Economists polled by The Wall Street Journal had expected a 0.4% fall.
This is the eighth straight decline in the leading index.
The long period of declines suggests “the economy is possibly in a recession,” said Ataman Ozyildirim, senior director of economic research at the Conference Board. He said the data show a recession is likely to start around the end of the year and last through mid-2023.
The coincident index, which measures current conditions, rose 0.2% in October after a 0.1% gain in the prior month. The lagging index increased by 0.1%, matching the September gain.
The LEI is a weighted gauge of 10 indicators designed to signal business-cycle peaks and valleys.
The last time a British finance minister revealed tax and spending plans, markets went haywire and the country’s prime minister ultimately lost her job. The new government is not looking for a repeat performance.
On Thursday, Chancellor Jeremy Hunt is due to unveil a budget that will aim to restore confidence in the United Kingdom’s ability to manage its public finances. But that may be easier said than done.
Media reports indicate that the government is looking to come up with between £50 billion ($59 billion) and £60 billion ($70 billion) through a mix of tax increases and spending cuts, many of which may not take effect until after the next election in 2024.
“If you do too much, too soon, you risk worsening the recession,” said Ben Zaranko, a senior research economist at the Institute for Fiscal Studies. “If you delay everything until after the next election, you risk not being seen as credible.”
A new wave of austerity could help restore the government’s reputation with financial markets after the budget from former Prime Minister Liz Truss — which featured an unorthodox combination of major tax cuts and ramped-up borrowing — unleashed panic.
But it will do little to ease fears about the country’s grim economic prospects. The United Kingdom is one of two G7 economies to havecontracted in the third quarter. It’s now smaller than it was before the coronavirus pandemic. The Bank of England is forecasting a lengthy recession, which could stretch into 2024.
New cuts could make matters worse. When the government adopted an austerity program in 2010 on the heels of the Great Recession, it shaved 1% off the country’s GDP, according to the UK budget watchdog. Just four years ago, former Prime Minister Theresa May pledged to bring nearly a decade of austerity to a close.
Now, tax rises could further depress consumer confidence — already near a record low — and spending cuts risk placing further strain on public services that are already buckling under enormous pressure.
Still, Hunt intends to show he has a plan to reduce government debt as a proportion of GDP in the medium-term. It currently stands at 98%. The Office for Budget Responsibility said in July that it could reach nearly 320% in 50 years.
“We do have to do some tax rises, do some spending cuts, if we’re going to show we’re a country that pays our way,” Hunt told Sky News on Sunday.
How did the United Kingdom get here? There’s no shortage of finger pointing.
Part of the problem is global in nature. Interest rates have risen rapidly around the world as central banks attempt to rein in inflation. That’s pushed up borrowing costs for the government, dealing a shock after years in which money was cheap.
At the same time, skyrocketing energy costs, exacerbated by Russia’s war in Ukraine, have compelled governments to step in to cushion the blow of crippling energy bills — shortly after they spent significant sums helping households and businesses through the pandemic.
Hunt has scrapped plans to cap energy bills for typical households at £2,500 ($2,981) for the next two years. Instead, support will only be guaranteed until next spring. But the measures will still prove costly.
The government can’t blame all its problems on the rest of the world, however.
“You can just look at how the UK is performing relative to every other country in Europe, and it’s obvious there’s a UK-specific element to this,” Zaranko said.
The United Kingdom’s exit from the European Union has weighed on trade and contributed to shortages of workers in key industries.
“The UK economy as a whole has been permanently damaged by Brexit,” former Bank of England official Michael Saunders told Bloomberg TV this week. “If we hadn’t had Brexit, we probably wouldn’t be talking about an austerity budget this week. The need for tax rises, spending cuts wouldn’t be there.”
And while inflation in the United States cooled more than expected in October, falling to 7.7%, it’s still rising sharply in the United Kingdom, reaching a 41-year high of 11.1% last month.
That’s bolstering expectations that the Bank of England will need to keep raising interest rates and could hold them higher for longer, though recession may complicate those forecasts.
The country’s labor market also remains extremely tight, with an employment rate lower than before the coronavirus hit and a record number of people who aren’t working due to long-term illness.
“The UK does stand out in that labor supply has been very constrained, perhaps more so than in other countries,” said Ruth Gregory, senior UK economist at Capital Economics.
Federal Reserve Gov. Christopher Waller said Sunday that financial markets seem to have overreacted to the softer-than-expected October consumer price inflation data last week.
“It was just one data point,” Waller said, in a conversation in Sydney, Australia, sponsored by UBS.
“The market seems to have gotten way out in front over this one CPI report. Everybody should just take a deep breath, calm down. We’ve got a ways to go ” Waller said.
Investors cheered the soft CPI print, released Thursday, driving stocks up to their best week since June. The S&P 500 index SPX, +0.92%
closed 5.9% higher for the week.
The data showed that the yearly rate of consumer inflation fell to 7.7% from 8.2%, marking the lowest level since January. Inflation had peaked at a nearly 41-year high of 9.1% in June.
Waller said it was good there was some evidence that inflation was coming down, but noted that there were other times over the past year where it looked like inflation was turning lower.
“We’re going to see a continued run of this kind of behavior and inflation slowly starting to come down, before we really start thinking about taking our foot off the brakes here,” Waller said.
“We’ve got a long, long way to go to get inflation down. Rates are going keep going up and they are going to stay high for awhile until we see this inflation get down closer to our target,” he added.
The Fed is focused on how high rates need to get to bring inflation down, and that will depend solely on inflation, he said.
Waller said “the worst thing” the Fed could do was stop raising rates only to have inflation explode.
The 7.7% inflation rate seen in October “is enormous,” he added.
The Fed signaled at its last meeting earlier this month that it might slow down the pace of its rate hikes in coming meetings.
The central bank has boosted rates by almost 400 basis points since March, including four straight 0.75-percentage-point hikes that had been almost unheard of prior to this year.
“We’re looking at moving in paces of potentially 50 [basis points] at the next meeting or the next meeting after that,” Waller said.
The Fed will hold its next meeting on Dec. 13-14, and then again on Jan. 31-Feb. 1.
At the same time, Powell said the Fed was likely to raise rates above the 4.5%-4.75% terminal rate that they had previously expected.
“The signal was ‘quit paying attention to the pace and start paying attention to where the endpoint is going to be,’” Waller said.
In the wake of the CPI report, investors who trade fed funds futures contracts see the Fed’s terminal rate at 5%-5.25% next spring and then quickly falling back to 4.25%-4.5% by November. That’s well below the levels prior to the CPI data.
Investors feeling giddy about last week’s sharp rally for stocks might want to give a listen to Tom Waits’ song, “Whistlin’ Past the Graveyard” from 1978, to sober up for the dangers that still lurk ahead.
The surge in stocks catapulted the S&P 500 index SPX, +0.92%
almost back to the 4,000 mark on Friday, also lifting it to the biggest weekly gain in roughly five months, according to Dow Jones Market Data.
“We are not convinced this is the beginning of a new bull market,” said Sam Stovall, chief investment strategist at CRFA Research. “We believe that we are headed for recession. That has not been factored into earnings estimates and, therefore, share prices.”
Stovall also said the stock market has yet to see the “traditional shakeout of confidence capitulation that we typically see that marks the end of the bear markets.”
