Tag: Financial services

Macy's rejects $5.8B takeover bid from Arkhouse Management, Brigade Capital

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Macy’s is rejecting a $5.8 billion takeover offer from investment firms Arkhouse Management and Brigade Capital Management, saying they didn’t provide a viable financing plan.

Arkhouse and Brigade offered $21 per share for the stock they don’t already own.

Last week Macy’s Inc. said that it was laying off about 3.5% of its total headcount, or approximately 2,350 employees. The department store operator also announced that it was closing five locations.

Macy’s said its board reviewed the proposal and that it not only had concerns about the financing plan, but it also felt there was a “lack of compelling value.”

“Following careful consideration and efforts to gather additional information from Arkhouse and Brigade, the board determined that Arkhouse and Brigade’s proposal is not actionable and that it fails to provide compelling value to Macy’s Inc. shareholders,” Jeff Gennette, outgoing chairman and CEO of Macy’s, said in a statement. “We continue to be open to opportunities that are in the best interests of the company and all of our shareholders.”

Tony Spring takes over as president and CEO of Macy’s next month.

Neil Saunders, managing director of GlobalData, said in an email that Macy’s management doesn’t seem to want to do a deal.

“They likely see the real-estate focused approach of Arkhouse as wrong for the business – and, they have a point,” Saunders said. “Monetizing real estate with no focus on revitalizing the retailer and bolstering trading would produce short-term gains but severely weaken long-term prospects.”

But Saunders noted that Macy’s has also had difficulty adding value, having neglected its stores and retail fundamentals for years.

“Unless other bidders step forward, Macy’s shareholders are caught between the devil and the deep blue sea. They can back existing management on the continued promise of jam tomorrow, or cash out to an investor whose plans are unknown and could well hasten the demise of one of retail’s most iconic names,” Saunders said.

Shares of Macy’s Inc., based in New York City, rose nearly 2% before the market opened Monday.

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January 22, 2024
Stock market today: World shares rise after Wall Street gains, Hong Kong stocks near 15-month low

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HONG KONG — Shares were mixed in Asian markets Monday after Wall Street returned to record heights Friday, while Hong Kong’s benchmark dropped over 2%, hovering near a 15-month low. European markets opened higher.

Futures for the Dow Jones Industrial Average advanced 0.2% and the S&P 500 was up 0.3%.

France’s CAC 40 added 0.5% to 7,434.81 in early trading. Germany’s DAX went up 0.4% to 16,635.19. Britain’s FTSE 100 climbed 0.7% to 7,510.86.

In Asia, Tokyo’s Nikkei 225 index gained 1.7% to 36,546.95. The Bank of Japan started a two-day policy meeting on Monday, and was expected to keep its ultra-low interest rates unchanged.

The Hang Seng in Hong Kong lost 2.3% to 14,961.18. The index has shrunk more than 10% this year, its worst start to a year since 2016. The Shanghai Composite index was down 2.7% at 2,756.34.

China’s commercial banks kept their loan prime rate unchanged Monday amid downward pressure on the yuan, disappointing investors who anticipated measures to stimulate the economy. Last week, the People’s Bank of China surprised markets by keeping its medium-term lending facility rate unchanged.

In South Korea, the Kospi fell 0.3% to 2,464.35. Australia’s S&P/ASX 200 advanced 0.8% to 7,476.60. In Bangkok, the SET was down 0.6%, while in Taiwan the Taiex gained 0.8%.

On Friday, the S&P 500 rallied 1.2% to its record of 4,839.81. The Dow Jones Industrial Average set its own record a month earlier, and it gained 1.1% to 37,863.80. The Nasdaq composite jumped 1.7% to 15,310.97.

Wall Street’s run-up was driven in part by hopes for rate cuts as U.S. inflation remained tame. Treasury yields have already relaxed significantly on expectations for rate cuts, and that helped the stock market’s rally accelerate sharply in November.

The Fed itself has hinted that rate cuts are coming, though some officials have indicated they may begin later than the market is hoping for.

Friday’s lift for Wall Street came with a big boost from technology stocks, something that’s become typical in its run higher.

Several chip companies rose for a second straight day after heavyweight chipmaker Taiwan Semiconductor Manufacturing Co. delivered a better forecast for revenue this year than analysts expected. Broadcom rose 5.9%, and Texas Instruments climbed 4%.

In energy trading, benchmark U.S. crude gave up 46 cents to $72.79 a barrel. Brent crude, the international standard, lost 55 cents to $78.01 a barrel.

The U.S. dollar inched up to 148.22 Japanese yen from 148.14 yen. The euro cost $1.0894, down from $1.0897.

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January 22, 2024
JetBlue, Spirit Airlines appeal court ruling blocking their proposed merger

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JetBlue Airways Corp. and Spirit Airlines Inc. said late Friday that they have appealed a court ruling that earlier this week blocked their planned merger.

JetBlue
JBLU,
-1.19%
and Spirit
SAVE,
+17.19%
announced the appeal in a terse press release that provided no more details, adding only that the process is “consistent with the requirements of the merger agreement.”

Wall Street was split on whether the airlines would be legally obliged to appeal the Tuesday ruling, which sided with the Justice Department in saying that a merger between low-cost JetBlue and ultra-low-cost Spirit would hurt competition.

Shares of Spirit rallied 12% after hours Friday, while JetBlue shares fell nearly 2%. Analysts at JP Morgan said this week that the ruling freed JetBlue from a “costly merger.”

Earlier Friday, Spirit sought to reassure investors about its liquidity and issued an upbeat fourth-quarter revenue guidance. Spirit has amassed about $5.5 billion in debt, and is reportedly seeking advisers to help restructure it.

The likelihood of Spirit attracting a new merger or takeover bid is considered low without a debt restructuring. Frontier Group Holdings Inc.
ULCC,
-2.13%
and JetBlue competed for Spirit in 2022, with Frontier ultimately bowing out in July of that year.

Raymond James analyst Savanthi Syth said in a note earlier Friday that it was “clear to us that Spirit is pressing JetBlue to appeal the antitrust ruling, but we continue to believe the chances of success are low.”

Syth has estimated that an appeal would take some four to five months.

Shares of Spirit have lost 67% in the past 12 months, while shares of JetBlue are down 41%. The U.S. Global Jets ETF
JETS
has lost 9% in the same period. Those losses contrast with gains of 24% for the S&P 500 index
SPX.

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January 19, 2024
States expand low-interest loan programs for farms, businesses and new housing

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JEFFERSON CITY, Mo. — On the first business day of the new year, Missouri Treasurer Vivek Malek began accepting applications for about $120 million of state-subsidized, low-interest loans to small businesses, farmers and affordable housing developers.

Within six hours, Malek had so many requests for the money that he had to cut off applications.

“The demand is huge, and it is real,” Malek said.

Missouri’s situation, though extreme, is not entirely unique. From New York to Illinois to Montana, states have seen surging public interest in little-known programs that use state funds to spur private investment with bargain-priced loans. The programs have taken off after a series of key interest rate hikes by the Federal Reserve made virtually all loans more expansive, whether for farmers purchasing seed or businesses wanting to expand.

