more than 10 times the level of the previous day. By early Thursday afternoon, the shares had doubled again in heavy trading, to nearly $185, before tumbling late. The stock still closed up nearly 19 percent, at $108.73.
As GameStop got off to a hot start, some of the popular posts on Reddit’s Wall Street Bets forum, where users stoked last month’s wild rally, read “ROUND 2!” and “THE COMEBACK!!!!!”
Other stocks that recently captured the internet’s attention also rose in early trading before giving up gains: Shares of AMC Entertainment gained 21 percent shortly after the open and the headphone maker Koss was up about 90 percent. But shares of the movie theater company closed down 8.8 percent, and Koss gave up most of its gains, rising just 17 percent for the day.
The two-day surge by GameStop again made it the center of the market’s attention, just a few weeks after a remarkable rally in so-called meme stocks that created vast on-paper wealth for many small traders, and even made some into millionaires if they sold high. Some notable hedge funds that had bet against the stocks suffered painful losses during the rally, which ended almost as quickly as it began — and left many retail investors with substantial losses if they got in late.
Last month’s rally had a certain logic: retail traders pouring into a small stock to squeeze the hedge funds that were shorting it, generating giant gains and even more buying. But no one knew exactly what resuscitated the frenetic trading in GameStop this week.
One reason could be the departure of the struggling video game retailer’s chief financial officer, in a move announced earlier this week, market analysts said. Others traced the start of the rise to a Twitter post on Wednesday by the GameStop board member and activist investor Ryan Cohen. But it was unclear why the post — a text-free photograph of a McDonald’s soft-serve ice cream cone — would have been seen as a signal to buy.
Other analysts saw a connection to some unusual activity in the options market late in the day on Wednesday, when there were a few larger-than-typical purchases of GameStop call options — bets that the stock price would rise sharply.
Those purchases may have forced the dealers that sold the options to buy shares. This is a normal maneuver dealers make to hedge their positions, and as the popularity of trading options has exploded over the past year, some analysts have pointed to that dynamic as exacerbating the volatility of markets.
Some analysts posited that late-day options purchases helped explain the surge of trading in the stock toward the close of trading on Wednesday, as well as during the aftermarket session, when at times GameStop was up another 100 percent.
“Whoever sold those calls simply did not have enough time to cover their risks in the regular session, and may have felt it prudent to do so after the close,” said Steve Sosnick, chief strategist at Interactive Brokers in Greenwich, Conn.
Couple that with the already heightened interest in GameStop, he said, and you have the makings of a rally.
“GME was on everyone’s radar,” Mr. Sosnick said, “so that brought out another crop of speculators.”
Treasury Secretary Janet L. Yellen called on members of the Group of 20 nations to coordinate on a global vaccination campaign, arguing in a letter on Thursday that containing the coronavirus pandemic is the best way to aid the world economy.
Ms. Yellen emphasized the importance of working through multilateral institutions and underscored the responsibility of rich countries to help poor nations weather the public health crisis.
“A rapid and truly global vaccination program is the strongest stimulus we can provide to the global economy,” she wrote.
The outreach was the latest example of the new tone being set by the Biden administration and represented a return to America’s leadership role in the G20, a group of finance leaders from some of the world’s largest industrial and emerging economies, after four years in which the U.S. was often an outlier on international policy matters.
“This is a moment made for action and for multilateralism,” Ms. Yellen said in the letter.
Ms. Yellen also warned G20 countries not to withdraw fiscal support for their economies too soon and to take measure to ensure that workers and consumers are benefiting from international trade.
“If there was ever a time to go big, this is the moment,” Ms. Yellen said, echoing the sentiment she has expressed to lawmakers in the United States as the Biden administration pushes a $1.9 trillion economic relief package.
In a notable shift from her predecessor at the Treasury Department, Steven Mnuchin, Ms. Yellen threw her support behind the idea of providing additional emergency liquidity through the International Monetary Fund’s Special Drawing Rights to help emerging markets stabilize their financial reserves. Mr. Mnuchin believed that this would provide little help to poor countries and would risk turning the I.M.F. into something akin to a central bank.
Ms. Yellen said on Thursday that the tool could “enhance liquidity for low-income countries,” but said the G20 would need to work together to ensure it was deployed effectively and with transparency.
She acknowledged that more work needs to be done on fraught international disputes such as the negotiations between the United States and Europe on digital services taxes, but she made clear that the United States was no longer taking an “America First” approach to its relationship with the G20. She said that the United States would work to overcome such disagreements by seeking “workable solutions in a fair and judicious manner.”
transcript
transcript
Katherine Tai Testifies Before the Senate Finance Committee
Katherine Tai, President Biden’s pick for U.S. trade representative, testified before the Senate Finance Committee on Thursday about opportunities to boost the economy through trade.
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Serving as the U.S. trade representative holds special resonance for me as the daughter of immigrants. My parents were born in mainland China, and grew up in Taiwan. The immigration reforms set in motion by President Kennedy opened a path for them to come here as graduate students in the sciences, and they made the most of their American opportunity. That sense of pride and patriotism will ground me every day if I have the honor to be confirmed as United States trade representative. I know that the challenges ahead are significant. Our first task will be to help American communities emerge from the pandemic and economic crisis. U.S.T.R. has an important role to play in that effort. Working with Congress, the entire Biden-Harris administration and other countries, and trusted partners, U.S.T.R. will help to build out strong supply chains that will get our economy back on track. In the longer term, we must pursue trade policies that advance the interests of all Americans.