Yet, information technology stocks in the S&P 500 jumped 10% for the week, while financials, which stand to benefit from higher interest rates, rose 5.7%, according to FactSet.
That could reflect optimism about the odds of a slower pace of Federal Reserve rate hikes in the months ahead, after sharp rate rises helped to undermine valuations and pull tech stocks dramatically lower in the past year. However, Loretta Mester, president of the Cleveland Fed, and other Fed officials since the October inflation reading on Thursday have reiterated the need to keep rates high, until 7.7% annual rate finds a clearer path to the central bank’s 2% target.
The stock-market rally also might suggest that investors view continued mayhem in the crypto sector as contained, despite bitcoin BTCUSD, +0.42%
trading near its lowest level in two years and the shocking collapse in recent days of FTX, once the world’s third-largest cryptocurrency exchange.
Blows to the American economy rarely have been good for stocks. A look at seven past recessions, starting in 1969, shows declines for the S&P 500 as more typical than gains, with its most violent drop occurring in the 2007-2009 recession.
The more than 37% drop of the S&P 500 from 2007 to 2009 was the worst of its kind in a recession since the late 1960s.
Refinitiv data, London Stock Exchange Group
While a looming U.S. recession isn’t a foregone conclusion, CEOs of America’s biggest banks have been warning about the risks for months. JP Morgan Chase’s Jamie Dimon said in October that a “tough recession” could drag the S&P 500 down another 20%, even though he also said consumers were doing fine, for now.
Still, the steady stream of warnings about the recession odds have left many Americans confused and wondering if one can even happen without an increase in job losses.
Big moves lately in stocks also have been hard to decode, given the economy was shocked back to life in the pandemic by trillions of dollars in fiscal stimulus and easy-money policies from the Fed that are now being reversed.
“What I think goes unnoticed, certainly by the average person, is that these moves are not normal,” said Thomas Martin, senior portfolio manager at Globalt Investments, about stock swings this week.
“It’s all about who is positioned how — and for what — and how much leverage they’re employing,” Martin told MarketWatch. “You get these outsized moves when people are offside.”
Here’s a view of the sharp trajectory upward of the S&P 500 since 2010, but also its dramatic drop this year.
Sharp rise of S&P 500 since 2010, but recent fall
Refinitiv Datastream
While Martin isn’t ruling out the potential for a seasonal “Santa Claus” rally heading into year-end, he worries about a potential leg lower for stocks next year, particularly with the Fed likely to keep interest rates high.
“Certainly what’s being priced in now is either no recession or a very, very mild recession,” he said .
However, Kristina Hooper, Invesco’s chief global market strategist, said the overarching story might be one of stocks sniffing out the first steps in a path to economic recovery, and the Fed potentially stopping its rate hikes at a lower “terminal” rate than expected.
The Fed increased its benchmark interest rate to a 3.75% to 4% range in November, the highest in 15 years, but also has signaled it could top out near 4.5% to 4.75%.
“If often happens that you can see stocks do well, in a less-than-good economic environment,” she said.
The S&P 500 rose 4.2% for the week, while the Dow Jones Industrial Average DJIA, +0.10%
gained 5.9%, posting its best weekly gain since late June, according to Dow Jones Market Data. The Nasdaq Composite Index shot up 8.1% for the week, its best weekly stretch in seven months.
In U.S. economic data, investors will get an update on household debt on Tuesday, retail sales and homebuilder data on Wednesday, followed by jobless claims and housing starts data Thursday. Friday brings existing home sales.
The numbers: Consumer sentiment soured in November, hitting its lowest level since July as Americans contended with continued inflation and a worsening economic outlook.
The University of Michigan’s gauge of the U.S. consumer’s outlook fell 5.2 index points from 59.9 in October.
Economists were expecting a reading of 59.5, according to a Wall Street Journal poll.
Inflation expectations for the next year rose to 5.1% from 5% in the prior month, while five-year inflation expectations rose to 3% from 2.9% in October.
Big picture: Inflation eased somewhat in October, but prices for a typical basket of consumer goods are still rising a historically rapid pace even as rising interests rates are weighing on many sectors of the economy.
Fears of a coming recession also weighed on Americans’ confidence about the economy.
“Declines in sentiment were observed across the distribution of age, education, income, geography, and political affiliation, showing that the recent improvements in sentiment were tentative,” wrote Joanne Hsu, director of the survey, in a statement. “Instability in sentiment is likely to continue, a reflection of uncertainty over both global factors and the eventual outcomes of the election.”
Key details: A gauge of consumer’s views of current conditions fell in November to 57.8 from 65.6 in October, while an indicator of expectations for the next six months fell to 52.7 from 56.2 last month.
Market reaction: U.S. stocks were trading mixed Friday morning, with the S&P 500 SPX, +0.92%
posting gains and the Dow Jones Industrial Average DJIA, +0.10%
edging lower.
The European Union’s executive commission slashed its forecast for economic growth next year, saying the 19 countries that use the euro currency will slide into recession over the winter as peak inflation hangs on for longer than expected and high fuel and heating costs erode consumer purchasing power.
The European Commission’s autumn forecast released Friday predicts falling economic output in the last three months of this year and the first months of 2023.
The commission says high energy prices, a rising cost of living, higher interest rates and slowing global trade “are expected to tip the EU, the euro area and most member states into recession in the last quarter of the year.”
Going forward, the growth forecast for all of 2023 was lowered to 0.3% from 1.4% expected in the previous forecast from July.
“The EU economy is at a turning point,” said Paolo Gentiloni, European commissioner for economy.
“After a surprisingly strong first half of the year, the EU economy lost momentum in the third quarter and recent survey data point to a contraction for the winter,” he told reporters in Brussels. “The outlook for next year has weakened significantly.”
The worst performer next year is likely to be Germany, Europe’s largest economy and one of the most dependent on Russian natural gas before the war in Ukraine. Germany was expected to see output shrink by 0.6% over the next year.
Natural gas and electricity prices have soared as Russia has slashed gas supplies to Europe used for heating, electricity and industrial processes. European officials have accused Russia of energy warfare to punish EU countries for supporting Ukraine, while state-owned supplier Gazprom has cited technical reasons and a refusal by some customers to pay for gas in rubles.
In response, EU countries have rolled out cash support for consumers facing rising bills and lined up new supplies of natural gas by pipeline from Norway and Azerbaijan and in liquefied form that comes by ship from the U.S. and Qatar.
While gas storage is full for now, an exceptionally cold winter and the loss of remaining Russian gas could easily extend the gas crunch until winter 2023-24. In the meantime, consumers are businesses are facing sharply higher utility bills that have led to some companies simply shutting down unprofitable production in energy intensive areas such as fertilizer and steel.
Inflation will peak later than expected, near the end of the year, and will lift the average rate to 8.5% for 2022 and to 6.1% for 2023 in the eurozone, the EU forecast said. That is an upward revision of nearly 1 percentage point for 2022 and more than 2 points for 2023.
Two consecutive quarters of falling output is one common definition of recession, although the economists on the eurozone business cycle dating committee use a broader set of data including employment figures.
