Why investors are so spooked
Stocks are heading for their worst month of the year as a triple whammy of soaring bond yields, rising oil prices and slowing growth trigger a widespread sell-off, even in once-loved mega-cap tech companies.
The market turmoil could put further pressure on President Biden’s sagging approval ratings, especially over his handling of the economy. A wave of strikes and the growing likelihood of a government shutdown (more on that below) may not help. The S&P 500 eked out a minuscule gain on Wednesday, after hitting a three-month low the day before. Meanwhile, the tech-heavy Nasdaq has retreated to levels last seen in late May.
Here are three charts to show why investors are worried:
Oil is barreling toward $100. For Fed officials focused on fighting inflation, that’s an ominous sign. Brent crude has soared roughly 30 percent since July and West Texas Intermediate, the U.S. benchmark, briefly topped $95 a barrel overnight, its highest level in more than a year. If rising energy prices nudge inflation even higher, the central bank could decide it needs to raise borrowing costs further and keep them elevated for longer.
Investors are dumping bonds. Yields on 10-year Treasury bills, which rise when prices fall, are at a 16-year high. The ripple effects could be felt throughout the economy because a variety of common long-term loans tend to track the yield on T-bills. On Wednesday, the 30-year fixed mortgage rate rose to 7.41 percent, a point last reached in December 2020, according to the Mortgage Bankers Association.
The A.I.-fueled tech rally is fading. Investors have piled into large-cap tech stocks for much of this year, particularly of companies that are believed to be primed to profit from the boom in artificial intelligence. The so-called “magnificent seven” — Microsoft, Meta, Apple, Amazon, Alphabet, Amazon, Tesla and the chip maker Nvidia — propelled the S&P 500 into a bull market in June. But that group is far from its July highs, sparking a wider discussion among market bears who wonder if the A.I. investor fervor was little more than a bubble in the making, even as private fund-raising and valuations are booming.
Adding to the downbeat mood were worse-than-expected results from Micron, the chip maker that wants to become a bigger supplier to Nvidia. The company reported a quarterly loss on Wednesday, sending its shares down more than 5 percent in premarket trading.
HERE’S WHAT’S HAPPENING
Hollywood studios and striking actors will resume talks on Monday. The effort to restart negotiations was announced a day after leaders of the Writers Guild of America voted to end their union’s separate 148-day strike. Several studios chiefs are expected to attend next week’s session.
Trading in Evergrande is suspended after reports that its founder was in police custody. The halt came after Bloomberg said that the highly indebted Chinese real estate developer’s founder, Hui Ka Yan, had been taken by the authorities to an undisclosed location. It’s the latest ominous development for Evergrande, one of the world’s biggest real estate companies, as it faces concerns that it may collapse amid a wider Chinese slowdown.
U.S. investigators reportedly widen an inquiry into Swiss bank breaches of Russian sanctions. The Justice Department has asked for information about how UBS and Credit Suisse handled the accounts of sanctioned clients, according to Bloomberg. The central focus is said to be Credit Suisse, which UBS acquired this summer.
GameStop names the financier Ryan Cohen as C.E.O. The appointment of the billionaire activist investor to the position — he had already been executive chairman — comes as the retailer struggles to turn around its fortunes. Shares in GameStop jumped more than 8 percent in premarket trading on the news.
Meta’s big bet on consumer A.I.
As tech giants pile into artificial intelligence, one of the areas they are increasingly rushing to dominate is consumer-facing A.I.
On Wednesday, Meta, which has long been a leader on A.I. research — but not on consumer applications of the technology — introduced a flurry of new features that it will bake into its array of products, including Instagram and WhatsApp. The big question is whether those offerings will do enough to entice users amid stiff competition.
Among the new features is a chatbot assistant, Meta A.I., which is based on the company’s advanced large language model technology and uses Microsoft’s Bing search engine, letting users access real-time web results.
Perhaps the splashiest new offering is a set of 28 chatbot “characters,” featuring the likenesses of celebrities including Tom Brady, Snoop Dogg and the influencers Mr. Beast and Charli D’Amelio. (There’s even a likeness based on Jane Austen.) “People aren’t going to want to interact with one single super intelligent A.I.,” Mark Zuckerberg, Meta’s C.E.O., said on Wednesday.
