Business Updates: Stocks Tumble as Inflation Concerns Resurface

Stocks fell around the world on Tuesday as traders remained unsettled by rising prices and the impact that could have on inflation.

But a rebound in technology stocks in afternoon trading softened the blow on Wall Street somewhat. The S&P 500 fell 0.9 percent, after having recovered from a decline of as much as 1.6 percent earlier. The tech-heavy Nasdaq ended the day only slightly lower, also having recovered from a sharp drop.

The Stoxx Europe 600 index dropped 2 percent, while the Nikkei 225 in Japan closed 3 percent lower.

Commodity prices have soared recently. Futures on copper, which is often seen as a barometer for the global industrial economy, reached record highs on Friday and oil prices have recently hovered near levels not seen since 2018. Even though commodities pulled back from their highs on Tuesday, the elevated prices are expected to raise costs for businesses.

It’s fuel for a debate about how temporary the increase in inflation this summer will be. Federal Reserve policymakers have said they expect it to be transitionary because bottlenecks in supplies will be resolved, and comparisons to last year’s slowdown make inflation numbers appear worse.

Still, investors have been spooked by the prospect that the Fed might be forced to raise interest rates to rein costs in sooner than it has indicated it will. Higher interest rates discourage risk taking in the markets, and high-flying stocks can be hit hard when concern about inflation dominates. On Wednesday, the U.S. government will report its Consumer Price Index for April.

“The recovery in demand coupled with the supply disruptions across the world are raising fears” that the jumps in inflation reported over the next few months “may not quickly reverse,” Henry Ward, an analyst at HSBC, wrote in a note. “Commodity prices from lumber to oil are rising and house prices continue to hit new highs.”

On Tuesday, oil prices were higher. Futures on West Texas Intermediate, the U.S. crude benchmark, rose more than half a percent to $65.34 a barrel. Last week, the price climbed above $65 to the highest since October 2018.

“We are now entering a time of year when stocks have historically found it more challenging to advance,” Mark Haefele, the chief investment officer at UBS Global Wealth Management, wrote in a note. With stock indexes already near record highs and concerns rising about coronavirus variants, “investors may be tempted to follow the old adage: Sell in May and go away,” he wrote.

But he recommended that investors stay in the market, despite expected volatility, because the government spending coupled with consumer spending as economies further unlock will lead to more economic growth, which would be good for stocks.

Federal Reserve officials on Tuesday stood by their strategy of waiting to see further improvement in the labor market and broader economy before removing monetary support, even as some on Wall Street criticized their policies for being too complacent in the face of rebounding growth.

“The outlook is bright, but uncertainty remains, and employment and inflation are far from our goals,” Lael Brainard, a Fed governor, said in a speech prepared for delivery before the Society for Advancing Business Editing and Writing. “While more balanced than earlier this year, risks remain from vaccine hesitancy, deadlier variants, and a resurgence of cases in some foreign countries.”

Ms. Brainard’s colleague Loretta Mester, president of the Federal Reserve Bank of Cleveland and historically one of the Fed’s more inflation-wary members, struck a similar tone in a Yahoo! Finance interview earlier in the day. Fed officials have said they want to see “substantial further progress” toward their goals — stable inflation that averages 2 percent over time and maximum employment — before dialing back their $120 billion in monthly bond purchases. Ms. Mester reiterated that.

“What we want to see, and I certainly want to see, is more progress and broader progress,” Ms. Mester said, explaining that she wants to see more strength in the labor market, and is expecting to this year.

The comments came as economists try to parse incoming data, including a weaker-than-expected April jobs report, quickly rising inflation expectation measures, and a consumer price report set for release on Wednesday that is expected to show a substantial jump this year. Price gains are picking up as year-over-year measures lap weak data from 2020 and as supply shortages tied to reopening push prices higher.

Policymakers expect real-world price increases to be temporary. Low numbers from last year will fall out of the data, and supply chains for things like lumber and computer chips should eventually readjust, though it is not clear how quickly that will happen.

Ms. Mester said she expected supply constraints to ease next year, but noted that “there are upside risks” to her inflation forecast and that she would be watching to make sure consumers and businesses do not come to expect much faster gains.