The commission indicated the job market was likely to hold up relatively well despite shrinking output over the winter, forecasting an increase in the unemployment rate from 6.8% this year to 7.2% next and a decrease to 7% in 2024.
Gentiloni said the forecast was subject to risks from unexpected events like a complete cutoff of remaining Russian gas but that the economy could do better than expected if EU governments act together in dealing with the economy and the energy crisis. He cited a discussion over revising EU rules on limiting excessive government debt and deficits.
The downbeat numbers “are not only subject to huge uncertainty, but crucially policy dependent,” Gentiloni said. “If we are able to show, based also on the experience of the pandemic, that we are able to agree on a common policy strategy, this will have confidence on markets, on investments and may change the outlook for the better.”
Opinions expressed by Entrepreneur contributors are their own.
Most business leaders can agree, the last few years have been anything but ordinary. From unprecedented circumstances like the global pandemic to record high inflation, the atypical has become typical in our everyday existence. The U.S. military coined acronym VUCA (volatile, uncertain, complex, and ambiguous) is more relevant today than ever before. It represents the challenges teams, business leaders and organizations face as we navigate uncertain times. These unpredictable forces require a new approach. Instead of looking to the past to rewrite our future, we would benefit from paving a new path towards resiliency — one that takes a holistic approach in today’s business environments.
As we confront ongoing challenges without a manual, leaders are navigating conditions our predecessors have not yet laid the groundwork for. For many entrepreneurs, resiliency has not been an imperative leadership characteristic. However, those who exhibit this quality are adapting to the chaos — honing a renewed sense of optimism and seeking out resources to lead forward.
Opinions expressed by Entrepreneur contributors are their own.
All of the talk of a recession is forcing small business owners to hope for the best and prepare for the worst. To understand how small businesses are preparing, I contacted several marketing agencies that specialize in working with entrepreneurs to grow and scale. Preparing for a downhill period of time is like cross-country skiing. You have to be prepared to weather the storm. To help, I’ve combined their feedback with the marketing strategies we’re deploying in our company to be prepared for whatever the future may hold.
There will not be a one-size-fits-all approach. Your approach will depend on your current situation and the level of marketing you have deployed. In the larger end of the small business market, you will have a full marketing team and various agencies supporting your business. And at the smaller end of the spectrum, you may have a single marketing manager. Evaluate each of these strategies for how they will apply to your business and right-size them for your approach.
Create trigger points for shifts in marketing spend
If there is a recession, we can expect revenues to decline. If that happens, what will happen to marketing spend? It’s best to plan these decisions ahead of time when you aren’t under the stress of the moment. Where will you decrease spend? Where will you increase spend? What metrics will you use to measure the success or failure of initiatives? What is your target cost per lead? What’s your target cost per new customer? These are all questions entrepreneurs are asking themselves and their marketing teams right now.
We’re working on establishing baselines. It’s like building a plane while we’re flying. We’re seeing some categories like advertising and email declining since the Apple iOs15 update, and it’s hard to know when we’ll reach the floor. Meanwhile, we’re seeing others like thought leadership, influencer marketing and podcasting increasing, and we’re not sure when we’ll hit the ceiling. The key is to stay on top of the marketing mix and put in accountability to understand what is truly driving the needle we need to be moving. A rounded-out strategy will consider new account marketing, customer marketing and partner marketing for a holistic strategy.
Invest in the brand and messaging to stay ahead of the competition
Companies are doubling down on standing out from the crowd. Bob Gillespie, founder of Propr Digital said his clients are moving towards differentiating through powerful branding and messaging. “Brands are looking to stand out. And once they do, they want that differentiation to scale. We’re finding companies are investing in their corporate brand and message on the front end and then carrying it through all of their campaigns in order to create stronger brand awareness in a more competitive marketing environment.”
This is something we chose to do during the pandemic. We knew the market was shifting, and we couldn’t compete on size as a small business. So, we knew we had to stand out and make every interaction count. We hired a brand agency to come in. They turned our brand on its head and came back with something that truly sets us apart in the market. Then we hired a messaging agency to come in and align our sales messaging. Now, we’re focused on making an impact and being memorable at every touchpoint.
Be strategic about advertising spend and its purpose
If revenues decline, most companies will decrease their advertising spend. Steve Krakower from Harbor Marketing Agency says, “This will make it more challenging to scale.” He recommends you ask yourself, “How do you acquire customers more efficiently? Focus on Return on Ad spend as your one big metric, and reset expectations. Growth might be slower. The days of putting $1 into Facebook and getting $5 out are on their way out. So, what we are trying to do is focus on brand building. We’re putting out a lot of content to build a community around brands and businesses. Then we’re supplementing that brand advertising with direct response advertising. It takes more sweat equity to get results than it did five years ago, and in today’s market, brand building isn’t optional.”
He also recommends that you “are smart about your spend. You don’t have to outpace the recession. You may not be as aggressive. You have to make sure you can weather the storm while positioning to scale after.”
Combine forces to amplify resources
This is not a time to go it alone. Positioning yourself as part of a “full suite” implies better value; people assume the whole is greater than the sum of its parts. Brian Taylor from Goldiata Creative says, “Align yourself with other recession-proof businesses. Look for industries that will have less of an impact during a recession like government, healthcare and consumer goods.”
We made a strategic shift to align with specific partners in our go-to-market strategy. We realized that with a small marketing team of three, we couldn’t boil the ocean. We had to focus and take advantage of the marketing teams of our partners if we were going to make an impact. This has enabled us to align our sales teams on a joint account-based marketing strategy, leverage content marketing resources across both brands and increase the amount of lead volume sent to sales. That’s a win-win. We’re in a market where we recognized we’re stronger together. Our partners have marketing teams that are more than triple our size. Why would we try to go it alone when we could be creating joint content and running joint promotions that maximize the reach of both of our brands? We have a powerful combined story to tell, so let’s tell it.
In a down market, everyone’s reputation is on the line. And that means that every decision matters. Joe Dominick, partner at Gauge Media and owner of a small IT firm says, “In a down market, be prepared to offer more social proof. You want case studies and testimonials that will reassure people that the money they are about to spend won’t be regretted. It’s not about loyalty, it’s about reducing prospect fear and uncertainty. Reputation matters. And theirs is on the line as much as yours.”
We’ve invested heavily in case studies as part of our content strategy, understanding this will become more and more useful as time goes on, regardless of whether or not there is a recession. Social proof always matters. Look at how you can tell the story of your customers, and make them the hero. Your success is their success, and the more you can put them at the center of your marketing strategy, the better. Even in industries where you can’t publish the customer’s name, you can still publish it with the type of company and industry it served and anonymize it. The idea that we can’t share our successes simply isn’t true. There’s a creative way to tell every story.
Entrepreneurs understand that we need to be thinking ahead and start making strategic shifts to prepare for a once again, unknown future. How you handle your marketing strategy could make or break your business. It’s not uncommon for entrepreneurs to slash marketing budgets in a recession and rely solely on the sales channel. This is a strategy for failure as you need both to remain competitive. If you disappear from the market and expect people to remember who you are, you’ll be disappointed. We live in an out-of-sight, out-of-mind culture. People will forget your business. And small businesses will need to find a way to do both to stay competitive. They’ll need to be smart about it. The reality is that we won’t be able to do everything. Thinking about where to strategically focus now will help right-size the workload so you can scale up or down as needed. Every down market presents great opportunities for small businesses to grow.