Meta is betting on a key advantage it has over rivals like ChatGPT. That’s the three billion people who use its apps every day. Unlike most chatbots, which users largely interact with on their own, Meta A.I. is meant to be used by people in their everyday Instagram or WhatsApp chats. “You don’t have to pull yourself out of context to interact or engage or get the assistant to help you,” Ahmad Al-Dahle, the company’s vice president of generative A.I., told The Verge.
Further down the line, the chatbots might be able to draw on public user content from Instagram and Facebook, another thing competing offerings can’t do.
But Meta is playing catch-up, partly because of caution around potential misuse of the technology. The company’s reputation for helping spread misinformation in the past hangs over its efforts to unleash consumer-facing A.I. features. Many of the new offerings announced on Wednesday appeared to try to contain any blowback: For instance, a tool that can generate photorealistic images labels its output as being created by A.I.
The (few) highlights from last night’s G.O.P. debate
Last night’s Republican presidential debate was, by all accounts, a cacophonous affair, as candidates repeatedly interrupted or insulted one another and refused to answer questions.
It may make little difference: Donald Trump, who wasn’t there, still leads the G.O.P. field by some 40 percentage points and was declared the debate’s winner by some media outlets. The candidates in attendance, however, did speak out on prominent economic and business issues.
Auto strikes: Mike Pence acknowledged that U.A.W. members were feeling pain because of inflation, but stopped short of defending their union. Senator Tim Scott walked back comments he made last week that praised Ronald Reagan’s firing of unionized air traffic controllers and suggested the same should happen to U.A.W. workers. And Doug Burgum, the governor of North Dakota, criticized President Biden’s support for electric vehicles, which require fewer workers to produce.
Energy: Nikki Haley attacked Ron DeSantis, Florida’s governor, for opposing fracking and offshore oil exploration in his state, charges that DeSantis didn’t exactly refute. Meanwhile, Pence said that he would open up more federal land to “unleash” energy production.
China: Haley said she would end normal trade relations with China until it stopped exporting fentanyl that ends up in the U.S. DeSantis said that American companies needed to “reshore” and “decouple” from China.
TikTok: Vivek Ramaswamy, who has generally been hawkish on China, defended his use of the Chinese-owned short video app as a way to reach young voters. Haley shot back that TikTok was “one of the most dangerous social media assets that we can have.” (For good measure, she told Ramaswamy, “And honestly, every time I hear you, I feel a little bit dumber for what you say.”)
“Who wouldn’t want Elon Musk sitting by their side running product?”
— Linda Yaccarino, C.E.O. of X, formerly known as Twitter. At the Code Conference on Wednesday, Yaccarino was asked about declining usage on the social media platform and how it was handling content moderation in a contentious interview. But she said that the company was “just about break even.”
Slouching toward a shutdown
Efforts to avoid a government shutdown made little progress on Wednesday, with hard-line Republicans signaling they would block Speaker Kevin McCarthy’s stopgap measures to keep funding the government ahead of Saturday’s midnight deadline.
A group of 10 House Republicans, led by Matt Gaetz of Florida, said they wouldn’t approve a temporary funding plan despite their colleagues’ trying to win them over. One proposal meant to bring them in line: reducing the salary of Lloyd Austin, the defense secretary, to a dollar. Adding to the disunity, House Republicans teamed up with Democrats to block efforts to slash funding for Ukraine in its war with Russia.
Wall Street is growing pessimistic. Jan Hatzius, chief economist at Goldman Sachs, sees a 90 percent chance of a shutdown. “While there is still a chance that Congress can reach a last-minute deal to extend funding past Sep. 30, there has been little progress made and there is little time left,” he wrote to investors.
The Biden administration is ramping up its warnings. A number of government programs would be suspended; labs and research facilities would have to halt work. Pete Buttigieg, the transportation secretary, said on Wednesday that air travel could be disrupted if hundreds of thousands of federal employees were furloughed or required to work without pay.
A short shutdown is unlikely to push the economy into recession. But a prolonged stoppage could hurt growth, adding to existing headwinds such as high interest rates, the resumption next month of federal student loan payments and a potentially lengthy strike by autoworkers. The private sector would be hit, too, with contractors to the federal government, including SpaceX, losing up to $1.9 billion a day, according to Bloomberg.
THE SPEED READ
Deals
Policy
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Britain’s main financial watchdog is said to plan a review of how investment firms come up with their valuations of privately held companies. (FT)
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Citadel reportedly intends to push back against the S.E.C.’s investigation into how trading firms use messaging apps like WhatsApp. (Bloomberg)
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