Likewise, Ms. Brainard said that she would “remain attentive to the risk that what seem like transitory inflationary pressures could prove persistent as I closely monitor the incoming data.”

Some critics are warning that the Fed’s rock-bottom interest rates and emergency bond purchases — policies meant to help bolster the economy in bad times — may be inappropriate, either because they risk fueling higher inflation or because they could spur instability by pushing stock prices and risk-taking higher.

“We’re still acting like we’re in a black hole, and in fact, the economy is accelerating,” Stanley Druckenmiller, chief executive of the investment manager Duquesne Family Office, said on CNBC Tuesday, after criticizing the central bank’s policies for risking asset bubbles.

Asked about the comment, James Bullard, president of the Federal Reserve Bank of St. Louis, told CNBC that he thought the response had been good from both lawmakers and monetary policymakers.

“I don’t know how many pandemics Stan has lived through,” he said. “These don’t come along that often.”

Hearst Tower in New York. The company has sold the United States edition of Marie Claire to the British publisher Future.
Credit…Hiroko Masuike/The New York Times

Hearst Magazines, the home of numerous publications aimed at women including Cosmopolitan, Redbook and Harper’s Bazaar, has sold the United States edition of Marie Claire to Future, a British publisher, the companies said on Monday.

Marie Claire U.S. had been part of Hearst since 1994 in a joint venture with French company Marie Claire Album. Future, which publishes a variety of magazines including Marie Claire U.K., said it had acquired the U.S. edition from both owners.

Future’s chief executive, Zillah Byng-Thorne, said in a statement that the addition of Marie Claire U.S. was part of the company’s plan to increase its North American audience “significantly.”

Debi Chirichella, the president of Hearst Magazines, said in an email to staff that Marie Claire U.S. employees were notified of the sale on Monday. “We will do everything we can to ensure that the transition to new ownership is a positive one,” Ms. Chirichella wrote.

Faye Galvin, the head of communications at Future, said in an email that the company hoped all existing Marie Claire U.S. employees would “accept the offer to work with us.”

Ms. Galvin singled out Sally Holmes, the editor in chief of Marie Claire U.S. since September. “In terms of Sally in particular, she is absolutely key to driving the business forward and together we will build on her success,” she said in an email.

Marie Claire was started in 1937 in France by the writer Marcelle Auclair and the industrialist and media magnate Jean Prouvost, who helped create the current-events magazine Paris Match.

In the mid-1990s, under the editor Bonnie Fuller, the U.S. version distinguished itself from its competitors by emphasizing the practical, providing readers with concrete style and beauty tips, rather than the fantasies of fashion. Its other long-term editors were Joanna Coles and Anne Fulenwider.

President Biden has called for $50 billion to encourage domestic semiconductor production as part of his infrastructure plan.
Credit…Doug Mills/The New York Times

Semiconductor companies and big businesses that use chips have formed a coalition to push for tens of billions of dollars in federal funding for semiconductor research and manufacturing in the United States.

The new group, the Semiconductors in America Coalition, announced its formation on Tuesday amid a global semiconductor shortage that has caused disruptions throughout the economy. Its members include chip makers like Intel, Nvidia and Qualcomm and companies that rely on semiconductors, like Amazon Web Services, Apple, AT&T, Google, Microsoft and Verizon.

The coalition is calling on Congress to provide $50 billion for semiconductor research and manufacturing, which President Biden has proposed as part of his $2.3 trillion infrastructure package.

“Leaders from a broad range of critical sectors of the U.S. economy, as well as a large and bipartisan group of policymakers in Washington, recognize the essential role of semiconductors in America’s current and future strength,” said John Neuffer, the president and chief executive of the Semiconductor Industry Association, a trade group.

In a letter to congressional leaders, the new coalition noted the shortage of semiconductors and said that in the long term, federal funding “would help America build the additional capacity necessary to have more resilient supply chains to ensure critical technologies will be there when we need them.”

The shortage has been acutely felt in the auto industry, forcing carmakers to idle plants. Ford Motor said last month that it expected the shortage to cut vehicle production by about 50 percent in the second quarter and lower the company’s profit by about $2.5 billion this year.

