The financial markets are coming to grips with the Federal Reserve’s policy change, as geopolitical factors complicate the outlook for the global economy.
The S&P 500 has now registered five consecutive weekly declines, its longest streak of losses since June 2011. Stocks rallied earlier last week, before suffering their largest-single day drop since the start of the pandemic on Thursday. Futures point to another drop in U.S. stocks this morning.
What’s driving the wild swings? The financial markets are coming to grips with a stunning policy change by the Federal Reserve, writes The Times columnist Jeff Sommer. Markets have become so accustomed to the Fed’s loose monetary policy of the past two decades that investors don’t know how to react now that the central bank is pulling back and trying to slow the economy. “This is a very big change, and the markets are having trouble processing it,” said Robert Dent, senior U.S. economist for Nomura Securities.
Adding to the uncertainty are continued lockdowns in China, surging inflation, supply constraints and a spike in oil prices. That has complicated the outlook for the global economy, though some Wall Street forecasters remain optimistic. In a research note published yesterday, Goldman Sachs said that it forecasts a recovery in major equity indexes. “The tightening in U.S. financial conditions has somewhat rebalanced the risks to the Fed’s mandate and potentially set the stage for a stabilization in the financial market environment,” the note said.
Tech stocks and crypto prices are falling again. Bitcoin this morning hit its lowest level since July 2021. Tech companies, both global powerhouses and start-ups, are also feeling the pain. Share prices for Netflix, Meta and Peloton are all down substantially this year. Some strategists are saying prices could continue to fall until they land back where they were before the pandemic. For tech stocks, that would be a further 25 percent drop. For crypto, it could be a plunge of more than 60 percent.
With some tech companies freezing hiring or laying off employees, investors are split. Some see a temporary slowdown, while others say it is a sign of a deeper slump to come, The Wall Street Journal reports. Elon Musk, on the other hand, has told investors that Twitter could quintuple its revenue by 2028.
Further reading: What’s your personal inflation rate? Take our quiz.
HERE’S WHAT’S HAPPENING
G7 leaders pledge to ban or phase out Russian oil. They provided few details, but said the changes would be made in a “timely and orderly fashion” that allowed members to find alternative supplies. The U.S. also imposed new sanctions against three Russian television stations, barred Americans from providing consulting and accounting services to Russians, and sanctioned executives from Gazprombank.
Senators may vote on abortion this week. Responding to the leaked draft Supreme Court opinion overturning Roe v. Wade, Senate majority leader Chuck Schumer of New York said he would initiate proceedings today for a Wednesday vote on legislation that would codify abortion rights into law, despite clear evidence that the measure lacks support to be enacted.
Amazon fires senior managers at a newly unionized warehouse. Insiders characterized the firings as a response to the union victory, the first for an Amazon location. The company, though, said the terminations were the result of an unrelated internal review.
Northern Ireland embraces Sinn Fein. Sinn Fein, the main Irish nationalist party, won the most seats in the Northern Ireland Assembly for the first time in elections over the weekend. It was a first for a party that calls for a united Ireland and has ties to the Irish Republican Army, but analysts said the electorate was more focused on economic issues than on sectarian struggles.
Uber C.E.O. tells employees that the company will slash spending. Dara Khosrowshahi reportedly wrote in an email to employees yesterday that Uber will cut spending on marketing and incentives, and make hiring more selective. Khosrowshahi told employees that “the market is experiencing a seismic shift” and that the company needs to react.
A Marilyn by Warhol tests Manhattan’s auction season
This evening, in a charity auction run by Christie’s, Andy Warhol’s 1964 silk-screen of Marilyn Monroe, “Shot Sage Blue Marilyn,” is expected to sell for about $200 million. That would be the highest auction price ever for a work by an American artist. The event, which kicks off the spring auction season, is being widely watched in art circles as a bellwether for the two weeks of sales ahead, and more broadly as an indication of whether top quality trophies can continue to command high prices, no matter the instability in the world, be it a war overseas, a pandemic or a terrorist attack.
A surfeit of blue chip art will test demand for big-ticket works. “There’s been a huge amount held back for two years, and there’s a huge amount of pent-up demand from new clients,” said Philip Hoffman, the founder of The Fine Art Group, a New York-based advisory company. Hoffman estimates that the next two weeks of auctions could raise as much as $2 billion, double the amount of last year’s spring auction season.
A “shot” at Marilyn. The Warhol painting is from the “shot Marilyn series” so-called because in 1964 a woman walked into Warhol’s Factory studio with a pistol and shot at a stack of four Marilyn paintings. (Christie’s canvas was not pierced by the bullet.) Others from this series are owned by Steve Cohen, Ken Griffin and Peter Brant. It is “the most significant 20th-century painting to come to auction in a generation,” said Alex Rotter of Christie’s.
