Investors need some time off after a topsy-turvy year, but things may not be better at the local amusement park. Fed Chair Jay Powell took the market on another rollercoaster on Wednesday, with a series of loop-the-loops aboard a ride known as the Dove-Hawk Twister. When all was said and done, the Dow dropped 500 points, while the S&P 500 and Nasdaq slumped 2.5% and 3.6%, respectively, after initially soaring on the Fed’s announcement (that came along with a 75 bps rate hike).
Steep turns: “With the lags between policy and economic activity, there’s a lot of uncertainty, so that we note that in determining the pace of future increases will take into account the cumulative tightening of monetary policy, as well as the lags with which monetary policy affects economic activity and inflation… that’s why I’ve said at the last two press conferences that at some point it will become appropriate to slow the pace of increases. So that time is coming, and it may come as soon as the next meeting or the one after that.”
“We may ultimately move to higher levels than we thought at the time of the September meeting. The incoming data since our last meeting suggests the ultimate level of interest rates will be higher than previously expected. The risks are asymmetric. If the Fed does too much, it can cut. If it doesn’t tighten enough, then you’re in real trouble… It is very premature to be thinking about pausing… We think we have a ways to go.”
Bottom line: Powell and Co. will be watching the data and evolving market conditions before making any significant pivot. The Non-Farm Payrolls report for October is out tomorrow, followed by the Consumer Price Index on Nov. 10, and Personal Consumption Expenditures on Dec. 1. The latter is the Fed’s preferred measurement for inflation as it captures changes in consumer behavior and has a broader scope than the CPI. Global macro events will also be considered like Russia’s war against Ukraine and the effects of China’s zero-COVID policy. (78 comments)
In a bid to drive down costs, Elon Musk plans to eliminate 50% of Twitter (TWTR) workforce today, which would result in nearly 3,700 layoffs, according to Bloomberg. The platform’s work-from-anywhere policy would also be rescinded, with most of the remaining employees required to report to the office. In one scenario being considered, laid-off workers will be offered 60 days’ worth of severance pay as Musk looks to gut a business for which he says he overpaid (the transaction valued Twitter at $44B).
Snapshot: A series of layoffs started as soon as Musk took over the social media company, including CEO Parag Agrawal, finance chief Ned Segal and senior legal staffers Vijaya Gadde and Sean Edgett. In the days that followed, other departures have included Chief Marketing Officer Leslie Berland, Chief Customer Officer Sarah Personette, and Jean-Philippe Maheu, vice president of global client solutions. After the layoffs were sorted, Twitter Chief Accounting Officer Robert Kaiden reportedly left the company, becoming one of the last pre-Musk C-suite executives to depart.
In recent weeks, Musk has started hinting at his staffing priorities, saying he wants to focus on the core product. “Software engineering, server operations & design will rule the roost,” he tweeted in early October. On the product side, the company will soon start charging $8-a-month for verification, which includes badges, and could go live as early as Monday. Reports suggest that users who already have a blue check will have a multi-month grace period before they will either need to pay for the badge or lose it.
Not alone: In October, Meta Platforms (META) announced that it was eliminating 15% of its staff, or approximately 12,000 employees at Facebook, to slash its headcount as global headwinds and falling ad spends pose serious problems. In August, Snap (SNAP), the maker of the ephemeral messaging app Snapchat, laid off 20% of its workforce. (26 comments)
Russia has agreed to return to a Turkish and U.N. brokered agreement that allowed the shipment of millions of tons of Ukrainian grain through the Black Sea. It had previously pulled out of the deal following an alleged Ukrainian drone attack in Crimea over the weekend. Moscow now says “written assurances” from Kyiv guarantee that it would not use the humanitarian maritime corridor for military purposes, so the shipments could continue unobstructed.
Market movement: Wheat futures plunged in the U.S. and Europe on Wednesday, as well as other commodities. On the Chicago Board of Trade, wheat for December delivery (W_1:COM) settled down 6.3% to $8.46 per bushel, and December corn (C_1:COM) closed off 1.5% to $6.87 a bushel. The benchmark December contract on Euronext also settled 4.6% lower to €341.25/metric ton.
There’s been some debate over how much leverage Russia’s Vladimir Putin really holds over the deal, with the grain shipments continuing on Monday and Tuesday (and a one day interruption on Wednesday). Some say that the parties involved could push ahead despite Moscow’s objections, though others feel that it would be hard to ink shipping and insurance contracts to underwrite the voyages. Whatever the case may be, Putin will likely try to gain additional leverage ahead of the deal’s original expiration date of Nov. 19, and before the upcoming G20 Summit in Bali.
Stats: Over the past two months, more than 400 ships departing Ukraine exported 9.9M metric tons of corn, wheat, sunflower products, barley, rapeseed and soy under the Black Sea Grain Initiative. (14 comments)
What a difference one year can make. Apple (AAPL) closed out Wednesday’s session with a market capitalization of $2.307T, making it more valuable than Alphabet (GOOG, GOOGL), Amazon (AMZN) and Meta (META) combined (worth a total of $2.306T). The latter group even started 2022 worth $4.410T, compared to the valuation of the iPhone maker at $2.913T.
Free cash flow: “Take a look at last quarter. Apple FCF: $20 billion, Google FCF: $16 billion, Meta FCF: $0.3 billion, Amazon FCF: -$5 billion,” tweeted financial YouTuber Joseph Carlson, who first pointed out the comparison. “Now of course one quarter doesn’t paint the full picture. But Apple is posting massive FCF like clockwork. The others are not.”
The four companies also reported earnings last week and only Apple’s results were met with a positive market reaction. Macs selling at a record pace outweighed a slight miss on iPhone sales, while the Tim Cook-led firm beat estimates on both the top and bottom lines. Weak growth, some misses and downbeat forecasts weighed on the other tech giants, while many are worried about Meta’s experimental pivot to a digital avatar-filled universe given its lack of regard to spending as the business burns billions.
Commentary: “Perhaps it’s investor expectations, demanding perfection across complicated conglomerates,” wrote Mark Shmulik, senior internet analyst at Bernstein, following the quarterly figures last week. “Or maybe Internet mega-caps are a lot less agile than we thought and [are] either unable or unwilling to adapt to a changing operating environment. What if it’s just structural and Internet incumbents need to spend an ever-increasing amount of capital in their mature years to keep competitors at bay? All the above.” (36 comments)
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