To combat inflation in consumer prices, the Fed raised its benchmark interest rate 11 times from March 2022 to last July, setting it at a two-decade high.

Under so-called linked-deposit programs, states deposit money in banks at below-market interest rates. Banks then leverage those funds to provide short-term, low-interest loans to particular borrowers, often in agriculture or small business. The programs can save thousands of dollars for borrowers by reducing their interest rates by an average 2-3 percentage points.

States typically cap the amount of money available for such discounted rates at either a flat dollar amount or a percentage of their total fund balances, because the programs result in less earnings for the state. Many states have built large surpluses from pandemic-era revenues, meaning they have more money available to deposit in banks.

Though most states don’t currently offer such programs, some that shelved them when interest rates were low are now considering whether to revive them to aid financially-strapped businesses and residents.

“I can say in talks with other state treasurers that there is a definite increased interest in treasury money, whether that is through a linked-deposit program or a different vehicle,” said Illinois Treasurer Michael Frerichs, who is president of the National Association of State Treasurers.

Illinois has nearly $950 million of deposits linked to low-interest loans for farmers, businesses and individuals. That’s up substantially from past years. In 2015, Frerichs said, the state’s agricultural investment program had just two low-interest loans. By 2022, that had grown to $51 million of loans. Last year, Illinois made $667 million of low-rate deposits for agricultural loans.

With rising demand, Frerichs recently raised the program’s overall cap from $1 billion to $1.5 billion.

Though smaller in scope, New York’s program also has seen an explosion of applicants.

In 2022, New York had 42 applications for state deposits in financial institutions linked to $20 million in low-interest loans. Last year, that rose to 317 applications linked to more than $220 million of loans, said Rafael Salaberrios, a senior vice president who manages capital access programs at Empire State Development, New York’s economic development agency.

“As the banks see the benefit, they are inundating us with applications — and that’s a good thing,” Salaberrios said. He added: “The linked deposit has allowed for the growth of small businesses to continue even during these high (interest) rate environments.”

Because of rising demand, Missouri’s linked-deposit loan program neared its statutory cap of $800 million last May. After some existing loans expired, the treasurer’s office was able to reopen applications at 10 a.m. on Jan. 2. By 4 p.m. that day, it had approached the cap again — receiving 142 applications totaling over $119 million — and closed the application window.

About half the applications came on behalf of customers of just two financial institutions — OakStar Bank and FCS Financial, a leading agricultural lender. FCS Financial had over 100 additional applications in line to submit when applications were cut off, said Brian Zimmerschied, vice president for its commercial crop lending team.

BTC Bank in rural Bethany, Missouri, had planned to turn in about dozen applications on behalf of its customers. But it missed out entirely because of the quick cutoff, bank CEO Doug Fish said.

Among those left disappointed was Jason Bernard, a farmer near Bethany who had hoped for a low-interest loan to help purchase this year’s supply of seed, fertilizer and chemical spray.

With higher interest rates, “it’s a lot harder to make it, just because your payments,” Bernard said.

The Missouri treasurer’s office is backing legislation to raise the program’s cap from $800 million to $1.2 billion, which would mark a 50% increase in capacity. The expansion could cost the state $12 million of potential earnings, though that could be partly offset by the economic activity generated from those loans, according to a legislative fiscal analysis.

In Montana, lawmakers last year authorized a new program to address a shortage of affordable housing. The Montana Board of Investments launched a linked-deposit loan initiative in October that received $77 million of applications within two months, reaching a self-imposed cap and forcing it to close applications sooner than expected.

Republican state Rep. Mike Hopkins, who sponsored the housing incentive legislation, was thrilled with the response.

“We’re in a bit of a jam in the state of Montana” for affordable housing, Hopkins said, and “we were able to get money out the door as quickly as possible.”

Officials in Iowa, Kansas and Ohio also told the AP they had increased demand for programs that deposit state money in banks to provide low-interest loans. The number of such loan recipients in Kansas tripled from 2022 to 2023. In Ohio, the amount of money provided for those loans rose by two-thirds during that time, to more than $600 million.

Oklahoma’s linked-deposit program has been dormant since 2010 amid low interest rates, but at least two banks recently contacted the treasurer’s office about the possibility of restarting it, said Deputy Treasurer Jordan Harvey.

Texas Agriculture Commissioner Sid Miller said he hadn’t approved any linked deposits for low-interest loans since taking office in 2015 — until last year, when he approved his first two.

“There wasn’t much need because interest rates were cheap,” Miller said.

“But now that the rates are up,” Miller added, “it could be a viable program, and we could help some people.”

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January 17, 2024
Oaktree Capital calls commercial real estate ‘most acute area of risk’ right now

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Distressed-debt giant Oaktree Capital sees big opportunities in credit unfolding over the next few years as a wall of debt comes due.

Oaktree’s incoming co-chief executives Armen Panossian, head of performing credit, and Bob O’Leary, portfolio manager for global opportunities, see a roughly $13 trillion market that will be ripe for the picking.

Within that realm is high-yield bonds, BBB-rated bonds, leveraged loans and private credit — four areas of the market that have only mushroomed from their nearly $3 trillion size right before the 2007-2008 global financial crisis.

“Clearly, the most acute area of risk right now is commercial real estate,” the co-CEOs said in a Wednesday client note. “That’s because the maturity wall is already upon us and it’s not going to abate for several years.”

More than $1 trillion of commercial real-estate loans are set to come due in 2024 and 2025, according to the Mortgage Bankers Association.

A retreat in the benchmark 10-year Treasury yield
BX:TMUBMUSD10Y,
to about 4.1% on Wednesday from a 5% peak in October, has provided some relief even though many borrowers likely will still struggle to refinance.

Related: Commercial real estate a top threat to financial system in 2024, U.S. regulators say

“There’s a need for capital, especially for office properties where there are vacancies, rental growth hasn’t materialized, or the rate of borrowing has gone up materially over the last three years. This capital may or may not be readily available, and for certain types of office properties, it absolutely isn’t available,” the Oaktree team said.

With that backdrop, the firm expects to dust off its playbook from the financial crisis and acquire portfolios of commercial real-estate loans from banks, but also plans to participate in “credit-risk transfer” deals that help lenders reduce exposure.

Oaktree also sees opportunities brewing in private credit, as well as in high-yield and leveraged loans, where “several hundred” of the estimated 1,500 companies that have issued such debt are likely “to be just fine” even if defaults rise, they said.

Another area to watch will be the roughly $26 trillion Treasury market, where Oaktree has some concerns “about where the 10-year Treasury yield goes from here” — given not only the U.S. budget deficit and the deluge of supply that investors face, but also how foreign buyers, once the “largest owners in prior years, may be tapped out.”

Related: Here are two reasons why the 10-year Treasury yield is back above 4%

U.S. stocks
SPX

DJIA

COMP
fell Wednesday after strong retail-sales data for December pointed to a resilient U.S. economy, despite the Federal Reserve having kept its policy rate at a 22-year high since July.

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January 17, 2024
Overdraft fees could drop to as low as $3 under new Biden proposal

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NEW YORK — The cost to overdraw a bank account could drop to as little as $3 under a proposal announced by the White House, the latest effort by the Biden administration to combat fees it says pose an unnecessary burden on American consumers, particularly those living paycheck to paycheck.