Walt Disney Co. wrapped up its fiscal year with record sales and its best revenue growth in more than 25 years, but executives predicted much slower sales increases in the year ahead while missing expectations for fourth-quarter earnings and sales, sending shares down more than 10% Tuesday afternoon.
Disney DIS, -0.53% reported fiscal fourth-quarter net income of $162 million, or 9 cents a share, on sales of $20.15 billion, up from $18.53 billion a year ago but more than $1 billion short of expectations. After adjusting for amortization and certain investment changes, Disney reported earnings of 30 cents a share, down from 37 cents a share a year ago.
Analysts surveyed by FactSet had on average expected adjusted earnings of 56 cents a share on revenue of $21.27 billion.
Disney executives blamed a number of factors for the revenue miss, including lower content sales because they had fewer theatrical films on the calendar; underperformance of the parks and media divisions; and seasonality of its fourth quarter, which tends to be the lowest for margins.
For the full fiscal year, Disney reported record sales of $82.72 billion, more than 22% higher than the previous year, the strongest annual sales growth for Disney since the 1996 fiscal year, according to FactSet records. Profit grew to $3.19 billion from $2.02 billion the year before, but is nowhere close to prepandemic Disney earnings, which hit eight figures in both 2019 and 2018.
In a conference call Tuesday afternoon, though, Chief Financial Officer Christine McCarthy suggested that revenue and profit growth will slow to single digits on a percentage basis in the current fiscal year, missing Wall Street’s expectations. Analysts’ average revenue projection for Disney in the new fiscal year suggested revenue growth of about 13.9% and operating-income growth of roughly 17.4%, according to FactSet.
“Putting this all together, assuming we do not see a meaningful shift in the macroeconomic climate, we currently expect total company fiscal 2023 revenue and segment operating income to both grow at a high-single-digit percentage rate versus fiscal 2022,” McCarthy said.
Disney shares initially fell more than 6% in after-hours trading following the release of the results, but plunged anew to a decline of more than 10% after closing with a 0.5% decline at $99.94.
Disney has been helped by the return of visitors to its theme parks in the third year of the COVID-19 pandemic, as well as a recovering movie business. The main attraction for investors, though, has been growing Disney’s streaming efforts — total streaming subscribers topped Netflix Inc.’s NFLX, +1.88%
subscriber total last quarter, and grew its lead in Tuesday’s report, with Disney adding 12.1 million net new subscribers, while analysts on average expected 10.4 million.
Disney’s streaming growth has hampered its profitability, however, as the company spends to add content to its streaming services in order to compete with Netflix. Those days appear to be coming to an end as Disney struggles with profit.
“The rapid growth of Disney+ in just three years since launch is a direct result of our strategic decision to invest heavily in creating incredible content and rolling out the service internationally, and we expect our DTC operating losses to narrow going forward and that Disney+ will still achieve profitability in fiscal 2024, assuming we do not see a meaningful shift in the economic climate,” Disney Chief Executive Bob Chapek said in a statement announcing the results. “By realigning our costs and realizing the benefits of price increases and our Disney+ ad-supported tier coming December 8, we believe we will be on the path to achieve a profitable streaming business that will drive continued growth and generate shareholder value long into the future.”
Disney’s largest business segment, media and entertainment distribution, reported sales of $12.73 billion in the quarter, down from $13.08 billion a year ago; analysts on average predicted $13.86 billion. Direct-to-consumer sales, which includes streaming services as well as some international products, hauled in $4.9 billion, compared with analysts’ forecast of $5.4 billion on average.
The trajectory of Disney’ meteoric rise as video-streaming market leader is likely to continue once its advertising-supported service debuts in the U.S. next month, according to Wall Street analysts, after Netflix launched its rival offering on Nov. 3. Disney has leaned heavily on its stable of mega-franchises such as “Star Wars” and the Marvel Cinematic Universe to outpace Netflix Inc. NFLX, +1.88%,
Apple Inc. AAPL, +0.42%,
Comcast Corp. CMCSA, +0.95%,
Warner Bros. Discover Inc. WBD, -2.04%,
Amazon.com Inc. AMZN, -0.61%,
Paramount Global PARA, +1.28%
and others.
Disney’s television networks generated sales of $6.34 billion, while analysts’ average estimates called for $6.64 billion. Content sales and licensing, a category that includes Disney’s film business, registered revenue of $1.74 billion vs. analysts’ expectations of $2.08 billion.
The company’s signature theme parks and product sales business increased to $7.43 billion in revenue from $5.45 billion a year ago. The average analyst estimate was $7.46 billion.
Shares of Disney are down 35.5% this year, while the broader S&P 500 index SPX, +0.56%
has dropped 20%.
Photo Illustration by Rafael Henrique/SOPA Images/LightRocket via Getty Images.
SOPA Images/LightRocket via Getty Images
The news that a reported 3,700 Twitter TWTR employees were let go via email, was no surprise. However, it does call into question how badly advertising revenue will be hit as ad agencies try and figure out what the new Twitter will look like sans almost half of their employees.
Employees likely didn’t sleep well after getting an email on Thursday night telling them they would be notified what their future employment status was by 9:00 a.m. PST on Friday by email with the header “Your Role At Twitter.” It would be sent to their personal accounts if they are being let go, or to their work accounts if they would be staying, they were notified in an unsigned email.
The company shut all offices on Friday “to help ensure the safety of each employee as well as Twitter systems and customer data.” Some employees who had been sleeping in their offices due to heavy time demands from Musk were shocked as they were escorted out of the building.
Many employees got early warnings as their access to work platforms was shut off at about 8:00 p.m. and their email accounts were turned off at 11:00 p.m. “It’s a break-up by text,” a person affected by the layoffs said.
“My entire team is gone,” one person impacted by the layoffs in New York told a reporter. They worked on a team of more than 30. Another employee estimated that 90% of their team was gone.
Most of the management of the ad sales team, including Chief Marketing Officer Leslie Berland, VP of Global Client Solutions Jean-Phillipe Maheu and Chief Customer Officer Sarah Personette, had already been let go by Chief Twit Elon Musk, who has been trying to placate advertisers by doing in-person and video meetings.
Three of the worst hit teams were product and engineering for advertising, Redbird (the infrastructure team that runs data centers), and corporate communications.
Musk’s strategy to butter up advertisers has clearly not worked. General Mills GIS Inc., snack food manufacturer Mondalez International Inc., Pfizer PFE Inc. and Volkswagen AG’s Audi are joining a growing list of companies “pausing” campaigns on Twitter, according to The Wall Street Journal.
One ad agency executive told The Journal that about 20 of its clients are no longer advertising on Twitter, and that’s just one agency. Musk himself gave a clue as to how bad things are when he tweeted that the company has had a massive drop in ad revenue since he acquired it a week ago. He said it was “due to activist groups pressuring advertisers, even though nothing has changed with content moderation and we did everything we could to appease the activists.” He added, “Extremely messed up! They’re trying to destroy free speech in America.”
What he failed to consider is the fact that, like stock market investors, the thing that advertisers like the least is uncertainty. If they don’t know exactly where and when their ad is being placed, and more importantly, what the demographic will be, they will simply stop their campaigns.
