Wednesday Morning Reads
Reads:
- Go So Wrong?
- China’s Economic Activity Slows
- Clearest Crypto Tax Policies
- Crash in Shimao Bond
- U.S. to Blacklist
- U.S. Lawmakers Call for Sanctions
- The Fed Meets Amid Faster Inflation
- French Billionaire Weighs IPO
- Uber Looking to Sell Didi
- Sears, Struggling to Sell Goods, Markets a Valuable Asset: Real Estate
- Zara Owner and H&M Bounce Back from Pandemic Blues
- Who’s Traveling Now—and Where and Why
- Valuations of Digital Media Darlings Plummet
- What Elon Musk as ‘Person of the Year’ Says About Us
Futures:
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Fed clarity?
U.S. stock index futures wavered between gains and losses overnight as investors looked for direction ahead of the Federal Reserve's latest policy meeting. They're not the only ones trying to get a grasp on the present economic landscape, with the central bank itself pivoting drastically in recent weeks. After maintaining that inflation was "transitory" for much of 2021, Fed Chair Jerome Powell "retired" the idea at the last FOMC gathering, and started emphasizing the other side of his dual mandate = "stable prices" over "maximum employment."
Policy mistake? Strong inflation readings from March to May were understandable given the strong base effects from the prior year's lockdowns, but by summer, "transitory factors" were being accompanied by longer-term issues (supply chains, labor shortages, etc.) The Fed still doubled down on its thesis, with the word "transitory" going from meaning a "few months" to a "few quarters," and then eventually defined as "moving down significantly over the next year." While the Fed doesn't have the tools to unlock supply chains or increase the labor force participation rate, holding on to the "transitory" mindset risks unleashing another strong driver of future price increases and endangers a delayed reaction to the current price environment.
Many have still credited Powell and the central bank on navigating the economy through the coronavirus pandemic. He was able to move fast and aggressively compared to other Fed chairs that faced crises, leading to a strong economic rebound and the country nearing full employment. However, there remains a lot of uncertainty over how the Fed is viewing and defining inflation risks, so today's FOMC meeting might give us some more clues.
What to expect: While benchmark interest rates are likely to remain unchanged at 0%-0.25%, the central bank could hint to an earlier start to interest rate hikes in 2022 (though that would come in the face of new worries over the Omicron variant and the potential hit to growth). Expectations are also high that the Fed will hint at a faster tapering of asset purchases, signaling an end to easy-money policies that have helped fuel this year's stock market rally. That could weigh on higher valuations, such as technology and consumer-discretionary shares, however, there is a divide in the investor community if that is already priced in. On the fiscal side of things, the Senate just approved raising the debt ceiling by $2.5T (to $31.4T), but the decision was split along party lines over fears about its long-term effects on the economy.
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Domino effect
Starbucks (NASDAQ:SBUX) may have a union problem on its hands, but that depends on who you ask. Following a successful union vote at a Starbucks location in Buffalo last week, two Boston-area locations are beginning to take steps in a similar direction. Three more locations in Buffalo are also heading towards union elections, as well as another store in Mesa, Arizona that just filed for a vote.
Quote: "We want to ensure that our voices are heard and that we have equal power to affect positive change for our store, district, and company," the Boston employees wrote in a letter to Starbucks CEO Kevin Johnson. "As partners and core contributors to the company’s success, we deserve respect."
So far, 36 of around 47 employees at locations in Brookline and Allston signed cards indicating their intent to unionize, according to organizing committee members working with Workers United. The same union was responsible for the win in Buffalo last week, with some employees even calling for a national movement to unionize the labor force, particularly at corporations in food service. Starbucks workers in Victoria, Canada, also ratified a collective bargaining agreement with the company in July, nearly a year after voting to unionize.
On the table: Starbucks insists its 9,000 corporate-run stores across the U.S. function best when they work directly with employees, which it calls "partners." The coffee giant feels it has cultivated a progressive brand more than its peers, closing stores to hold racial bias trainings, offering health benefits to part-timers and recently announcing it would implement a $15 minimum wage nationwide. Starbucks even brought in former CEO and Chairman Emeritus Howard Schultz last month to discuss the union happenings in Buffalo, where he told workers that "no partner has ever needed to have a representative seek to obtain things we all have as partners at Starbucks, and I am saddened and concerned to hear anyone thinks that is needed now."
Buffett vs. Wood
In what could be called a tortoise (value) vs. hare (growth) matchup, the tortoise appears to be winning this year. In the past month, Berkshire Hathaway (BRK.B) has increased its lead on the more mercurial Ark Innovation ETF (ARKK), rising 1.4% compared to the latter's 20% decline (and even exceeded the S&P 500's gain of 0.2%). Of course, Berkshire could be getting a leg up from its biggest equity holding, Apple (AAPL), which makes up about half of the investment firm's stock portfolio (as of Dec. 10).