The change could potentially eliminate billions of dollars in fee revenue for the nation’s biggest banks, which were gearing up for a battle even before Wednesday’s announcement. Exactly how much revenue depends on which version of the new regulation is adopted.

Banks charge a customer an overdraft fee if their bank account balance falls below zero. Overdraft started as a courtesy offered to some customers when paper checks used to take days to clear, but proliferated thanks to the growing popularity of debit cards.

“For too long, some banks have charged exorbitant overdraft fees — sometimes $30 or more — that often hit the most vulnerable Americans the hardest, all while banks pad their bottom lines,” President Joe Biden said in a statement. “Banks call it a service — I call it exploitation.”

Under the proposed rule, banks could only charge customers what it would cost them to break even on providing overdraft services. This would require banks to show the CFPB the costs.

Alternatively, banks could use a benchmark fee that would apply across all affected financial institutions. Regulators proposed several fees — $3, $6, $7 and $14 — and will gather industry and public input on the most appropriate amount. The CFPB says it arrived at these figures by looking at how much it cost banks to recoup losses from accounts that went negative and were never paid back.

According to research conducted by Bankrate last August, the average overdraft fee was $26.61. Some banks charge as much as $39. The nation’s biggest banks still take in roughly $8 billion in overdraft fees every year, according to data from the CFPB and banks’ public records. The bureau’s research also shows overdraft fees overwhelmingly impact the poor and households of color, who often overdraft multiple times a year.

Biden has made the elimination of “junk fees” one of the cornerstones of his administration’s economic agenda heading into the 2024 election. Overdraft fees have been at the center of that campaign, and the White House directed government regulators last year to do whatever is in their power to further curtail the practice.

“We are proposing rules to close a longstanding loophole that allowed many large banks to transform overdraft into a massive junk fee harvesting machine,” said Rohit Chopra, director of the Consumer Financial Protection Bureau, in a prepared statement to reporters.

Banks could also provide small lines of credit to allow customers to overdraft, a service that would operate like a credit card. Some banks like Truist Bank currently offer that type of service.

The rules would apply only to banks with more than $10 billion in assets, which is roughly 175 banks that make up most of the financial institutions Americans do business with. The rules spare small banks and credit unions, some of which rely disproportionately on overdraft fees. CFPB officials told reporters that it chose to focus on the largest banks since most Americans bank at these large institutions and that is where the widespread abuses have historically happened.

Decades ago, banks created a service that allowed certain customers with checking accounts to go negative in their accounts to avoid bouncing paper checks. What started as a niche service became a massive profit center for the banks after the proliferation of debit cards that caused customers to debit their bank accounts for small and large amounts of money multiple times a day.

Overdraft fees have been a financial bonanza for the banking industry, with the CFPB estimating that banks collected $280 billion in overdraft fees in the last 20 years. These fees became so popular that one bank CEO named his boat the “ Overdraft.”

Caving to popular and political pressure, most of the biggest banks have added safeguards to customers’ accounts to allow them to bring the balance back into positive territory before they incur a fee. Bank of America, once considered by industry critics to be the biggest abuser of overdraft fees, cut its fee from $35 to $10 two years ago and says revenue from overdraft fees is now less than 10% of what it had been.

The banking industry has been preparing for the CFPB proposal for months, and is expected to fight the new regulations vigorously. The regulations are likely to end up in a protracted legal battle that could reach the Supreme Court.

“If enacted, this proposal could deprive millions of Americans of a deeply valued emergency safety net while simultaneously pushing more consumers out of the banking system,” said Lindsey Johnson, president and CEO of the Consumer Bankers Association, the trade and lobby organization for the larger consumer banks.

While not as reliant on overdraft fee income as they used to be, a Bankrate survey found that 91% of bank accounts still can charge overdraft fees.

If the rule is adopted and survives political and legal challenges, the new regulations would go into effect in the autumn of 2025.

___

The Associated Press receives support from Charles Schwab Foundation for educational and explanatory reporting to improve financial literacy. The independent foundation is separate from Charles Schwab and Co. Inc. The AP is solely responsible for its journalism.

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January 17, 2024
Hang Seng leads selloff for Asia stocks, with 4% slump after China data

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TOKYO (AP) — Asian shares slid Wednesday after a decline overnight on Wall Street and disappointing China growth data, while Tokyo’s main benchmark momentarily hit another 30-year high.

Japan’s benchmark Nikkei 225
NIY00,
-0.95%
reached a session high of 36,239.22, but reverted lower, last down 0.3% to 35,477. The Nikkei has been hitting new 34-year highs, or the best since February 1990 during the so-called financial bubble. Buying focused on semiconductor-related shares, and a cheap yen helped boost exporter issues.

Don’t miss: Wall Street firms catch up to Buffett enthusiasm on Japan as Nikkei keeps hitting records

Hong Kong’s Hang Seng
HK:HSCI
tumbled 4% to 15,220.72, with losses building after data showed China hitting its economic growth target of 5.2% for 2023, surpassing government expectations, but short of the 5.3% some analysts expected. The Shanghai Composite
CN:SHCOMP
shed 2% to 2,833.62.

Read on: China hit its economic-growth target without ‘massive stimulus,’ boasts Premier Li Qiang

Australia’s S&P/ASX 200
AU:ASX10000
slipped 0.2% to 7,401.30. South Korea’s Kospi
KR:180721
dropped 2.4% to 2,435.90.

Investors were keeping their eyes on upcoming earnings reports, as well as potential moves by the world’s central banks, to gauge their next moves.
Wall Street slipped in a lackluster return to trading following a three-day holiday weekend.

See: What’s next for stocks as ‘tired’ market stalls in 2024 ahead of closely watched retail sales

The S&P 500
SPX
fell 17.85 points, or 0.4%, to 4,765.98. The Dow Jones Industrial Average
DJIA
dropped 231.86, or 0.6%, to 37,361.12, and the Nasdaq
COMP
sank 28.41, or 0.2%, to 14,944.35.

Spirit Airlines
SAVE,
-47.09%
lost 47.1% after a U.S. judge blocked its takeover by JetBlue Airways
JBLU,
+4.91%
on concerns it would mean higher airfares for flyers. JetBlue rose 4.9%.

Stocks of banks were mixed, meanwhile, as earnings reporting season ramps up for the final three months of 2023. Morgan Stanley
MS,
-4.16%
sank 4.2% after it said a legal matter and a special assessment knocked $535 million off its pretax earnings, while Goldman Sachs
GS,
+0.71%
edged 0.7% higher after reporting results that topped Wall Street’s forecasts.

Companies across the S&P 500 are likely to report meager growth in profits for the fourth quarter from a year earlier, if any, if Wall Street analysts’ forecasts are to be believed. Earnings have been under pressure for more than a year because of rising costs amid high inflation.

But optimism is higher for 2024, where analysts are forecasting a strong 11.8% growth in earnings per share for S&P 500 companies, according to FactSet. That, plus expectations for several cuts to interest rates by the Federal Reserve this year, have helped the S&P 500 rally to 10 winning weeks in the last 11. The index remains within 0.6% of its all-time high set two years ago.