Another issue is the mood of the remaining employees given Musk has no hesitancy in quickly letting people go if they don’t carry out his vision. Many employees being laid off under the plan which has been dubbed “Project Tundra,” are being given only 60 days of severance pay. Twitter Chief Accounting Officer Robert Kaiden left the company after the list of layoffs was solidified, one of the last remaining Twitter execs to leave the company.
Musk may in fact be losing even more employees than those he has laid off. Morale is likely to plummet with the massive layoffs paired with the fact that everyone working at home is being required to return to the office. Axios reports that employees are being given as little as 60 days to relocate to a Twitter office.
Surprisingly, Twitter did not take down a flurry of tweets from prominent California Attorney Lisa Bloom (@LisaBloom) late Thursday night including:
· Hey Twitter employees getting laid off tomorrow! IMPORTANT INFO from a CA employment attorney (me): CA’s “WARN” law requires Twitter to give you 60 days notice of a massive layoffs. A layoff of 50+ employees within a 30 day period qualifies. I know you didn’t get that notice;
· This WARN law applies to all California employers of 75+ employees, which obviously includes Twitter with its thousands of employees. Purpose of the law is to give laid off employee’s time to figure out how to handle this disruption. And Elon completely ignores it;
· Twitter will be liable for all of these (civil penalties, lost compensation, lost medical and other benefits) & attorney’s fees for 60 days it failed to give workers notice. This flagrant violation of worker’s rights is outrageous. Who’s in for a class action? LET’S DO THIS;
· Also, CA’s strong antidiscrimination laws apply to Twitter’s big layoff tomorrow. Are people of color, women and/or older workers disproportionately chosen for example? This was done so hastily, so slapdash, so that the world’s richest man gen get even richer faster;
· Employees laid off in violation of the WARN Act receive back pay at the employee’s final rate or a 3 year average of compensation, whichever is higher. Twitter would also be liable for workers’ medical expenses that would have been covered under an employee benefit plan;
· Twitter employees, DO NOT SIGN IGN ANYTHING when you’re laid off. Consult with an attorney first. Buried in the fine print may be a waiver of your rights under CA and Federal law. Those employers like Twitter who violate the WARN Act face civil penalties of $500/day for each violation. With thousands of employees this could be significant, though maybe not to Elon; and
· We’ll see how long Twitter lets my posts stay up. If they take them down tonight, before the layoffs, that means they were on notice of the law I cite and chose to punish me rather than follow it. That’s consciousness of guilt and I’d use it as the basis for punitive damages.
A class action lawsuit was indeed filed against Twitter for not giving enough notice to employees prior to the layoffs by Shannon Liss-Riordan, who unsuccessfully sued Tesla in June of 2022 when the company cut about 10% of their workforce.
However, Musk apparently has already thought this through by keeping people on the payroll who are laid off. The New York Times received an email from a worker who was notified that her job had been “impacted” but that they would stay employed through a separation date in February.
The numbers: The economy gained surprisingly strong 261,000 new jobs in October, underscoring the persistent strength of a labor market that the Federal Reserve worries will exacerbate high inflation.
Economists polled by The Wall Street Journal had forecast 205,000 new jobs.
The unemployment rate, meanwhile, rose to 3.7% from 3.5%, the government said Friday, as more people lost jobs and the size of the labor force shrank a little bit.
Fed Chairman Jerome Powell said on Wednesday the labor market is “out of balance” because there’s too many job openings and too few people to fill them.
Fed officials worry the labor shortage is driving up wages and making it harder for them to reduce inflation back to precrisis levels of 2% or so. The cost of living has risen 8.2% in the past year, one of the highest increases since the early 1980s.
Layoffs and unemployment are likely to increase, however, if the Fed keeps raising U.S. interest rates as expected. The central bank could push a key short-term rate to as high as 5% by next year from near zero just nine months ago.
Rising interest rates slow the economy and sometimes trigger recessions. Many economists predict a downturn is likely by next year. Powell himself admitted the odds of avoiding a recession have fallen due to persistently high inflation.
In October, wages grew 0.4%. Average hourly pay rose slightly in September to $32.58, lowering the increase over the past year to 4.7% from 5%.
It’s the first time in almost a year that the rate of wage growth has dropped below 5%. Before the pandemic, they were rising around 3% a year.
Another potential pressure valve for the economy showed little progress, however. The so-called participation rate — or share of working-age people in the labor force — dipped to 62.2% from 62.3%.
Big picture: The economy is slowing — almost every major indicator is much softer compared to earlier in the year.
The labor market is one of the few exceptions.
Normally that’s a good thing, but the Fed thinks the the labor market is too strong for its own good. The series of rate hikes undertaken by the central bank is bound to slow hiring even further and cause unemployment to rise in the months ahead.
The potential saving grace, Powell and some other economists say? Businesses have struggled so hard to hire people amid a labor shortage that they might not lay off as many people as they usually do when the economy goes sour.
Market reaction: The Dow Jones Industrial Average DJIA, -0.46%
and S&P 500 SPX, -1.06%
were set to open lower in Friday trades. The yield on the 10-year Treasury note TMUBMUSD10Y, 4.158%
rose to 4.19%.
Although the company had already planned a major staff reduction, Edward Chen, a data scientist formerly in charge of Twitter’s TWTR spam and health metrics and currently CEO of Surge AI (a content moderation start-up), told the Washington Post the proposal cited in the media to cut roughly 75% of employees was unimaginable. He said it would put users at risk of hacks and exposure to child pornography and other offensive content.
Still, with a recession looming, tough decisions must be made and Musk is moving quickly to make sure the social media company isn’t reliant as much on advertising revenue, which tends to tank during an economic downturn. At the same time, he is dramatically cutting costs to try and get Twitter’s margins moving rapidly upwards.
In addition, Musk convinced a number of high-profile investors to put billions in the company, so he is under pressure to make changes quickly.
One proposed change which didn’t go over very well with users was a planned implementation of a $20/month charge so that high-profile users can keep their blue check mark showing that they are a verified account. In essence, it’s a way to avoid fake news because consumers and the media can quickly find out if the comments are from the actual person.
Musk defended the $20/month charge but later back-tracked to an $8/month charge after a backlash from some users, although he did note that the cost would vary by country. A survey sent out by Jason Calacanis, a longtime start-up investor who encouraged Musk to buy Twitter, asked how much they would pay to have the blue check mark. Of the 1.9 million who responded, more than 80% said they wouldn’t pay anything. The second most popular was $5/month, which got 10% of the votes.
Many people will have an adverse reaction, even those who can well afford it like author Stephen King who tweeted last October, “$20 a month to keep my blue check? Fuck that, they should pay me. If that gets instituted, I’m gone like Enron.”
“We need to pay the bills somehow! Twitter cannot entirely rely on advertisers. How about $8?” responded Musk. The Information’s Jessica Lessin responded with an article saying, “I’m far more interested in leaving that emotion aside and focusing on the business rationale of charging Twitter users $8 a month to be “verified” and for other features, like seeing fewer ads. Many commentators have pointed out that this subscription tier isn’t likely to net Twitter much money. There are 423,700 users verified currently. If they all paid, that would be $41 million in new revenue.”