The new coalition does not include any automakers, which have their own ideas for how the government should encourage domestic semiconductor manufacturing. In a letter to congressional leaders last week, groups representing automakers, automotive suppliers and autoworkers expressed support for Mr. Biden’s $50 billion proposal but emphasized the need to increase manufacturing capacity for automotive-grade chips as part of the effort.

The letter — from the American Automotive Policy Council, the Motor & Equipment Manufacturers Association and the United Auto Workers union — suggested providing “specific funding for semiconductor facilities that commit to dedicating a portion of their capacity to motor vehicle-grade chip production.”

In a letter to congressional leaders last month, technology trade groups argued against setting aside new production capacity for a specific industry, saying that such a move would amount to “unprecedented market interference.”

Travelers at Salt Lake City International Airport in March. OPEC is projecting growing demand for oil and petroleum products — including airplane fuel — as global economies expand through the year.
Credit…Rick Bowmer/Associated Press

OPEC forecast on Tuesday that demand for its oil, which collapsed during the pandemic last year, would continue to roar back in 2021.

In its Monthly Oil Report, the 13-member Organization of the Petroleum Exporting Countries depicted favorable market conditions for the cartel that could potentially lead to higher prices for consumers.

The world economy will continue to recover, the OPEC analysts said, thanks to stimulus measures and vaccination programs in the United States and Europe, and accelerating growth in most Asian economies. Economic recovery will translate into a substantial rise in demand for oil.

At the same time, OPEC’s economists expect production from the cartel’s rival, the United States, to remain flat this year as the shale oil producers, who seized market share from OPEC in the years before the pandemic, rein in spending on drilling.

Over all, output from producers outside the cartel will increase by less than one million barrels a day for 2021 from 2020’s depressed levels, OPEC forecast.

OPEC said that the need for the organization’s crude would surge in 2021 by an overall 5.2 million barrels a day, or more than 20 percent, after a drop by about the same amount in the previous year. OPEC defines demand for its crude as the gap between world oil demand and the output of other producers.

Prompted by Saudi Arabia, OPEC and its allies, including Russia, have been only gradually opening up their spigots as world demand returns from the pandemic, creating a tight market that has contributed to prices for Brent crude approaching $70 a barrel. OPEC, for instance, estimated that in the first quarter of 2021 demand for its crude outstripped supply by about 700,000 barrels a day.

In April, the group known as OPEC Plus agreed to a program of gradual increases through July. The group reaffirmed these plans on April 27. Analysts say that these adjustments are still likely to add up to a market where supplies are tight.

OPEC and Russia are, however, by agreement not producing several million barrels of oil a day, and pressures will grow to open the taps if demand continues to increase. In addition, a breakthrough in ongoing indirect negotiations between the United States and Iran could lead to large volumes of Iranian oil coming into the market later this year.

L Brands said last year that it was considering separating Victoria’s Secret from the rest of its business.
Credit…Ted Shaffrey/Associated Press

L Brands has decided to spin off Victoria’s Secret rather than sell it, the DealBook newsletter was the first to report.

The company said last year that it was considering separating Victoria’s Secret from the rest of its business, and it tested the interest of private equity. Ultimately, L Brands decided to split itself into two independent, publicly listed companies: Victoria’s Secret and Bath & Body Works. The deal is expected to close in August.

L Brands received several bids north of $3 billion, sources familiar with the situation said, requesting anonymity because the information is confidential. It turned the offers down, because it expects to be valued at $5 billion to $7 billion in a spinoff to L Brands shareholders. Analysts at Citi and JPMorgan Chase recently valued Victoria’s Secret as a stand-alone company at $5 billion.

“In the last 10 months, we have made significant progress in the turnaround of the Victoria’s Secret business, implementing merchandise and marketing initiatives to drive top line growth, as well as executing on a series of cost reduction actions, which together have dramatically increased profitability,” Sarah Nash, chair of the company’s board, said in a statement.

“The board believes that this path forward will return the highest value to shareholders and that the separation will allow each business to achieve its best opportunities for growth.”

The pandemic torpedoed a sale last year for much less. That agreement, announced in February 2020 with the investment firm Sycamore Partners, valued Victoria’s Secret at $1.1 billion.