Treasury yields
BX:TMUBMUSD10Y
have already sunk on expectations for upcoming cuts to interest rates, which traders believe could begin as early as March. It’s a sharp turnaround from the past couple years, when the Federal Reserve was hiking rates drastically in hopes of getting high inflation under control.

The Tell: No rate cuts in 2024? Why investors should think about the ‘unthinkable.’

Easier rates and yields relax the pressure on the economy and financial system, while also boosting prices for investments. And for the past six months, interest rates have been the main force moving the stock market, according to Michael Wilson, strategist at Morgan Stanley.

He sees that dynamic continuing in the near term, with the “bond market still in charge.”

For now, traders are penciling in many more cuts to rates through 2024 than the Fed itself has indicated. That raises the potential for big market swings around each speech by a Fed official or economic report.

Yields rose in the bond market after Fed governor Christopher Waller said in a speech that “policy is set properly” on interest rates. Following the speech, traders pushed some bets for the Fed’s first cut to rates to happen in May instead of March.

On Wall Street, Boeing fell to one of the market’s sharper losses as worries continue about troubles for its 737 Max 9 aircraft following the recent in-flight blowout of an Alaska Air
ALK,
-2.13%
jet. Boeing
BA,
-7.89%
lost 7.9%.

In energy trading, benchmark U.S. crude
CL00,
-1.55%
lost 90 cents to $71.75 a barrel. Brent crude
BRN00,
-1.37%,
the international standard, fell 78 cents to $77.68 a barrel.

In currency trading, the U.S. dollar
USDJPY,
+0.44%
rose to 147.90 Japanese yen from 147.09 yen. The euro
EURUSD,
-0.10%
cost $1.0868, down from $1.0880.

MarketWatch contributed to this report

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January 16, 2024
Stock market today: Asian shares mostly fall after Wall Street drop, Tokyo hits new 34-year high

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TOKYO — Asian shares were trading mostly lower on Wednesday after a decline overnight on Wall Street, while Tokyo’s main benchmark momentarily hit another 30-year high.

Japan’s benchmark Nikkei 225 gained 0.2% in afternoon trading to 35,701.41. The Nikkei has been hitting new 34-year highs, or the best since February 1990 during the so-called financial “bubble.” Buying focused on semiconductor-related shares, and a cheap yen helped boost exporter issues.

Australia’s S&P/ASX 200 slipped 0.3% to 7,393.10. South Korea’s Kospi dropped 2.0% to 2,447.09. Hong Kong’s Hang Seng dove nearly 3.1% to 15,381.84. The Shanghai Composite shed 0.9% to 2,868.96.

Official Chinese data released Wednesday showed that the Chinese economy grew 5.2% for 2023, surpassing the target of “about 5%” that the government had set. That growth was likely helped by 2022’s GDP of just 3% as China’s economy slowed due to COVID-19 and nationwide lockdowns during the pandemic.

Investors were keeping their eyes on upcoming earnings reports, as well as potential moves by the world’s central banks, to gauge their next moves.

Wall Street slipped in a lackluster return to trading following a three-day holiday weekend.

The S&P 500 fell 17.85 points, or 0.4%, to 4,765.98. The Dow Jones Industrial Average dropped 231.86, or 0.6%, to 37,361.12, and the Nasdaq composite sank 28.41, or 0.2%, to 14,944.35.

Spirit Airlines lost 47.1% after a U.S. judge blocked its takeover by JetBlue Airways on concerns it would mean higher airfares for flyers. JetBlue rose 4.9%.

Stocks of banks were mixed, meanwhile, as earnings reporting season ramps up for the final three months of 2023. Morgan Stanley sank 4.2% after it said a legal matter and a special assessment knocked $535 million off its pretax earnings, while Goldman Sachs edged 0.7% higher after reporting results that topped Wall Street’s forecasts.

Companies across the S&P 500 are likely to report meager growth in profits for the fourth quarter from a year earlier, if any, if Wall Street analysts’ forecasts are to be believed. Earnings have been under pressure for more than a year because of rising costs amid high inflation.

But optimism is higher for 2024, where analysts are forecasting a strong 11.8% growth in earnings per share for S&P 500 companies, according to FactSet. That, plus expectations for several cuts to interest rates by the Federal Reserve this year, have helped the S&P 500 rally to 10 winning weeks in the last 11. The index remains within 0.6% of its all-time high set two years ago

Treasury yields have already sunk in the bond market on expectations for upcoming cuts to rates, which traders believe could begin as early as March. It’s a sharp turnaround from the past couple years, when the Federal Reserve was hiking rates drastically in hopes of getting high inflation under control.

Easier rates and yields relax the pressure on the economy and financial system, while also boosting prices for investments. And for the past six months, interest rates have been the main force moving the stock market, according to Michael Wilson, strategist at Morgan Stanley.

He sees that dynamic continuing in the near term, with the “bond market still in charge.”

For now, traders are penciling in many more cuts to rates through 2024 than the Fed itself has indicated. That raises the potential for big market swings around each speech by a Fed official or economic report.

Yields rose in the bond market after Fed Gov. Christopher Waller said in a speech that “policy is set properly” on interest rates. Following the speech, traders pushed some bets for the Fed’s first cut to rates to happen in May instead of March.

In energy trading, benchmark U.S. crude lost 59 cents to $71.81 a barrel. Brent crude, the international standard, fell 56 cents to $77.73 a barrel.

In currency trading, the U.S. dollar edged up to 147.46 Japanese yen from 147.09 yen. The euro cost $1.0868, down from $1.0880.

___

AP Business Writer Stan Choe in New York contributed to this report.

___

Follow Yuri Kageyama on X: https://twitter.com/yurikageyama

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January 16, 2024
Beware ‘pricey’ stocks as inflation may ‘roller-coaster back up,’ says BlackRock

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U.S. stocks appear on course for “another year of flip-flopping market narratives” as falling inflation may “roller-coaster back up” and rattle investor expectations for a “soft landing,” according to BlackRock.

“Market jitters in early January suggest there is some anxiety about macro risks further out,” said BlackRock Investment Institute strategists in a note Tuesday. “We stay selective as we expect resurgent inflation to come into view.”

The strategists also pointed to “pricey valuations” in the U.S. stock market.

Markets have favored a small group of seven megacap stocks “for their ability to leverage artificial intelligence,” they said. Those stocks’ price-to-earnings ratios for the next 12 months are “about a third higher than for the S&P 500 and when excluding them,” a chart in their note shows.

BLACKROCK INVESTMENT INSTITUTE NOTE DATED JAN. 16, 2024

Price-to-earnings ratios, which “divide a company’s share price by its earnings per share,” fell in the second half of 2023 as stronger earnings expectations supported the megacap rally, the BlackRock strategists said. The so-called Magnificent Seven, as those market-leading megacap tech stocks are known, skyrocketed last year, fueling the S&P 500 index’s 24% surge.

“Even after the market-wide rally in December, market concentration in a handful of megacaps — firms with ultra-large market capitalizations — remains high,” the strategists said.

