The big questions surrounding the market recovery
The S&P 500 is nearing a record high after the Fed announced it will cut interest rates next year. Investors are betting that the U.S. economy will achieve the most promising outcome: a soft landing. And lower borrowing costs.
But some Wall Street veterans are already raising questions about the Fed-led rally and debating its sustainability.
The surge in stocks was almost unthinkable a year ago, when Wall Street issued poor forecasts for the economy and markets due to recession fears and stubbornly high inflation. Instead, the benchmark S&P 500 index rallied, closing yesterday within 1.6% of the January 2022 peak.
The latest good news for bulls: The Fed announced Wednesday that it would cut interest rates three times next year, forecasting a slowdown in inflation. Since then, global stocks and bonds have soared as investors become increasingly convinced that the period of credit crunch is coming to an end.
But the Fed’s dovish turn has put European central bankers in a bind. Futures traders let’s bet yesterday that the European Central Bank would follow the Fed’s lead and plan aggressive cuts next year. Instead, Christine Lagarde, the president of the ECB, spent much of her press conference responding to these expectations.
Wall Street is also divided on the Fed’s ability to cut rates. “I’m still not convinced that we’ll get the cuts that the Fed is talking about, and certainly not the cuts that the market is talking about for next year,” Lee Ferridge, head of multi-asset strategy at State Street. Global Markets, told DealBook.
In the opposite camp: the economists at Goldman Sachs predict that the Fed will begin reducing borrowing costs in March, and future traders will have forecast reductions totaling up to 1.5 percentage points next year.
Is the Fed pivoting too soon? Ferrige notes that U.S. consumers continue to spend, as evidenced by yesterday’s report. strong retail sales data, and that the economy and labor markets continue to experience robust growth. These conditions could release the inflation genie from the bottle. “The fight against inflation is not won,” he declared.
And Larry Summers, former Treasury Secretary and vocal critic of the Fed’s handling of inflation, expressed concerns that the American central bank is sending contradictory messages.
Why cut rates if the economy looks pretty good? This is a question that market observers, notably economist David Rosenberg, are asking. The Fed’s planned cuts suggest the United States is on the brink of recession. he said. If that’s the case, why are investors buying stocks at such a breakneck pace?
Ferrige noted a similar disconnect. “It kind of shows ‘the market’s puzzlement’ about the Fed’s message this week,” he said. “What do they know?”
THIS IS WHAT HAPPENS
The Biden administration is pushing Israel to restrict its campaign in Gaza. Jake Sullivan, President Biden’s national security adviser, urged Israeli officials to end their large-scale ground and air operations by the end of this year and focus on more targeted tactics, the Times reports . The suggestion is the latest sign that Biden, who publicly supported Israel after the Oct. 7 Hamas attacks, is under pressure to control the country’s military campaign.
The EU opens the door to Ukraine’s membership in the bloc. Even though Hungary forced Ukraine to delay its financial aid to kyiv, the announcement of the willingness of European leaders to begin accession negotiations gave Ukraine some hope. That said, EU membership would take years if it happens and US military assistance to Ukraine is still in limbo.
General Motors and its autonomous vehicle division are cutting jobs. Cruise is laying off about 900 employees, nearly a quarter of its workforce. The move is part of a recovery effort after the company took its vehicles off the road following an Oct. 2 crash involving a pedestrian. Meanwhile, GM is elimination of 1,300 workers in Michigan.
Netflix resumes advertising on X. The streaming giant is I’m running ads again on the social network, reports The Wrap, after participating in a boycott to protest Elon Musk’s adherence to an anti-Semitic conspiracy theory. Meanwhile, Musk told lenders of his $44 billion takeover of the company that they I won’t lose money on the deal, despite a huge loss in advertising revenue, according to the Financial Times.
Peltz brings a blast from Disney’s past
As activist investor Nelson Peltz has officially begun a proxy fight at Disney, his second fight in as many years, he is leaning on a figure from the company’s past: Jay Rasulo, its chief financial officer from 2010 to 2015.
The choice of Rasulo as nominated director (along with Peltz) is intended to establish a contrast between the Disney of yesterday and the company of today which faces many challenges.