After the Warhol, the next biggest prize this auction season is likely to be a Basquiat. An orange-hued 1982 untitled work by the expressionist is expected to go for as much as $70 million. The seller, the Japanese entrepreneur Yusaku Maezawa, bought it just six years ago at Christie’s for $57.3 million. Next week Sotheby’s will offer a 1969 Cy Twombly blackboard painting and Francis Bacon’s “Study of Red Pope 1962, 2nd Version 1971,” estimated at $40 million to $60 million, respectively. Those two come from the remainder of the Macklowe collection, the fruits of the bitter divorce between the real estate developer Harry Macklowe and his former wife Linda.
“She’s an important beacon of stability for Russia’s financial system.”
— Elina Ribakova, the deputy chief economist of the Institute of International Finance, an industry group in Washington, on Elvira Nabiullina, the head of Russia’s central bank, who has been praised for her ability to steer Russia’s wartime economy, but also criticized for becoming a key aide in Putin’s war on Ukraine.
The scientist supply chain
The war in Ukraine could transform the dynamics of the international innovation race. The Biden administration, which is growing impatient with supply chain slowdowns and is antsy about China’s tech rise, is angling to attract scientists and tech workers fleeing Russia. Nabbing that talent now would serve two significant U.S. needs, robbing Russia of innovators while helping the U.S. compete with China for tech primacy.
President Biden says the U.S. needs to “up our game.” On Friday, Biden told workers at an Ohio metals manufacturer that investing in innovation would improve economic and national security. He urged Congress to pass the Bipartisan Innovation Act, which aims to boost U.S. manufacturing and includes $52 billion for domestic semiconductor production amid a pandemic chip shortage. “Getting products faster and cheaper and reliably and outcompeting the rest of the world. That’s what it’s about,” Biden said. The House and Senate will be reconciling differences between their versions of the legislation this week.
Russia offers an opportunity to catch up. The Russian Association for Electronic Communications said it expects that about 10 percent of the industry’s work force, or about 150,000 to 170,000 people, will have fled the country by month’s end. The Biden administration hopes to capitalize on the exodus. In a funding proposal to Congress, it has asked to ease visa barriers for Russians with advanced degrees, with a focus on attracting experts in artificial intelligence, cybersecurity, semiconductors and robotics.
The U.S. has halved its research investment in the past 30 years, Biden noted in his speech. The country now ranks ninth in global R&D investment, down from No. 1 three decades ago. China, on the other hand, has risen to second place, from eighth, he said. “We need to build the next foundation of deep talent,” Gilman Louie, an early C.E.O. of the national security venture capital firm IN-q-TEL and a member of the President’s Intelligence Advisory Board, told DealBook.
And the U.S. risks falling further behind. The biggest areas of concern are quantum computing, fusion power, advanced materials and microelectronics, according to Louie’s assessment of the innovation race. Without investment in those areas, the next generation of technology may not be built by companies based in democratic countries, he said.
THE SPEED READ
A group led by Todd Boehly, a part owner of the Dodgers, will buy Chelsea F.C. for $3.1 billion, the most ever paid for a team in any sport. (NYT)
Rogers Communications has run into antitrust issues in its $16 billion takeover of Shaw Communications. (Bloomberg)
Mental health start-ups are attracting billions in funding from venture capitalists and private-equity firms. (WSJ)
President Vladimir Putin is using a national holiday today, Victory Day, to promote the war in Ukraine. (NYT)
Jill Biden, the first lady, made an unannounced trip to Ukraine, seeking to highlight the impact of the war on women and children. (NYT)
The White House is hoping to speed up the process of selling off seized Russian oligarchs’ assets. (NYT)
Europe’s top diplomat says the E.U. should seize frozen Russian foreign exchange reserves. (FT)
The federal government has been inadvertently funding tech start-ups exploited by China, according to a Department of Defense study. (WSJ)
“How Do Americans Really Feel About Abortion? (WaPo)
An election in the Philippines described as the most consequential in decades could put a Marcos back in power. (NYT)
Best of the Rest
Retired boomers are bringing an economic boost to some rural U.S. communities. (WSJ)
A little-known U.N. agency entrusted millions to a British businessman. Things didn’t go well. (NYT)
Hackers are exploiting crypto “flash loans” to steal hundreds of millions from blockchains. (WSJ)
“How Roe Shaped the World of Work for Women” (NYT)
Experts say a grand jury could be called to investigate the Supreme Court leak. (NYT)
DAOs, crypto asset pools with decentralized governance structures, are the new investment clubs. (Protocol)
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