Snapshot: Ark Innovation had a sizeable lead on Berkshire in February when retail investors piled into popular stay-at-home trades like Coinbase (COIN), Roku (ROKU), Teladoc (TDOC), and Zoom Video Communications (ZM) - all stocks included in the ETF. Since then, all four tech names have lagged the S&P 500, with only Coinbase managing a gain for the year. Warren Buffett and Cathie Wood are the polar opposites when it comes to investing, with the Oracle of Omaha generally steering clear of disruptive, high-flying technology shares, while the latter is not able to get enough of them.
Buffett's strategy: At a net worth of $100B, Buffett has had decades to amass a fortune from railroads and oil to consumer goods and industry stalwarts. He typically digs into the fundamentals of companies to find intrinsic value that isn't appreciated, and favors businesses with easy-to-understand financials and reliable returns. Like Wood, the stock-picking legend has a cult following, with many flocking to "Woodstock for Capitalists" to hear Buffett's wisdom at Berkshire's annual meeting.
Wood's strategy: Her investing approach usually starts by figuring out the total addressable market of a "disruptive" technology, such as artificial intelligence, crypto, DNA sequencing, energy storage and robotics. She then looks for companies that can benefit from the fast-growing area and "changes the way the world works." While slipping this year, Wood's Ark Innovation ETF has rallied 360% since its creation in October 2014, while Berkshire Hathaway's B shares have advanced about 120% in the same time frame.
Corporate policies
While much of the tech industry continues to roll back return-to-work plans, Google (GOOG, GOOGL) is requiring its workforce to come into physical offices three days per week at some point in 2022. It's also showing little patience for employees that refuse to get vaccines. According to internal documents viewed by CNBC, Google has told its workers that they will lose pay, and will eventually be fired, if they don't adhere to the company's COVID-19 vaccination policy.
The memo: Staff who haven't complied with vaccination rules by Jan. 18 will be placed on "paid administrative leave" for 30 days. After that period, Google will place them on "unpaid personal leave" for up to six months, followed by termination. "Frequent testing is not a valid alternative to vaccination," according to the memo, though workers can request exemptions for "religious beliefs or medical conditions" that will be evaluated on a case-by-case basis.
Other corporations are also looking to tighten pandemic-related policies for unvaccinated workers given the uncertainty surrounding federal mandates. Kroger (NYSE:KR), one of the biggest employers in the U.S., will no longer provide two weeks of paid emergency leave for unvaxxed employees who contract COVID-19, unless local jurisdictions require otherwise. It will also add a $50 monthly surcharge to company health plans for unvaccinated managers and other non-union employees.
Masks are back: As coronavirus cases rise nationwide, Apple (AAPL) is reinstating its mask mandate for customers that visit any of its U.S. stores, making it the first major American retailer to do so. In addition to reimposing the mandate, Apple will start to limit occupancy at "several locations" across the country. "We regularly monitor conditions and we will adjust our health measures in stores to support the well-being of customers and employees," Apple said in a statement.
Today's Markets
In Asia, Japan +0.1%. Hong Kong -0.9%. China -0.4%. India -0.6%.
In Europe, at midday, London -0.3%. Paris +0.6%. Frankfurt +0.3%.
Futures at 6:20, Dow +0.1%. S&P flat. Nasdaq -0.3%. Crude -1.2% at $69.85. Gold +0.2% at $1782.30. Bitcoin +1.7% at $48238.
Ten-year Treasury Yield unchanged at 1.44%
Today's Economic Calendar
7:00 MBA Mortgage Applications
8:30 Retail Sales
8:30 Empire State Mfg Survey
8:30 Import/Export Prices
10:00 Business Inventories
10:00 NAHB Housing Market Index
10:00 Atlanta Fed's Business Inflation Expectations
10:30 EIA Petroleum Inventories
2:00 PM FOMC Announcement
2:30 PM Chairman Press Conference
4:00 PM Treasury International Capital
Companies reporting earnings today »
What else is happening...
Senate hearing: Airline CEOs face questions on cancellations and staffing.
Peloton (NASDAQ:PTON) clarifies product development still planned for next year.
Biden said to evaluate new regulations on China's largest chipmaker.
Lilly (NYSE:LLY), Regeneron (NASDAQ:REGN) therapies lose power over Omicron.
Pfizer (NYSE:PFE) study highlights effectiveness of COVID-19 pill against new variant.
Rumble SPAC (NASDAQ:CFVI) jumps after Trump social media partnership confirmed.
Musk unloads another $1B of Tesla (NASDAQ:TSLA) stock in latest round of selling.
Videogame sales slide 10% in November, breaking six-month streak.
Adobe (NASDAQ:ADBE) sinks as JPMorgan downgrades on valuation concerns.
Samsara (IOT) IPO: Analysis on the internet-of-things company.