Rasulo Once was seen as a potential successor to Bob Iger as CEO A two-decade Disney veteran, he oversaw the entertainment giant’s theme park business, including the revamp of the California Adventure resort and the opening of Hong Kong Disneyland. In 2009, he became CFO and left the company in 2015 after Tom Staggs was promoted to COO after running the parks business.
Rasulo told the Times that his appointment did not mean he wanted to return to management: “We can ask the right questions in the boardroom,” he said. “We can right a ship that I really like.”
Peltz is trying to remind Disney shareholders of better times. “I want Disney to get back to where it was when Jay Rasulo was here as CFO, because that’s when the company understood the taste and smell of success,” said the investor. told the Wall Street Journal.
Another former Disney executive involved in the activist campaign is Ike Perlmutter, the former chairman of Marvel and one of Disney’s largest individual shareholders. (Perlmutter was forced out of Disney in the spring after years of clashes with Iger and others.)
But Rasulo’s background in finance could conflict with that of Disney’s creatives. The Journal reports that as CFO, he focused on the profit potential of the aftereffects:
“He was telling investors that Disney’s priority was to create more content like ‘Toy Story,’ because big franchises were the best way for Disney to grow quickly and generate a lot of revenue.”
This concentration seems to be running out at Disney, after the underperformance of the latest installments of the Marvel and “Indiana Jones” universes. At the DealBook Summit, Iger acknowledged that the company was producing too many sequels with little regard for quality: There has to be a reason “beyond commerce” to make one, he said.
“Going on tour like Taylor Swift, but Blackstone version?! I love it!”
— Steve Schwarzman, co-founder and CEO of Blackstone, at the investment giant Taylor Swift-Inspired Vacation Video. The cheeky, self-aware clip explores the joys of alternative investing and features executives like Jon Gray, its chairman, and plenty of glitter.
The PGA Tour’s infighting isn’t over
The deadline to finalize a deal between the PGA Tour and Saudi Arabia’s sovereign wealth fund is less than three weeks away, but the American golf organization is still riven by internal conflicts and distrust between players and executives, according to Lauren Hirsch of DealBook and Alan Blinder of the Times. .
A reminder of how we got here: The tour and the Public Investment Fund signed a tentative agreement June 6 to combine the PGA Tour with LIV Golf, its Saudi-backed rival. The deal was made in secret, with tour players and most board members kept in the dark. Many details, including valuation and governance, must be resolved by December 31, although negotiations may be extended.
The tour made some concessions. In August, Tiger Woods joined the board, equalizing the number of players and outside directors to six each. The tour also agreed to allow Colin Neville, a banker who advised the players, to be kept informed of negotiations with the PIF.
But many players are still angry. “Since June 6, trust has been broken at the highest level,” said Adam Scott, who chairs the tour’s player advisory council. “Nothing has changed to restore that trust.”
Frustrations include their limited influence in appointing outside directors. The resignation from the board of AT&T CEO Randall Stephenson, supported by many stakeholders, also left a mark. (Two players were on a committee that recommended Stephenson’s successor, Joseph Gorder.)
Some say disagreements are normal. “I’ve learned that any good board has to disagree to reach the best solution, and we’ve had a lot of disagreements this year – even the players have had disagreements,” said Webb Simpson, player and member from the administration board. “But we’re all trying to get to a better place.”
After that ? The Tour is in talks with Strategic Sports Group, an investment firm led by Fenway Sports Group, owner of the Boston Red Sox, on a deal that would inject $3.5 billion into a newly formed for-profit company with a valuation which can reach around 12 dollars. billion . LIV, for its part, is always on the lookout for talent: last week, it recruited Jon Rahm, third in the world.
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The highest court in Europe on the Amazon side in the long-running tax dispute between the e-commerce giant and the EU (CNBC)
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Venture capital firm Andreessen Horowitz said it would get involved in politics, support the candidates who favor less regulation on tech companies. (A16Z)
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Kevin McCarthy, the former speaker of the House of Representatives who is retiring from Congress this month, said his next career moves will involve AI, space and making money from its connections in Washington. (Axios)
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