Katherine Tai, President Biden’s pick for U. S. trade representative, promised members of the Senate Finance Committee on Thursday that she would work with Congress to help reinvigorate the economy and aggressively enforce American trade rules against China, Mexico and other trading partners.
As trade representative, Ms. Tai would play a part in carrying out several of the Biden administration’s key goals, including helping to restore American alliances abroad, challenging China’s unfair trade practices and reforming and enforcing American trade rules to help alleviate inequality and mitigate climate change.
She would also play an important role in decisions like whether to keep former President Donald J. Trump’s tariffs on Chinese products, how to address new digital services taxes that foreign countries have imposed on American technology companies and whether to aggressively pursue new trade deals.
In her testimony Thursday morning, Ms. Tai promised to ensure that trading partners adhered to new trade rules, including the agreement that Mr. Trump signed with China last year, and new measures included in the revised North American trade deal, the United States-Mexico-Canada Agreement. On China, she said her background challenging China’s unfair trade practices in the Obama administration had given her knowledge of “the opportunities and limitations in our existing toolbox” and that she would explore “all of our options” on improving the U.S.-China trade relationship.
She declined to give many specifics on the trade policies the Biden administration would pursue, saying instead she would review existing tariffs and trade negotiations. But she laid out a philosophy of trade policy that would support broader, more equitable growth and “recognize that people are workers and wage earners, not just consumers,” which she said would be a significant departure from the past.
One of the challenges will be creating trade policy “to break out of that pattern, so that what we are doing in trade is coordinated with what we are doing in other areas, but also not forcing us to pit one of our segments of our workers and our economy against another,” she said.
Asked about the tariffs that Mr. Trump had placed on foreign metals, Ms. Tai said that tariffs were “a legitimate tool in the trade tool box,” but that the global steel and aluminum industries faced larger problems with overcapacity that might require other policy solutions. She also said that she was aware of “the many concerns” that had arisen with the process of companies applying for exclusions from the tariffs, and said that reviewing that system with an eye to transparency, predictability and due process would be “very high on my radar.”
Ms. Tai most recently worked as the chief trade counsel of the House Ways and Means Committee, where she helped to negotiate reforms that brought Democrats on board with U.S.M.C.A., which was negotiated by Mr. Trump. Before that, she served in U.S.T.R.’s general counsel office, where she brought several successful cases against China’s trade practices at the World Trade Organization.
If confirmed, Ms. Tai would be the first woman of color and first Asian-American to serve in the position.
Coinbase, the most valuable cryptocurrency company in the United States, filed to go public on Thursday amid a surge in prices in digital money.
It is the latest milestone for Coinbase, which was founded in 2012 as a site for buying and selling cryptocurrencies like Bitcoin and has now become a giant in the industry, with 43 million retail traders and 7,000 institutions as customers. Its fortunes have soared along with the price of Bitcoin, which was trading at more than $51,000 apiece as of Thursday.
Coinbase pulled back the curtains on its finances in a filing with the Securities and Exchange Commission, revealing that it earned $322.3 million last year, on top of $1.3 billion in revenue. That compares with a $30.4 million loss atop $533.7 million in revenue for 2019.
The company makes money from fees charged for customer trades. In a letter to prospective investors, its co-founder and chief executive, Brian Armstrong, warned that the company’s financials may be volatile, because they are tied to the sometimes whipsawing prices of cryptocurrencies.
The company drew controversy last fall when Mr. Armstrong told employees to leave their social activism out of the workplace. Current and former employees have also complained about the company’s management of Black workers.
The company is planning a direct listing, where it simply puts its privately traded shares onto a public stock market — the Nasdaq, in this case — as opposed to a traditional initial public offering.
Such deals have gained popularity among technology companies in recent years for being a simpler way to going public, especially if they do not need to raise money. Last month, Coinbase said it was pursuing a direct listing.
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The chief executive of Costco said on Thursday that the retailer was raising its starting pay to $16 an hour. W. Craig Jelinek, the chief executive, said Costco, which already pays an hourly minimum of $15, had some of the highest employee retention rates of any retailer. “This isn’t altruism,” Mr. Jelinek told the Senate Budget Committee. “At Costco, we know that paying employees good wages and providing affordable benefits makes sense for our business and constitutes a significant competitive advantage for us.”
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Target said on Thursday that it would roll out Apple shops within its stores, starting with 17 locations with plans for more later this year. The areas will be overseen by Target tech consultants “who will receive specialized training from Apple,” Target said, and the chain will carry more Apple products online. Target has also struck new deals with Levi Strauss & Company and Ulta as malls and department stores continue to struggle.
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MicroStrategy, the business intelligence software firm, announced a $1 billion Bitcoin purchase on Wednesday, bringing its total spending on the cryptocurrency to more than $2 billion since the summer. MicroStrategy “remains focused on two corporate strategies,” its chief executive, Michael Saylor, said in a statement: expanding its software business and “acquiring and holding Bitcoin.” The company’s finance chief, Phong Le, said Bitcoin investments complemented the software business “by enhancing awareness of our brand and providing opportunities to secure new customers.”
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A broad promotional effort to combat Covid-19 vaccine skepticism began rolling out on Thursday, backed by the nonprofit advertising group Ad Council and a coalition of experts known as the Covid Collaborative. The campaign, “It’s Up to You,” encourages Americans to seek out facts about the available vaccines. Public service announcements will appear in English and Spanish on television, social media and other platforms. More than 300 companies, community groups and public figures contributed to the $52 million push, as did the Centers for Disease Control and Prevention.