FiveThirtyEight political writer Nate Silver had a similar reaction to Stephen King. “I’m probably the perfect target for this, use Twitter a ton, can afford $20/mo, not particularly anti-Elon, but my reaction is that I’ve generated a ton of valuable free content for Twitter over the years and they can go fuck themselves,” he wrote on Twitter.
Musk is also planning to convert the $4.99 premium service called Twitter Blue, which has a function allowing you to edit your tweets 30 minutes after posting them as well as test new features before they are rolled out, into a required subscription for those who want to keep their verified status. He reportedly told employees to get the program in place by November 7 or they are fired. The price point on the revamped service is set to rise from $4.99/month to $7.99/month.
Another issue Musk is facing is getting advertisers on board. Both Havas Media and Interpublic Group IPG have told their clients they should temporarily stop advertising on Twitter due to concerns over the company’s ability to monitor its content.
Also weighing heavily on Musk’s mind must be data which was exclusively reported by Reuters that heavy tweeters—which account for less than 10% of users but 90% of all tweets and half of global revenue—have been in “absolute decline since the pandemic.” This came from an internal document entitled “Where did the Tweeters Go?” which was obtained by Reuters.
Heavy tweeters are defined as those who login six or seven days a week and tweet about three to four times a week. Unfortunately, news, sports and entertainment, all attractive to advertisers, are in decline amongst English-speaking heavy tweeters while cryptocurrency and “Not Safe For Work,” NFSW (which includes nudity and pornography), are rising rapidly for this group. Adult content comprises 13% of content on twitter and is not popular with most advertisers.
This is certainly a challenge short-term as Musk has said that anyone previously removed from the service for violating its rules won’t be allowed back onto the platform until the company has a clear process in place, which will be at least a few weeks.
He said, “Twitter’s content moderation council will include representatives with widely divergent views, which will certainly include the civil rights community and groups who face hate-fueled violence.”
This may be leaving ad agencies and advertisers scratching their heads as to what the product will look like and which advertisers it will be attractive to. Elon Musk is very quick to change course so it may be wise for advertisers to sit on the sidelines to wait and see how the social media platform evolves.
The Federal Reserve still has a chance to meet both of its main goals — strong economic growth and stable prices — but time is running out to achieve a soft landing.
The problem is that Fed officials are fixated on raising interest rates FF00, +0.00%
several more times, including another supersize increase at their meeting Tuesday and Wednesday. They don’t seem to notice that inflation is already retreating significantly, while growth is dangerously close to stalling out.
They have a blind spot because they are looking at the past.
Fed officials ought to reach out to another government agency that has had remarkable success in achieving soft landings: The National Aeronautics and Space Administration.
NASA’s scientists know something the Fed has forgotten: It takes a long time to send and receive messages from space, so they need to account for those delays when sending instructions to their spacecraft so they can land safely on Mars, or orbit Saturn or the moons of Jupiter.
Compounding errors
It’s the same way with the economy. The signals that the Fed receives from the economy are often delayed, sometimes by months. Unfortunately, one of the main signals the Fed is relying upon right now to decide how much to raise interest rates is delayed by a year or more.
I’m talking about inflation in the price of putting a roof over our heads. Shelter prices are now the leading contributor to increases in the consumer price index (CPI) and the personal consumption expenditure (PCE) price index. But because of the way the CPI for shelter is constructed — for very good reasons — the inflation reported today reflects conditions as they were 12 to 18 months ago.
The error is compounded because shelter prices are by far the largest component of the CPI, at more than 30%.
The Fed is disappointed that inflation hasn’t declined more since it began raising interest rates in March, but how could it when the signals about shelter prices were sent last summer and fall, long before the housing market began to cool in response to higher interest rates TMUBMUSD10Y, 4.049%
and the reductions in the Fed’s holdings of mortgage-backed securities?
According to real-time data, shelter prices are no longer rising at a near-10% annual rate as the CPI and PCE price index claim. Growth in rents and house prices has slowed since the first rate hikes in March. House prices are actually falling in most regions of the country, and private-sector measures of rents show that landlords are now dropping rents in many cities.
Just like a radio signal from Jupiter, it takes time for that message to be received by the CPI. It will be received and incorporated into the CPI eventually, but by then it may be too late for the Fed to react. The Fed might crash the spacecraft because it mistakenly believes the messages it gets are in real time.
Growth is slowing
The Fed’s blind spot puts the economy in peril. Recent data show that growth is naturally slowing from the breakneck pace following the pandemic shutdowns but also from the Fed’s relentless squeeze on financial conditions.
It’s very hard to argue that the economy is still overheating. Domestic demand has stalled out since the spring. Final sales to domestic purchasers — which covers consumer spending and business investment — has grown at a 0.3% annual pace over the past two quarters.
Real disposable incomes are growing at less than 1% annualized. Household wealth has fallen off a cliff, with the stock market SPX, -0.41%
DJIA, -0.24%
in a bear market and home equity beginning to fall. Wage growth is beginning to slow. Supply chains are improving.
And the CPI excluding shelter has gone from rising at a 14% annual pace in the spring when the tightening began, to falling at a 1% annual pace over the past three months. Rate hikes are working!
This benign picture on inflation may not persist. Inflation is still worrisome, particularly for essentials such as food, health care, new vehicles and utilities.
But the Fed should adopt a more balanced view of the economy, no matter what the signals from the past say. No one wants a hard landing.
The numbers: A closely-watched index that measures U.S. manufacturing activity fell 0.7 percentage points to 50.2 in October, according to the Institute for Supply Management on Tuesday.
Economists surveyed by the Wall Street Journal had forecast the index to inch down to 50. Any number below 50% reflects a shrinking economy.
It is the lowest level since May 2020.
Key details: The index for new orders remained in contraction territory, rising 2.1 points to 47.1. The production index rose 1.7 points to 52.3.
The employment index rose 1.3 points to 50 in October.
Supplier deliveries fell 5.6 points to 46.8 in October. This is the first time that deliveries were in a “faster” territory since February 2016.
The price index dropped 5.1 points to 46.6., also the lowest reading since the pandemic. Pricing power is shifting back to the buyer, the ISM said.
Only 8 of the 18 manufacturing industries reported growth in October.
Big picture: Manufacturing has been slowing recently led by softening business spending and fading demand for consumer goods. Economists think it is inevitable the index slips below the 50 threshold.
In a separate data, the S&P global U.S. manufacturing PMI inched up to 50.4 in its “final” reading in October from the “flash” reading of 49.9. This is down from a reading of 52 in September.
What ISM said: Manufacturing is slowing down and could soon enter contraction territory, but that doesn’t mean there will be a recession in the U.S., said Timothy Fiore, chair of the ISM factory business survey.
“I don’t see a collapse of new orders. I don’t see a collapse of the PMI,” Fiore said.
Looking ahead: “Recession jitters among manufacturers won’t disappear any time soon…manufacturing will endure more pain as demand weakens at home and abroad while prices stay high and interest rates remain fairly elevated,” said Oren Klachkin, economist at Oxford Economics.
Economists widely expect Federal Reserve monetary-policy makers to approve a fourth straight jumbo interest-rate rise at its meeting this week. A hike of three-quarters of a percentage point would bring the central bank’s benchmark rate to a level of 3.75%- 4%.
