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Worries about the future of Federal Reserve policy are intensifying, fueling a substantial selloff on Wall Street on Thursday. The Dow Jones Industrial Average tumbled 764 points to log its worst day in three months, while the S&P 500 and Nasdaq dropped 2.5% and 3.3%, respectively. As mentioned on yesterday's Wall Street Breakfast, Fed Chair Jerome Powell could not have been more clear about the long fight ahead to get back to price stability and that the central bank "will stay the course, until the job is done."
Don't fight the Fed! The hawkish tone is not only prevalent in the U.S. The European Central Bank and Bank of England hikes rates by a similar half a percentage point yesterday, opening up a new chapter for the world economy. Whispers of a recession have turned into screams, while the last big batch of economic data for 2022 is worrying traders as they begin to leave the office for the holidays.
U.S. retail sales were weaker-than-expected for November, pointing to a sluggish start to the holiday shopping season. The figure, which includes spending at stores, online and at restaurants, slipped 0.6% last month, compared to the 0.2% drop that economists had expected. At the same time, the Philly Fed Manufacturing Index and Empire State Manufacturing Survey both came in below expectations, with both posting a negative reading for December.
Stir the brew: Don't forget that today is quad witching day, which refers to the simultaneous expiration of market index futures, stock futures, market index options and stock options at the end of every quarter. The event can lead to higher trading volumes and more volatility, giving speculators an opportunity for quick arbitrage opportunities from last-minute swings. This time around, $4T in options contracts are set to expire, possibly making Friday the busiest session for options traders this year, noted Rocky Fishman, head of index volatility research at Goldman Sachs. (57 comments)
Securing the electric grid has been a trending topic following two shootings at substations in North Carolina on Dec. 3. The attacks damaged equipment of provider Duke Energy (NYSE:DUK) and caused more than 45,000 customers to lose power. A third attack last week saw shooters target another Duke substation in South Carolina, while at least four substations in Oregon and Washington state have been targeted since November.
Snapshot: Suspects have yet to be identified, but the site of the blackout-causing attack was enormous - around 75% of the size of a football field. This likely means whoever was responsible "knew right where to shoot to create a slow leak into the transformers, which drained the oil so that they had time to get out and get away before anyone would notice," said Moore County Chairman Nick Picerno. Bigger transformers, which could be the size of a railroad car, are not easily replaceable, as the U.S. doesn't produce too many of them and there are long backlogs for the devices.
The Feds are now getting involved, ordering a review of security standards for the nation's electricity transmission network to see if additional improvements are necessary. Power transformers are highly visible and "are really vulnerable - sometimes to a drunk with a gun and an attitude," noted Mark Christie, Commissioner of the Federal Energy Regulatory Commission. "We have a lot of incidents of that. That's not unusual. The substations are a different ballgame."
By the numbers: The U.S. electrical grid includes more than 50,000 substations - which transform high voltage from big power lines into lower voltages for homes and businesses - across more than 700,000 miles of transmission lines. (15 comments)
The tech trade may be in the doldrums, but software company Adobe (ADBE) just notched a great fourth quarter. Net profits reached nearly $1.2B amid record cash flows from operations, with adjusted earnings coming in at $3.60 per share, beating expectations by $0.10. Revenues of $4.53B were in line with Wall Street estimates and climbed 10.1% Y/Y (great growth considering the current environment).
Bigger picture: Compared to some rival tech players that have downgraded or withdrawn their guidance, Adobe gave an upbeat outlook for its fiscal first quarter. Investors noted the developments and the company's focus on profitability, sending the stock up as much as 6% in AH trading. "We're not going to be immune to macroeconomic [conditions], but I like our differentiated solution and our execution," CEO Shantanu Narayen said on an earnings call.
Adobe has come under scrutiny since September, when it said it would acquire collaboration design software company Figma for $20B, and in an interview with Seeking Alpha, Adobe's VP of Investor Relations noted that the company's customers and investors were now coming around to the thinking behind the deal. "We've had a lot of conversations, and people are starting to see how this deal strengthens us, and how we are complementary to each other," Jonathan Vaas declared, adding that the deal was on track to close as expected in 2023 (pending an antitrust review by the U.S. and the U.K.).
Market movement: While shares were bid up following the results, Adobe faces a long road ahead. The stock is down 42% YTD, compared to the 19% decline of the benchmark S&P 500 over the same period. (46 comments)
The 2022 World Cup in Qatar has proved to be the most controversial to date, but many parties are cashing in on the benefits the competition has to offer. There's been a series of upsets in the tournament this year, making for even bigger exposure when it comes to viewing numbers, and France will face off against Argentina in the final match on Sunday. Based on historical growth trends, around 1.5B people are expected to watch the championship game across the globe, representing nearly a fifth of all humans living on Earth.
Bottom line: That's a big platform to get out your message. In terms of hard cash, host countries don't turn a profit from the games, though it does boost their standing on the world stage and projects soft power as a good place to do business. Advertisers, on the other hand, hope to ring the register on their marketing efforts, with commercials, jerseys and stadium banners all being watched by billions of eyeballs. This year's affiliate sponsors include Adidas (OTCQX:ADDYY), Budweiser (BUD), Coca-Cola (KO), Hyundai (OTCPK:HYMPY), McDonald's (MCD) and Visa (V).
"If they genuinely felt strong about the matter, then they could pull out of those markets," said Kieran Maguire of the University of Liverpool, when asked about commercial deals despite controversies surrounding Qatar's treatment of migrant workers and the LGBT community, restriction of political expression, and claims of bribery to host the tournament. "We had the 2018 World Cup in Russia, and remember, Russia had invaded and annexed Crimea in 2014 but that didn't stop any of the sponsors from getting involved."
Bit of a stretch? Some claim that the country of the World Cup champion can see percentage points of GDP growth following the event due to greater international visibility. However, the connections to exports and trade are difficult to assess, and can also be impacted by external factors or trends in the global economy.
In Asia, Japan -1.9%. Hong Kong +0.4%. China flat. India -0.8%.
In Europe, at midday, London -1.3%. Paris -1.3%. Frankfurt -0.8%.
Futures at 6:30, Dow -1.1%. S&P -1.2%. Nasdaq -1.8%. Crude -2.3% to $74.33. Gold +0.3% to $1793.80. Bitcoin -3.7% to $17,025.
Ten-year Treasury Yield +5 bps to 3.50%
Today's Economic Calendar
What else is happening...
California cuts payments to solar homes feeding the energy grid.
Netflix (NFLX) tumbles on report of ad refunds for viewer misses.
Trump SPAC's (DWAC) 'major announcement': A digital trading card.
IPOs plunged 45% in 2022, but still 16% higher than 2019 - EY.
Russia fires more than 60 missiles into Ukraine in latest strikes.
Novavax (NVAX) sheds 34% day after announcing public stock offering.
Again! Cathie Wood buys the dip as Tesla (TSLA) hits two-year low.
Roblox (RBLX) plunges as strong dollar hits November's bookings.