The seven companies with massive market values — Apple Inc.
AAPL,
-1.24%,
Microsoft Corp.
MSFT,
+0.49%,
Google parent Alphabet Inc.
GOOGL,
-0.11%

GOOG,
-0.11%,
Amazon.com Inc.
AMZN,
-0.94%,
Nvidia Corp.
NVDA,
+3.09%,
Facebook parent Meta Platforms Inc.
META,
-1.88%
and Tesla Inc.
TSLA,
+0.49%
— have an outsized weighting in the S&P 500.

Chip maker Nvidia was among the best-performing stocks in the S&P 500 in afternoon trading on Tuesday, with a sharp gain of 2.7% at last check, according to FactSet data. By contrast, the broad S&P 500 index
SPX
was down 0.7% on Tuesday afternoon, while the Dow Jones Industrial Average
DJIA
and technology-heavy Nasdaq Composite
COMP
were also declining.

Read: What’s next for stocks as ‘tired’ market stalls in 2024 ahead of closely watched retail sales

Potential catalysts

“We find valuations tend to matter more for long-term rather than near-term stock returns, and that’s why they usually aren’t enough to spoil market sentiment without a catalyst,” the BlackRock strategists wrote.

“Earnings could be a catalyst,” as well as inflation, they said.

Consensus expectations for earnings growth rose last year, with forecasts now calling for an increase of as much as 11% in the next 12 months, their note says, citing LSEG data.

BlackRock expects that U.S. inflation will this year subside to near the Federal Reserve’s 2% target. For now, that may support the soft-landing scenario the stock market and Fed have “largely embraced,” in which the U.S. may avoid a recession as inflation falls to that desired target, according to the strategists.

Many investors expect the Fed may start cutting interest rates this year as inflation eases, after the central bank hiked rates aggressively in a bid to tame it.

“The problem: Inflation won’t remain at that target, in our view, and this risk becoming clearer could challenge upbeat sentiment,” the BlackRock strategists said. “So we monitor earnings season for any signs of cracks given pricey valuations.”

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January 16, 2024
Why Donald Trump is unlikely to get his wish for a 2024 U.S. stock-market crash

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Donald Trump is unlikely to get his wish that a U.S. stock-market crash occurs this year.

I’m referring to the former U.S. president’s comments last week that he hopes the market crashes in 2024, since if he is elected in November and takes office a year from now, he doesn’t want to be another Herbert Hoover. Hoover was President when the stock market crashed in 1929.

The stock market did plunge in two of the last four presidential-election years, so it’s understandable why one would worry that 2024 could see a repeat. In 2008, in the middle of the Global Financial Crisis, the S&P 500
SPX
lost 38.5% for the year. In 2020, as the economy ground to a halt because of the COVID-19 pandemic, the S&P 500 lost 34% in little more than a month’s time.

It’s possible that a crash could occur at any time, of course, so a crash this year can’t be ruled out. Nevertheless, the odds of one occurring this year are significantly below average. That’s according to the latest “State Street US Froth Forecasts,” which are derived from research on crashes conducted by Robin Greenwood, Professor of Banking and Finance at Harvard Business School.

In that research, Greenwood and his co-authors found that it’s possible to identify when there is an elevated probability of a crash. In an interview, Greenwood said that “crash probabilities are low” right now, not only for the market as a whole but “across the board” for individual market sectors as well.

Greenwood’s model is based on a number of factors, such as performance over the trailing two-year period, volatility, share turnover, IPO activity and the price path of the trailing two-year runup. For example, he and his fellow researchers found that when an industry beats the market by 150 or more percentage points over a two-year period, there’s an 80% probability that it will crash — which they define as a drop of at least 40% over the subsequent two years. As you can see from the accompanying chart, State Street is reporting low crash probabilities for all sectors — in each case well below the average forecasted crash probabilities of the past five years.

These probabilities don’t mean that stocks will have a great year in 2024. A new bear market could begin this year without the decline satisfying the researchers’ definition of a crash.

Nevertheless, the takeaway from the State Street US Froth Forecasts is that there are bigger things to worry about this year than the possibility of a crash.

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com

More: Trump says he hopes market crashes in 2024 under Biden: ‘I don’t want to be Herbert Hoover

Also read: Iowa caucuses are make-or-break for Donald Trump

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January 15, 2024
Stock market today: Asia stocks follow Wall Street higher, while China keeps its key rate unchanged

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HONG KONG — Asian shares were mostly higher on Monday, with Tokyo extending its New Year rally, as China’s central bank kept its one-year policy loan interest rate unchanged.

U.S. futures and oil prices gained.

China’s central bank opted to keep its one-year policy loan interest rate at 2.5% on Monday while injecting funds into the financial system. That surprised market observers since it was contrary to the anticipated trend of lowering borrowing costs to stimulate the economy.

The “Policy focus has shifted to the effectiveness of monetary policy,” Zhaopeng Xing and Raymond Yeung of ANZ said in a report. “Today’s hold means the chance of an RRR (reserve ratio requirement) cut in February is higher.”

The Hang Seng in Hong Kong slipped 0.2% to 16,219.55, while the Shanghai Composite index was up 0.4%, at 2,892.28.

Search engine provider Baidu slumped 8.6% after a local newspaper report alleged the company’s Ernie AI platform was linked to Chinese military research into artificial intelligence. Baidu said in a statement that it “has no affiliation or other partnership with the academic institution in question.”

Tokyo’s Nikkei 225 rose 1.1% to 35,955.00 and the Kospi in South Korea edged 0.1% higher to 2,526.72.

Ruling-party candidate Lai Ching-te emerged victorious in Taiwan’s presidential election on Saturday, a result that will determine the trajectory of the self-ruled democracy’s contentious relations with China over the next four years. The Democratic Progressive Party, to which Lai belongs, has consistently rejected China’s assertions of sovereignty over Taiwan.

Taiwan’s Taiex gained 0.5% to 17,604.72.

Australia’s S&P/ASX 200 also edged 0.1% higher, to 7,502.70.

On Friday, the S&P 500 edged up by 0.1%, the Dow Jones Industrial Average fell 0.3%, dragged down by a sharp loss for UnitedHealth Group following its results. The Nasdaq was basically flat and rose by less than 0.1%.

Stocks have been roaring toward records for months, pulling the S&P 500 within 0.3% of its all-time high, on hopes that inflation is cooling enough for the Federal Reserve to cut interest rates several times this year.

Treasury yields have already sunk in the bond market on those expectations, and they fell further after a report showed inflation at the U.S. wholesale level was weaker last month than economists expected. The data bolstered expectations for rate cuts a day after another report had shown inflation was warmer at the consumer level than expected.

The yield on the 10-year Treasury eased to 3.94% from nearly 4% just before the report’s release. In October, it was above 5% and at its highest level since 2007. Easier rates and yields relax the pressure on the economy and financial system, while boosting prices for investments.

Traders are largely betting on the Fed cutting its main interest rate six or more times through 2024. That would be a much more aggressive track than the Fed itself has hinted. It’s even cautioned it could raise rates further if inflation refuses to buckle convincingly toward its target of 2%. The federal funds rate is already at its highest level since 2001.

The reporting season for the end of 2023 unofficially got underway last Friday with a bevy of reports from banks.