Apart from a pandemic that upended the retail industry, Victoria’s Secret was dealing with a series of challenges: a brand that had fallen out of touch, accusations of misogyny and sexual harassment in the workplace and revelations about the ties between Les Wexner, the company’s founder and former chairman, and the financier Jeffrey Epstein. (Mr. Wexner stepped down as chief executive last year and said in March that he and his wife were not running for re-election on the company’s board.)

As the pandemic shuttered stores and battered sales, Sycamore sued L Brands to get out of the deal, and L Brands countersued to enforce it, heralding a spate of similar battles between buyers and sellers. Eventually, last May, the sides agreed to call off the deal.

A lot has changed since then. The retailer has overhauled its brand, de-emphasizing the overtly sexy image and products that customers saw as exclusionary. It has become “less focused on a specific demographic target and more focused on being broadly inclusive of all women of all shapes and sizes and colors and ethnicities and genders and areas of interest,” Martin Waters, the retailer’s chief executive, said on a recent earnings call.

The company also closed more than 200 stores and focused on improving profitability, which rose sharply at the end of last year, surpassing its prepandemic results.

Victoria’s Secret operating income

Victoria’s Secret is one of the retailers transformed by the pandemic, along with others like Dick’s Sporting Goods and Michaels, accelerating digital overhauls that may have otherwise taken years. Direct sales at Victoria’s Secret in North America rose to 44 percent of the total last year, from 25 percent the year before.

It’s unclear whether pandemic shopping trends will stick, and “it would be reasonable to expect some reversion,” Stuart Burgdoerfer, the L Brands chief financial officer, said at a March event. “But I also think that people have very much enjoyed some of the benefits that were forced on us or triggered through the pandemic.”

  • McDonald’s is teaming up with the Biden administration to provide easier access to Covid-19 vaccine information, the fast-food chain said on Tuesday. The effort will include ads with information from trusted third parties on McDonald’s billboard in Times Square and new packaging that will direct customers to vaccines.gov, an information website from the federal government. “Thanks to McDonalds, people will now be able to get trusted information about vaccines when they grab a cup of coffee or order a meal,” Xavier Becerra, the secretary of health and human services, said in a statement. In January, the company announced that corporate employees and workers at corporate restaurants in the United States would receive up to four hours of paid time to get vaccinated.

  • Macy’s is proposing the construction of a commercial office tower that would sit on top of its flagship Herald Square store in New York as part of a broader redevelopment plan that would aim to improve the surrounding area and its subway stations. The retailer said in a statement on Monday that it would commit $235 million to help improve the Herald Square subway stations and to “transform Herald Square and Broadway Plaza into a modern, car-free pedestrian-friendly urban space for New Yorkers and visitors,” according to a website it created for the proposed project.

Amazon’s two-year bond has a yield just 0.1 percentage points above the equivalent in Treasuries.
Credit…Mark Lennihan/Associated Press

Amazon sold $18.5 billion worth of bonds Monday, joining other corporate giants taking advantage of ultralow interest rates to raise money because … well, why not? The e-commerce titan was able to sell some of its debt at a record-low interest rate for a corporate issuer — barely above what the U.S. government pays.

Amazon’s two-year bond has a yield just 0.1 percentage points above the equivalent in Treasuries. That’s a big vote of confidence in Amazon, which has emerged as a winner during the pandemic. Over all, investors placed $50 billion worth of orders, according to The Financial Times, underscoring enthusiasm for debt that yields next to nothing.

Amazon raised $1 billion in the form of a sustainability bond, which is meant to finance investments in environmentally minded projects like zero-carbon infrastructure and cleaner transportation. Amazon is the latest company to sell bonds aimed at so-called E.S.G. investors (short for environmental, social and governance), a market that reached $270 billion last year.

To be sure, the bulk of Amazon’s offering will finance typical corporate actions like share buybacks, acquisitions and capital expenditures, according to the bond prospectus. It will add to the nearly $34 billion in cash that Amazon had on hand at the end of March — as will profits that are growing at extraordinary rates for a company of its size.

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Today in the On Tech newsletter, Shira Ovide explains why fights over money, power and our personal information are popping up all over streaming entertainment, and how we’re caught in the middle.

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