“The November decision is a lock. Well, I would be floored if they didn’t go 75 basis points,” said Jonathan Pingle, chief U.S. economist at UBS.
The Fed decision will come at 2 p.m. on Wednesday after two days of talks among members of the Federal Open Market Committee.
What happens at Fed Chairman Jerome Powell’s press conference a half-hour later will be more fraught.
The focus will be on whether Powell gives a signal to the market about plans for a smaller rise in its benchmark interest rate in December.
The Fed’s “dot plot” projection of interest rates, released in September, already penciled in a slowdown to a half-point rate hike in December, followed by a quarter-point hike early in 2023.
The market is expecting signals about a change in policy, and many think Powell will use his press conference to hint that a slower pace of interest-rate rises is indeed coming.
A Wall Street Journal story last week reported that some Fed officials are not keen to keep hiking rates by 75 basis points per meeting. That, alongside San Francisco Fed President Mary Daly’s comment that the Fed needs to start talking about slowing down the pace of hikes, were taken as a sign of a slowdown to come by the stock and bond markets.
“No one wants to be late for the pivot party, so the hint was enough,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics.
Luke Tilley, chief economist at Wilmington Trust, said he thinks Powell will signal a smaller rate hike in December by focusing on some of the good wage-inflation news that was published earlier Friday.
There was a clear slowdown in private-sector wage growth, Tilley said.
But the problem with Powell signaling he has found an exit ramp from the jumbo rate hikes this year is that his committee members might not be ready to signal a downshift, Pingle of UBS said. He argued that the inflation data writ large in September won’t give Fed officials any confidence that a cooling in price pressures is in the offing.
Another worry for Powell is that future data might not cooperate.
There are two employment reports and two consumer-price-inflation reports before the next Fed policy meeting on Dec. 13–14.
So Powell might have to reverse course.
“If you pre-commit and the data slaps you in the head — then you can’t follow through,” said Stephen Stanley, chief economist at Amherst Pierpont Securities.
This has been the Fed’s pattern all year, Stanley noted. It was only in March that the Fed thought its terminal rate, or the peak benchmark rate, wouldn’t rise above 3%.
While the Fed may want to slow down the pace of rate hikes, it doesn’t want the market to take a downshift in the size of rate rises as a signal that a rate cut is in the offing. But some analysts believe that the first cut in fact will come soon after the Fed reduces the size of its rate rises.
In general terms, the Fed wants financial conditions to stay restrictive in order to squeeze the life out of inflation.
Pingle said he expects Kansas City Fed President Esther George to formally dissent in favor of a slower pace of rate hikes.
There is growing disagreement among economists about the “peak” or “terminal rate” of this hiking cycle. The Fed has penciled in a terminal rate in the range of 4.5%–4.75%. Some economists think the terminal rate could be lower than that. Others think that rates will go above 5%.
Those who think the Fed will stop short of 5% tend to talk about a recession, with the fast pace of Fed hikes “breaking something.” Those who see rates above 5% think that inflation will be much more persistent.
Ultimately, Amherst Pierpont’s Stanley is of the view that the data aren’t going to be the deciding factor. “The answer to the question of what either forces or allows the Fed to stop is probably not going to come from the data. The answer is going to be that the Fed has a number in mind to pause,” he said.
The Fed “is careening toward this moment of truth where it has very tight labor markets and very high inflation, and the Fed is going to come out and say, ‘OK, we’re ready to pause here.’ “
“That strikes me that is going to be a very volatile period for the market,” he added.
Fed fund futures markets are already volatile, with traders penciling in a terminal rate above 5% two weeks ago and now seeing a 4.85% terminal rate.
Over the month of October, the yield on the 10-year Treasury note TMUBMUSD10Y, 4.046%
rose steadily above 4.2% before softening to 4% in recent days.
“When you get close to the end, every move really counts,” Stanley said.
Economists widely expect Federal Reserve monetary-policy makers to approve a fourth straight jumbo interest-rate rise at its meeting this week. A hike of three-quarters of a percentage point would bring the central bank’s benchmark rate to a level of 3.75%- 4%.
“The November decision is a lock. Well, I would be floored if they didn’t go 75 basis points,” said Jonathan Pingle, chief U.S. economist at UBS.
The Fed decision will come at 2 p.m. on Wednesday after two days of talks among members of the Federal Open Market Committee.
What happens at Fed Chairman Jerome Powell’s press conference a half-hour later will be more fraught.
The focus will be on whether Powell gives a signal to the market about plans for a smaller rise in its benchmark interest rate in December.
The Fed’s “dot plot” projection of interest rates, released in September, already penciled in a slowdown to a half-point rate hike in December, followed by a quarter-point hike early in 2023.
The market is expecting signals about a change in policy, and many think Powell will use his press conference to hint that a slower pace of interest-rate rises is indeed coming.
A Wall Street Journal story last week reported that some Fed officials are not keen to keep hiking rates by 75 basis points per meeting. That, alongside San Francisco Fed President Mary Daly’s comment that the Fed needs to start talking about slowing down the pace of hikes, were taken as a sign of a slowdown to come by the stock and bond markets.
“No one wants to be late for the pivot party, so the hint was enough,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics.
Luke Tilley, chief economist at Wilmington Trust, said he thinks Powell will signal a smaller rate hike in December by focusing on some of the good wage-inflation news that was published earlier Friday.
There was a clear slowdown in private-sector wage growth, Tilley said.
But the problem with Powell signaling he has found an exit ramp from the jumbo rate hikes this year is that his committee members might not be ready to signal a downshift, Pingle of UBS said. He argued that the inflation data writ large in September won’t give Fed officials any confidence that a cooling in price pressures is in the offing.
Another worry for Powell is that future data might not cooperate.
There are two employment reports and two consumer-price-inflation reports before the next Fed policy meeting on Dec. 13–14.
So Powell might have to reverse course.
“If you pre-commit and the data slaps you in the head — then you can’t follow through,” said Stephen Stanley, chief economist at Amherst Pierpont Securities.
This has been the Fed’s pattern all year, Stanley noted. It was only in March that the Fed thought its terminal rate, or the peak benchmark rate, wouldn’t rise above 3%.
While the Fed may want to slow down the pace of rate hikes, it doesn’t want the market to take a downshift in the size of rate rises as a signal that a rate cut is in the offing. But some analysts believe that the first cut in fact will come soon after the Fed reduces the size of its rate rises.
In general terms, the Fed wants financial conditions to stay restrictive in order to squeeze the life out of inflation.
Pingle said he expects Kansas City Fed President Esther George to formally dissent in favor of a slower pace of rate hikes.
There is growing disagreement among economists about the “peak” or “terminal rate” of this hiking cycle. The Fed has penciled in a terminal rate in the range of 4.5%–4.75%. Some economists think the terminal rate could be lower than that. Others think that rates will go above 5%.
Those who think the Fed will stop short of 5% tend to talk about a recession, with the fast pace of Fed hikes “breaking something.” Those who see rates above 5% think that inflation will be much more persistent.
Ultimately, Amherst Pierpont’s Stanley is of the view that the data aren’t going to be the deciding factor. “The answer to the question of what either forces or allows the Fed to stop is probably not going to come from the data. The answer is going to be that the Fed has a number in mind to pause,” he said.