Delta Air Lines sank 9% even though it reported stronger profit and revenue for the final three months of 2023 than analysts had forecast. The carrier’s forecasted range for upcoming full-year profit indicated it could fall below what analysts had been expecting.

The airline and other travel-related companies were also hurt by a rise in oil prices, which put pressure on their fuel costs. United Airlines fell 10.6%, and Norwegian Cruise Line Holdings lost 4.3%.

Crude prices continued to rise on last week’s gains amid worries about potential disruptions to supplies after Yemen’s Houthi rebels vowed fierce retaliation for U.S. and U.K. strikes against them. A barrel of benchmark U.S. crude oil rose 10 cents to $72.78. Brent crude, the international standard, rose 18 cents to $78.47 per barrel.

The U.S. dollar was at 145.16 Japanese yen, up from 144.92. The euro rose to $1.0964 from $1.0950.

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January 14, 2024
SEC weighing ‘additional measures’ after hacked post on bitcoin ETF approval

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The Securities and Exchange Commission on Friday said that a social-media post on X falsely stating that it had approved spot bitcoin exchange-traded funds was created after an “unauthorized party” obtained control over the phone number connected with the agency’s account on the platform.

The markets regulator said its staff would “continue to assess whether additional remedial measures are warranted” in the wake of the breach, which occurred Tuesday and raised questions about cybersecurity at both the agency and the social-media platform, formerly known as Twitter.

The agency said it was coordinating with law enforcement on the matter, including with the FBI and the Department of Homeland Security.

“Commission staff are still assessing the impacts of this incident on the agency, investors, and the marketplace but recognize that those impacts include concerns about the security of the SEC’s social media accounts,” the SEC said in a statement.

The confusion began on Tuesday afternoon, when the hacked post appeared on the SEC’s X account.

“Today the SEC grants approval for #Bitcoin ETFs for listing on registered national securities exchanges,” the post read. “The approved Bitcoin ETFs will be subject to ongoing surveillance and compliance measures to ensure continued investor protection.”

A second post appeared two minutes later that simply read “$BTC,” the SEC noted in its statement. The unauthorized user soon deleted that second post, but also liked two other posts by non-SEC accounts, according to the agency. The price of bitcoin
BTCUSD,
-0.71%
rose sharply in the wake of the posts, before soon pulling back.

In response to the hack, SEC staff posted on the official X account of SEC Chair Gary Gensler announcing that the agency’s main account had been compromised, and that it had not yet approved any spot bitcoin exchange-traded products. Staff then deleted the initial unauthorized post, un-liked the liked posts and used the official SEC account to make a new post clarifying the situation, the agency said Friday.

The SEC also said that it had reached out to X for assistance Tuesday in the wake of the incident, and that agency staff believe the unauthorized access to the SEC’s account was “terminated” later in the day.

“While SEC staff is still assessing the scope of the incident, there is currently no evidence that the unauthorized party gained access to SEC systems, data, devices, or other social media accounts,” the agency said.

The following day, the SEC announced that it had, in fact, approved the listing and trading of spot bitcoin ETFs.

Wednesday’s move marked a breakthrough for the crypto industry, which for years has tried to get such ETFs off the ground in hopes of drawing more traditional investors to the digital-asset space.

Bitcoin was down 7.6% over a 24-period as of Friday evening.

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January 12, 2024
After Bitcoin ETFs, watch for the next most popular crypto to go the same route

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After long-awaited spot bitcoin exchange-traded funds made their debut this week, investors are now weighing the prospects of eventual approval of similar ether ETFs.

The U.S. Securities and Exchange Commission on Wednesday greenlighted 11 spot bitcoin
BTCUSD,
-1.58%
ETFs for the first time. The products, which made its debut trading on Thursday, logged a relatively strong first day.

However, bitcoin fell 6.8% on Friday, leaving it with a 3.2% gain over the past seven days, according to CoinDesk data. It underperformed ether
ETHUSD,
+1.82%,
which rose 17.6% over the past seven days while it declined 1.2% on Friday.

The news about bitcoin ETFs was mostly priced in, while investors are now looking past it to a potential approval of ether ETFs, analysts said.

“I see value in having an ETH ETF,” Larry Fink, chief executive at the world’s largest asset manager BlackRock, told CNBC’s Squawk Box on Friday. BlackRock, which just launched its iShares bitcoin Trust
IBIT,
in November filed an application for a spot ether ETF.

“It’s hard to know exactly what the U.S. regulators would do” about ether ETF applications, said Alonso de Gortari, chief economist at Mysten Labs, an internet infrastructure company.

However, “I would expect that once you open the door, it becomes easier and I think the industry is very excited about it,” de Gortari said. If bitcoin ETFs see an impressive institutional inflow in the coming months, it could make such products more established and set a good precedent for other crypto ETF applications, he said.

Read: Vanguard’s decision to shun bitcoin ETFs triggers backlash — with some customers moving to crypto-friendly competitors like Fidelity

Also see: Why the debut of bitcoin ETFs could be bad news for crypto stocks, futures ETFs

The enormous competition and huge inflows into bitcoin ETFs will only boost investors’ interests in an ether ETF, according to Paul Brody, EY’s global blockchain leader. “There’s no doubt that ETH is the next big market and has immediately become a priority for financial services companies,” Brody said in emailed comments.

Compared with bitcoin, the Ethereum blockchain offers more utility and has unique advantages, noted Fadi Aboualfa, head of research at digital assets custodian Copper.

Sandy Kaul, head of digital asset and industry advisory services at Franklin Templeton, said she eventually expects the arrival of ETFs that track a basket of cryptocurrencies. Such products, instead of those based on single crypto, would dominate the space if they are approved, she said.

“Just like the S&P 500 has 500 stocks in it, right? You don’t have just one stock.” Kaul said in a phone interview. The arrival of a bitcoin ETF, is just a “baby step into really beginning to think about the future market structure of crypto,” Kaul added.

However, not everyone is that optimistic. Will McDonough, founder and chairman of Corestone Capital, said the approval of an Ethereum ETF has “a long way to go.”

SEC chairman Gary Gensler previously said bitcoin was the only cryptocurrency he was prepared to publicly label a commodity, rather than a security.

The agency also went after companies that offered crypto staking, which allows investors to earn yields by locking their coins to secure blockchains such as Ethereum. The SEC shut down crypto exchange Kraken’s staking business in the U.S. last year.

One possibility is that “companies will be able to offer an ETH ETF, but they will not be allowed to stake that ETH and earn yield,” noted EY’s Brody.

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January 12, 2024
Vanguard Won’t Offer Spot Bitcoin ETFs on Its Platform

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Updated Jan. 11, 2024 3:06 pm ET

Bitcoin’s trip to Main Street just took a detour.

Vanguard said Thursday it won’t offer the new spot bitcoin exchange-traded funds on its brokerage platform.

Copyright ©2024 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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January 11, 2024
Bitcoin ETFs finally approved after a chaotic, ‘embarrassing’ 24 hours for SEC

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On Wednesday, the U.S. Securities and Exchange Commission for the first time greenlighted several exchange-traded funds investing directly in bitcoin.

But the 24 hours leading up to that approval were chaotic, to say the least.

