It’s almost the weekend, and that is good news for investors, who could really use a break. Stocks have been all over the place and all that volatility is tiring.
The Nasdaq Composite, the S&P 500 and the Dow Jones Industrial Average have each moved more than 1% each day this week. What’s more, stocks are bobbing up and down as if on a very stormy sea—falling Tuesday, rising Wednesday, and falling Thursday. U.S. stock futures are—you guessed it—up about 1% Friday morning.
The recent bout of volatility has been catalyzed by several factors: the stimulus log jam in Congress; the potentially weird options trading by SoftBank ; and concerns about valuations of giant tech stocks.
Given that setup, a resolution of the stimulus battle—the prospect of which is dimming—might send stocks higher again, but valuation concerns will remain.
Even if stocks move higher in the short-run, investors should keep an eye on volatility because more volatile markets are associated more closely will falling markets.
Bulls can only hope for calmer seas.
—Al Root
*** How philanthropy can further racial justice: Join Barron’s Live call with the authors of a paper guiding funders on how to address anti-Black racism and strengthen Black communities. Sign up here.
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Republicans’ ‘Skinny Bill’ Fails in Senate Vote as Jobless Claims Hold Steady
Senate Republicans’ $500 billion trimmed-down coronavirus relief bill failed to pass Thursday, after all Democrats present and one Republican voted against it.
- Republicans’ failure to move forward a so-called skinny bill is the latest indication of how stalled negotiations over another round of coronavirus relief are on Capitol Hill, with some observers doubting that any deal can be struck before the Nov. 3 election.
- The Senate vote came after the Labor Department released data Thursday morning showing that the drop-off in weekly initial unemployment claims stalled last week, a sign that layoffs aren’t decreasing as quickly as they had been in recent weeks.
- Some 884,000 people filed initial jobless claims last week, the same as the week before. A total of 29.6 million people remained out of work as of the end of August, including gig economy workers who are receiving benefits.
- Economists polled by The Wall Street Journal are more optimistic about economic growth this month than they were last month, however. Whereas previously they had expected an annualized growth rate of 18.3% in the third quarter, they now expect growth of 23.9%.
What’s Next: One data point released this week that bodes well for the economy is that the number of job openings posted by companies was up 37% in July compared to April. That may indicate that companies want to bring workers back, lowering the chances of a jobless recovery.
—Ben Walsh
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Citigroup Names Jane Fraser as Its Next CEO
A woman will lead a major Wall Street bank for the first time in 2021. Citigroup announced that Jane Fraser will succeed current CEO Michael Corbat, who is retiring in February. A 16-year veteran at the bank, Fraser is now president and CEO of Citi’s global consumer banking division.
- “We believe Jane is the right person to build on Mike’s record and take Citi to the next level,” the chair of Citigroup’s board John Dugan said Thursday. “Jane’s ability to think strategically and also operate a business are a unique combination that will serve our company well.”
- A native of Scotland, Fraser, 53, holds a MBA from Harvard Business School and a master’s in economics from Cambridge University. She joined Citigroup in 2004 after working at Goldman Sachs and McKinsey & Co.
- Citigroup missed its profitability target this year, as well as its efficiency ratio target, which measures expenses relative to net income.
- “If Fraser can improve returns closer to peer levels then the move will be positive,” Brian Kleinhanzl, managing director at Keefe, Bruyette & Woods, said in a note Thursday.
What’s Next: The transition’s timing raises questions about whether Fraser is breaking a glass ceiling on Wall Street or being pushed toward a glass cliff. As Wells Fargo Securities analyst Mike Mayo points out, “CEOs don’t typically want to leave in the middle of a crisis, [especially] if upside is pending.”
—Ben Walsh
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LVMH Claims Tiffany’s Poor Pandemic Performance Invalidates Merger
French luxury-good behemoth LVMH Moët Hennessy Louis Vuitton said Thursday that Tiffany’s handling of the coronavirus pandemic meant that the companies’ $16 billion merger was no longer valid.
- The accusation came a day after LVMH said it was abandoning the merger under what it considered to be effectively government orders to delay the deal past its completion date. In response, Tiffany sued LVMH in Delaware to complete the deal.
- The corporate sniping and legal wrangling are a prime example of how the coronavirus pandemic and its economic consequences are impacting merger and acquisition agreements struck before lockdown.