The Fed “is careening toward this moment of truth where it has very tight labor markets and very high inflation, and the Fed is going to come out and say, ‘OK, we’re ready to pause here.’ “
“That strikes me that is going to be a very volatile period for the market,” he added.
Fed fund futures markets are already volatile, with traders penciling in a terminal rate above 5% two weeks ago and now seeing a 4.85% terminal rate.
Over the month of October, the yield on the 10-year Treasury note TMUBMUSD10Y, 4.030%
rose steadily above 4.2% before softening to 4% in recent days.
“When you get close to the end, every move really counts,” Stanley said.
Google may be the giant in the digital advertising world, but even it is not immune to the impact that the economic downturn and recession fears are having on the online ad market.
Google parent company Alphabet
(GOOGL) on Tuesday reported earnings results for the third quarter that fell short of Wall Street analysts’ estimates for both sales and profits, due in large part to a sharp slowdown in the growth of its core advertising business.
It reported revenue of nearly $69.1 billion, up just 6% from the same period in the prior year. Google’s advertising revenues grew just 2.5% year-over-year, compared to the 43% growth it posted a year ago. YouTube’s ad business, which competes with TikTok, was especially hard hit, with revenue declining nearly 2% from the year-ago quarter.
Google’s net income, meanwhile, came in at $13.9 billion, down more than 26% from the year prior and well below the $16.6 billion analysts had projected.
The company’s shares fell 6% in after-hours trading Tuesday following the report.
Sundar Pichai, CEO of Alphabet and Google, nodded to the tougher economic climate in a statement included with the results.
“We’re sharpening our focus on a clear set of product and business priorities,” Pichai said. “We are focused on both investing responsibly for the long term and being responsive to the economic environment.”
Tech companies, including Google, reported that they’d started to feel the impact of declining online ad spending in the prior quarter. High inflation, looming recession fears and the ongoing war in Ukraine have all continued to weigh on the industry.
Growth in other areas of Google’s business also appear to be slowing. Google Cloud revenue grew 37% year-over year, a deceleration from the nearly 45% growth it posted in the year-ago quarter, and the segment’s net loss increased to $699 million from $644 million during the same quarter last year.
Net loss from Google’s “Other Bets” segment, which includes business efforts such as its self-driving car unit Waymo, also accelerated year-over-year during the quarter to $1.6 billion.
“Google delivered a disappointing quarter with the search giant underperforming our expectations across almost all business units, most importantly its core ad search segment,” said Investing.com Senior Analyst Jesse Cohen.
During a call with analysts Tuesday, Pichai said the company has begun “realigning resources to invest in our biggest growth opportunities.”
“Over the past quarter, we have made several shifts away from lower priority efforts to fuel highest growth priorities,” Pichai said, adding that the company plans to cut back on headcount additions during the final three months of the year.
Google CFO Ruth Porat said on the call that strong growth in the fourth quarter of 2021 will make year-over-year ad revenue growth comparisons to the current quarter difficult, and that the strength of the US dollar is expected to increasingly weigh on the company’s results. The company did not provide detailed financial outlook for the current quarter.
The numbers: Consumer sentiment improved slightly in October to 59.9, though Americans perceptions of the economy remained historically negative as a weak stock market and ongoing inflation weighed on their finances.
The University of Michigan’s gauge of consumer attitudes added 1.3 index points from 58.6 in September, and was up slightly from an initial reading of 59.8 earlier in the month.
Economists were expecting at a reading of 59.8, according to a Wall Street Journal poll.
Big picture: While the rate of inflation is no longer worsening, steady price increases for key items like food and shelter continue to weigh on the American mood.
“With sentiment sitting only 10 index points above the all-time low reached in June, the recent news of a slowdown in consumer spending in the third quarter comes as no surprise,’ wrote the survey’s director, Joanne Hsu, in a Friday note.
“While lower-income consumers reported sizable gains in overall sentiment, consumers with considerable stock market and housing wealth exhibited notable declines in sentiment, weighed down by tumult in those markets,” she added. “Given consumers’ ongoing unease over the economy, most notably this month among higher-income consumers, any continued weakening in incomes or wealth could lead to further pullbacks in spending that would reinforce other risks of recession.”
Key details: A gauge of consumer’s views of current conditions rose in October to 65.6 from 59.7 in September, while an indicator of expectations for the next six months fell to 56.2 from 58 last month.
Market reaction: U.S. stocks were trading mixed Friday morning, with the Dow Jones Industrial Average DJIA, +2.59%
TK and the S&P 500 TK SPX, +2.46%.
Heineken NV shares fell Wednesday after it said organic beer volumes rose in the third quarter by 8.9%, missing market consensus expectations of 12% as taken from its website, and that its outlook was cautious.
HEIO, -9.19%
said said that the weaker than expected results were driven by low-single-digit volume growth in Africa, the Middle East, Europe and the Americas, though the Asia-Pacific region delivered a strong recovery from pandemic-related restrictions with total beer volume growth of 89.6%.
Net revenue, which excludes excise tax expenses–rose to 7.79 billion euros ($7.76 billion) in the quarter from EUR6.03 billion last year. A company-compiled consensus forecast had seen net revenue at EUR7.88 billion.
In the nine-month period, net revenue rose 23% to EUR21.27 billion while net profit fell to EUR2.2 billion from EUR3.03 billion. Net profit last year was boosted by an exceptional gain of EUR1.27 billion from the revaluation of a stake in United Breweries in India
The company backed its guidance for 2022 of a stable-to-modest sequential improvement in adjusted operating profit margin, but didn’t reiterate its previously provided 2023 guidance of adjusted operating profit organic growth in the range of mid- to high-single digits.
“We increasingly see reasons to be cautious on the macroeconomic outlook, including some signs of softness in consumer demand. We remain vigilant and confident in our EverGreen strategy,” Chairman and Chief Executive Dolf van den Brink said.
The company said it maintains its efforts to offset input cost inflation with pricing.
Write to Dominic Chopping at dominic.chopping@wsj.com
Economists polled by the Wall Street Journal had expected manufacturing to rise to 51.8 in October and for the service sector to rise to 49.7.
Key details: In the service sector, the downturn was fueled by the rising cost of living and tightening financial conditions.
New orders in the manufacturing sector fell back into contraction territory in October. Output remained resilient due to firms eating into backlogs of previously placed orders, S&P Global said.
While price pressures picked up a bit in the service sector, the pace of the gain in inflation in the manufacturing sector was the slowest in almost two years.
Big picture: Talk of a recession sometime in 2023 has picked up in the last week. Many economists are sounding more bearish on the outlook, especially since the Federal Reserve is now seen raising its benchmark rate to 5%. However, on Monday, economists at Goldman Sachs said that talk over a recession was overblown.
What S&P Global said: “The US economic downturn gathered significant momentum in October, while confidence in the outlook also deteriorated sharply,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.
“Although price pressures picked up slightly in the service sector due to high food, energy and staff costs, as well as rising borrowing costs, increased competitive forces meant average prices charged for services grew at only a fractionally faster rate. Combined with the easing of price pressures in the goods-producing sector, this adds to evidence that consumer price inflation should cool in coming months,” he added.