The SEC approved the launch of 11 bitcoin
BTCUSD,
+0.09%
ETFs, according to a filing posted on the regulatory agency’s website. The ETFs are due to start trading on Thursday.

On Tuesday, however, the SEC’s official account on X, formerly known as Twitter, published what the agency described as an “unauthorized” post indicating that it had approved the spot bitcoin ETFs. In reality, the regulator had not approved any such ETFs as of Tuesday and its X account had been “compromised,” SEC Chair Gary Gensler said on the social-media platform. The SEC subsequently deleted the unauthorized post.

The agency found “there was unauthorized access to and activity on” the its X account by “an unknown party,” an SEC spokesperson said on Tuesday, adding that the “unauthorized access has been terminated” and that the SEC would work with law enforcement to investigate the matter.

Bitcoin’s price briefly shot 2% higher after the unauthorized tweet went out on Tuesday before soon pulling back.

Then on Wednesday, shortly before the U.S. stock market closed for the day, the SEC posted an actual approval order of bitcoin ETFs on its website — but the link was soon broken, leading to an “error 404” page. The same filing was later reposted by the SEC.

It is unclear why the first link was broken. A SEC spokesperson did not respond to an email seeking comment on the matter.

The events of the past 24 hours have proven “a bit embarrassing” for the SEC, especially as the agency has stressed that cryptocurrencies are exceptionally risky and vulnerable to market manipulation, according to Greg Magadini, director of derivatives at Amberdata.

Despite those warnings, Magadini said he doesn’t expect investors to be deterred from investing in the bitcoin ETFs.

Bitcoin has actually seen lower volatility on Tuesday and Wednesday than options traders had priced in, Magadini said. The crypto was up about 0.4% over the past 24 hours to around $46,400 on Wednesday evening, according to CoinDesk data.

Investors have been pricing in $1 to $2 billion of initial flows into the bitcoin ETFs.

Read: Bitcoin in spotlight as SEC approves new ETFs, ether rallies. Here’s why.

Steven Lubka, head of private clients and family offices at Swan Bitcoin, echoed Magadini’s point, noting that the hiccups on the way to SEC approval are unlikely to impact investor interest in the funds.

“Ultimately, the SEC is not the one that launches the ETFs,” Lubka said in a call. “If anything, it shows how much attention is on these ETF products.”

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January 10, 2024
SEC Approves Bitcoin ETFs for Everyday Investors

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Updated Jan. 10, 2024 5:56 pm ET

The U.S. Securities and Exchange Commission voted Wednesday to allow mainstream investors to buy and sell bitcoin as easily as stocks and mutual funds, a decision hailed by the industry as a game changer.

The SEC decision clears the way for the first U.S. exchange-traded funds that hold bitcoin to be sold to the public. Expectations of U.S. regulatory approval for such funds drove the price of bitcoin to the highest level in about two years. The digital currency fell to just below $46,000 late Wednesday, up from $17,000 in January 2023.

Copyright ©2024 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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January 10, 2024
SEC chair denies a bitcoin ETF has been approved, says account on X was hacked

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NEW YORK — The Securities and Exchange Commission said Tuesday that a post sent from the agency’s account on the social platform X announcing the approval of a long-awaited bitcoin exchange-traded fund was “unauthorized,” and that the agency’s account was hacked.

The price of bitcoin briefly spiked more than $1,000 after the post on X, formerly known as Twitter, claimed “The SEC grants approval for #Bitcoin ETFs for listing on all registered national securities exchanges.” Cryptocurrency investors had already driven bitcoin’s price above $46,000 in anticipation of the approval.

An ETF would provide a way to invest in bitcoin without having to buy the cryptocurrency outright on a crypto exchange such as Binance or Coinbase.

But soon after the initial post appeared, SEC Chairman Gary Gensler said on his personal account that the SEC’s account was compromised and, “The SEC has not approved the listing and trading of spot bitcoin exchange-traded products.” Gensler called the post unauthorized without providing further explanation.

“Welp,” wrote Cory Klippsten, CEO of Swan Bitcoin, on X. Like many bitcoin investors, Klippsten had been expecting the agency to approve bitcoin ETFs potentially as soon as this week.

The price of bitcoin swung from about $46,730 to just below $48,000 after the unauthorized post hit, and then dropped to around $45,200 after the SEC’s denial. It was trading around $46,150 at 6:15 p.m. ET.

Shortly after Gensler’s statement, it appeared that the SEC had gotten back control over the account.

It was unclear exactly how the SEC’s social media account was hacked. X’s @Safety account tweeted on Tuesday night that a preliminary investigation by the platform determined “an unidentified individual” got control of a phone number associated with the account “through a third party.”

It did not elaborate, though it did say that the compromised SEC account, @SecGov, did not have two-factor authentication activated.

Even before that news, politicians who have long expressed frustration at how Gensler operates the SEC — Republicans in particular — expressed anger at what they suggested were lax SEC security controls over its accounts.

“Just like the SEC would demand accountability from a public company if they made a colossal market-moving mistake, Congress needs answers on what just happened,” said Republican Sen. Bill Hagerty of Tennessee, who sits on the Senate Banking Committee.

This is not the first time there has been false market-moving information about the future of bitcoin on regulated exchanges. A false report back in October implied that fund manager BlackRock had gotten approval for bitcoin ETF, causing bitcoin prices to jump sharply.

Elon Musk gutted Twitter’s content moderation and security teams after taking over the platform in late 2022. And while internet watchdog groups have complained about a spike in toxic content, including antisemitic and other hate speech on X, many also worry about account integrity.

“The consequences of account takeovers could potentially be significant, and especially during an election year,” said Brett Callow, an analyst with the cybersecurity firm Emsisoft.

A spokesperson for X did not immediately respond to a request for comment.

____

AP Business Writer Frank Bajak in Boston contributed to this report.

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January 9, 2024
SEC chair denies a bitcoin ETF has been approved, says account on X was hacked

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NEW YORK — The Securities and Exchange Commission said Tuesday that a post sent from the agency’s account on the social platform X announcing the approval of a long-awaited bitcoin exchange-traded fund was “unauthorized,” and that the agency’s account was hacked.

The price of bitcoin briefly spiked more than $1,000 after the post on X, formerly known as Twitter, claimed “The SEC grants approval for #Bitcoin ETFs for listing on all registered national securities exchanges.” Cryptocurrency investors had already driven bitcoin’s price above $46,000 in anticipation of the approval.

An ETF would provide a way to invest in bitcoin without having to buy the cryptocurrency outright on a crypto exchange such as Binance or Coinbase.

But soon after the initial post appeared, SEC Chairman Gary Gensler said on his personal account that the SEC’s account was compromised and, “The SEC has not approved the listing and trading of spot bitcoin exchange-traded products.” Gensler called the post unauthorized without providing further explanation.

“Welp,” wrote Cory Klippsten, CEO of Swan Bitcoin, on X. Like many bitcoin investors, Klippsten had been expecting the agency to approve bitcoin ETFs potentially as soon as this week.

The price of bitcoin swung from about $46,730 to just below $48,000 after the unauthorized post hit, and then dropped to around $45,200 after the SEC’s denial. It was trading around $46,150 at 6:15 p.m. ET.