- During the six months that ended in July, Tiffany’s sales dropped 37% and it lost almost $33 million. That performance, LVMH said Thursday, is in their view a material adverse event that lets it walk away from the deal.
- The French foreign minister has also sent a letter to LVMH asking them to delay the deal as the country tries to hash out a trade agreement with the U.S. LVMH says that letter is legally binding, although a French diplomatic official told The Wall Street Journal it is a request.
What’s Next: Delaware courts have been unsympathetic to arguments that changes in business conditions constitute a material adverse event. LVMH could be forced to pay $575 million or more in damages if it loses.
—Ben Walsh
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Peloton Crushes Earnings and the Stock Soars
Gyms have reopened in New York and New Jersey, but Peloton Interactive, which got a boost from the stay-at-home trend, is still pedaling to new highs.
- The maker of interactive at-home bikes and treadmills more than doubled its connected fitness subscribers to 1.09 million during its 2020 fiscal year, which ended June 30. It expects such growth to continue in the current fiscal year.
- Shares spiked about 10% in aftermarket trading after fiscal fourth-quarter earnings and revenue figures lapped Wall Street’s consensus estimates.
- Peloton shares soared more than 209% in 2020, as the pandemic shut gyms and demand for its bikes led to delivery waits. Analysts note that once a bike ships, the company can rack up reliable revenue from the $39 a month subscription needed to link up with its classes and other features.
What’s Next: The company has cut the price of its base bike, announced a premium bike and a cheaper treadmill. This holiday season will be its next major test.
—Connor Smith
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Rio Tinto Chief Quits After Destruction of Aboriginal Ancient Site
Rio Tinto, the world’s second-largest mineral and mining company, said Friday that Chief Executive Jean-Sébastien Jacques would step down “by mutual agreement,” bowing to shareholder pressure after the company blew up two ancient rock shelters in Western Australia last May. Two other top executives will also leave the company.
- Rio Tinto detonated ancient habitat at Juukan Gorge with traces of 46,000 years of life. It did so legally but against the fierce opposition of traditional Aboriginal owners. The blast gave the company access to $135 million worth of high-grade iron ore.
- The original reaction of the board, who found in an earlier review that no individual mistake had been committed and only recommended to cut the short-term bonuses of a few executives, had created an uproar among activist shareholders, Aboriginal people and environment organizations.
- French-born Jacques, who became chief executive in 2016, will remain until a successor is found, but no later than the end of March, 2021.
What’s Next: Jacques’ ouster illustrates the rising power of activist investors or pension funds demanding that companies comply with cultural, social and environmental standards and look beyond their strict bottom line. The big mining groups, often operating the world over on land owned by indigenous people, are a natural target for such activism.
—Pierre Briançon
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Do you remember this week’s news? Take our quiz below and tell us how you did by emailing thebarronsdaily@barrons.com.
1. Citigroup named a new CEO on Thursday, and she will be the first woman to lead a major Wall Street bank. What is her name?
a. Mellody Hobson
b. Penny Pennington
c. Jane Fraser
d. Karen Karniol-Tambour
2. The combined market value of Nikola and which company rose by $9 billion on Tuesday following the announcement of a partnership to engineer and build Nikola’s electric pickup truck called Badger?
a. Ford
b. Tesla
c. Honda
d. GM
3. Apple removed Fortnite from its App Store and is countersuing which company after it created a “Trojan horse” update for the videogame that bypassed Apple’s 30% cut of in-app purchases?
a. Nintendo
b. Activision Blizzard
c. Zynga
d. Epic Games
4. The South Korean firm Samsung signed a $6.65 billion contract with which company to provide 5G network equipment and services in the United States?
a. Sprint
b. AT&T
c. Verizon
d. T-Mobile
5. Which investment bank announced on Wednesday that staffers must return to the office by Sept. 21 unless they have child-care or medical issues?
a. Goldman Sachs
b. JPMorgan
c. Morgan Stanley
d. Bank of America
6. Which city set a new policy on Thursday that riders of public transportation will be fined $50 if they refuse to wear a mask?
a. Los Angeles
b. Houston
c. New York City
d. Chicago
Answers: 1(c); 2(d); 3(d); 4(c); 5(b); 6(c)
—Bonnie Bennett Slater
***
—Newsletter edited by Stacy Ozol, Anita Hamilton, Mary Romano, Matt Bemer, Benjamin Levisohn
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