Shortly after Gensler’s statement, it appeared that the SEC had gotten back control over the account.

It was unclear exactly how the SEC’s social media account was hacked. X’s @Safety account tweeted on Tuesday night that a preliminary investigation by the platform determined “an unidentified individual” got control of a phone number associated with the account “through a third party.”

It did not elaborate, though it did say that the compromised SEC account, @SecGov, did not have two-factor authentication activated.

Even before that news, politicians who have long expressed frustration at how Gensler operates the SEC — Republicans in particular — expressed anger at what they suggested were lax SEC security controls over its accounts.

“Just like the SEC would demand accountability from a public company if they made a colossal market-moving mistake, Congress needs answers on what just happened,” said Republican Sen. Bill Hagerty of Tennessee, who sits on the Senate Banking Committee.

This is not the first time there has been false market-moving information about the future of bitcoin on regulated exchanges. A false report back in October implied that fund manager BlackRock had gotten approval for bitcoin ETF, causing bitcoin prices to jump sharply.

Elon Musk gutted Twitter’s content moderation and security teams after taking over the platform in late 2022. And while internet watchdog groups have complained about a spike in toxic content, including antisemitic and other hate speech on X, many also worry about account integrity.

“The consequences of account takeovers could potentially be significant, and especially during an election year,” said Brett Callow, an analyst with the cybersecurity firm Emsisoft.

A spokesperson for X did not immediately respond to a request for comment.

____

AP Business Writer Frank Bajak in Boston contributed to this report.

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January 9, 2024
Why stock-market investors will remain at mercy of shifting rate-cut expectations after wobbly start to 2024

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Stock investors have gotten off to a wobbly start to the new year, hobbled by shifting expectations on the timing and extent of Federal Reserve interest-rate cuts in 2024.

All three major U.S. stock indexes snapped a nine-week winning streak on Friday, after unexpectedly strong December job gains prompted traders to briefly pull back on the chances of a March rate cut. The S&P 500
SPX
and Nasdaq Composite
COMP
also failed to stage a Santa Claus Rally from the five final trading days of 2023 through the first two sessions of 2024, as questions grew about the market’s multiple rate-cuts view.

It all adds up to a glimpse of what might be in store for investors in the year ahead. Already, the so-called “January effect,” or theory that stocks tend to rise by more now than any other month, could be put to the test by headwinds that include stalling progress on inflation. Inflation’s downward trend in recent months had given traders and investors hope that as many as six or seven quarter-percentage-point rate cuts from the Federal Reserve could be delivered in 2024, starting in March.

Over the first handful of days in the new year, however, reality has started to sink in. For one thing, multiple rate cuts tend to be more commonly associated with recessions and not soft landings for the economy.

Moreover, the idea that the Fed could follow through with as many rate cuts as envisioned by traders would significantly increase the probability that policymakers lose their battle against inflation, according to Mike Sanders, head of fixed income at Wisconsin-based Madison Investments, which manages $23 billion in assets. That’s because six or more rate cuts would loosen financial conditions by too much, and boost the risk of another bout of inflation that forces officials to hike again, he said.

Minutes of the Fed’s Dec. 12-13 meeting show that policymakers were uncertain about their forecasts for rate cuts this year and failed to rule out the possibility of further rate hikes. Nonetheless, fed funds futures traders continued to cling to expectations for a big decline in borrowing costs, with the greatest likelihood now coalescing around five or six quarter-point rate cuts that total 125 or 150 basis points of easing by year-end. That’s roughly twice as much as what policymakers penciled in last month, when they voted to keep interest rates at a 22-year high of 5.25% to 5.5%.

Source: CME FedWatch Tool, as of Jan. 5.

Uncertainty over the path of U.S. interest rates could leave investors flat-footed once again, and damp the optimism that sent all three major stock indexes in 2023 to their best annual performances of the prior two to three years. In November, analysts at Deutsche Bank AG
DB,
+0.81%
counted seven times since 2021 in which markets expected the Fed to make a dovish pivot, only to be wrong.

Sources: Bloomberg, Deutsche Bank. Chart is as of Nov. 20, 2023.

Financial markets have been operating with “sky-high expectations” for 2024 rate cuts, but the only way to substantiate six cuts this year is with an “abrupt and sharp downturn in the economy,” said Todd Thompson, managing director and portfolio co-manager at Reams Asset Management in Indianapolis, which oversees $27 billion.

Heading into 2024, euphoria over the prospect of lower borrowing costs produced what Thompson calls “an alarming, everything rally,” which he says leaves equities and high-yield corporate debt vulnerable to pullbacks between now and the next six months. Beyond that period, however, “the trend is likely to be lower rates as the economy finally succumbs to tightening conditions at the same time inflation continues to recede.”

The coming week brings the next major U.S. inflation update, with December’s consumer price index report released on Thursday. The annual headline rate of inflation from CPI has slowed to 3.1% in November from a peak of 9.1% in June 2022. In addition, the core rate from the Fed’s favorite inflation gauge, known as the PCE, has eased to 3.2% year-on-year in November from a 4.2% annual rate in July.

The Fed needs to keep interest rates higher because of all the uncertainty around inflation’s most likely path forward, and the U.S. labor market “won’t degrade fast enough in the first quarter to justify a first rate cut in March,” according to Sanders of Madison Investments.

Rate-cut expectations are “going to be the issue for 2024, and a lot of it is going to be revolving around inflation getting back to that 2% target,” Sanders said via phone. “We think somewhere between 75 and 125 basis points of rate cuts make sense, and that the first move is more of a June-type of event. We don’t think it makes sense to have a March rate cut unless the labor market falls off a cliff.”

History shows that Treasury yields tend to fall in the months leading up to the first rate cut of a Fed easing cycle. However, that isn’t happening right now. Yields on government debt have been on an upward trend since the end of December, with 2-
BX:TMUBMUSD02Y,
10-
BX:TMUBMUSD10Y,
and 30-year yields
BX:TMUBMUSD30Y
ending Friday at their highest levels in more than two to three weeks.

See also: What history says about stocks and the bond market ahead of a first Fed rate cut

While financial markets generally tend to be efficient processors of information, they “haven’t been very accurate in terms of pricing in rate cuts” this time, said Lawrence Gillum, the Charlotte, North Carolina-based chief fixed-income strategist for broker-dealer for LPL Financial. He said the big risk for 2024 is if financial conditions ease too much and the Fed declares victory on inflation too soon, which could reignite price pressures in a manner reminiscent of the 1970s period under former Fed Chairman Arthur Burns.

“We think rate-cut expectations have gone too far too fast, and that the backup in yields we are seeing right now is the market acknowledging that maybe rate cuts are not going to be as aggressive as what was priced in,” Gillum said via phone.

December’s CPI report on Thursday is the data highlight of the week ahead.

On Monday, consumer-credit data for November is set to be released, followed the next day by trade-deficit figures for the same month.

Wednesday brings the wholesale-inventories report for November and remarks by New York Fed President John Williams.

Initial weekly jobless claims are released on Thursday. On Friday, the producer price index for December comes out.

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January 7, 2024