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Wall Street was headed for its sharpest daily decline in months on Wednesday, with the S&P 500 falling more than 2 percent, as investors awaited a number of earnings reports from large technology companies and as the Federal Reserve issued a glum assessment of the economy.
The sell-off came amid a speculative frenzy in some corners of the market that drove up shares of some mostly small, struggling companies. After the S&P 500 rallied more than 16 percent in 2020, hitting record after record despite the economic damage caused by the pandemic, investors have grown concerned that financial markets have become detached from reality.
Though the trading that grabbed Wall Street’s attention this week is only in a handful of stocks — including GameStop and AMC Entertainment — the level of speculation is reminiscent of trading during the dot-com bubble two decades ago. On Wednesday alone, GameStop more than doubled and AMC surged by some 250 percent.
Those gains, though, stood in stark contrast to a sell-off in the rest of the market. The S&P 500 was on track for its worst daily decline since late October.
Some market watchers said the two could be connected. The spiking shares are wreaking havoc for hedge funds and other large investors that had bet against companies like GameStop, which is expected to have lost hundreds of millions of dollars in 2020, and AMC, which is struggling as the pandemic keeps moviegoers home. To shore up their finances those investors may have to sell large capitalization stocks.
On Wednesday afternoon, the Federal Reserve said it saw economic activity in the United States moderating, “with weakness concentrated in the sectors most adversely affected by the pandemic.”
“The ongoing public health crisis continues to weigh on economic activity, employment, and inflation, and poses considerable risks to the economic outlook,” the Fed said in a statement. It pledged to keep interest rates low and to continue buying bonds to support the flow of credit through the economy.
Shares of companies that have been hardest hit in the last year fared poorly: Retailers L Brands and Gap were among the day’s worst performing stocks. Several airlines dropped, as did shares of other companies that have suffered from the shutdown in travel and tourism.
The Stoxx Europe 600 index dropped 1.16 percent, and indexes fell in most European countries. Europe’s vaccine rollout is struggling to ramp up amid supply issues, raising concerns about when an economic recovery will return. Recent surveys have shown business confidence dropping in Germany and France, the eurozone’s two largest economies.
On Tuesday, the International Monetary Fund upgraded its outlook for the global economy this year but the recovery is expected to be uneven. The Washington-based institution said the economy would grow 4.2 percent in 2021; three months ago, it had predicted a 5.2 percent increase. It downgraded its forecast for the eurozone because of the increase in coronavirus infections and lengthy lockdowns.
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Walgreens Boots Alliance has named Rosalind Brewer as its next chief executive, making her the only Black woman to currently run a Fortune 500 company.
The appointment of Ms. Brewer, currently the chief operating officer and a board member at Starbucks, takes effect March 15.
Ms. Brewer will replace Stefano Pessina, who had previously announced his plans to step down from the role. Mr. Pessina had been the pharmacy giant’s chief since 2015, following the multibillion-dollar merger of Walgreens and Alliance Boots a year prior.
Shares of Walgreens rose by 5 percent on Wednesday, the first session after the announcement of her appointment.
Before joining Starbucks, Ms. Brewer was the chief executive of the retailer Sam’s Club, where she oversaw growth in membership and the incorporation of digital technology. When she leaves Starbucks next month, her duties will be split between two executives.
Walgreens cited Ms. Brewer’s “relentless focus on the customer, talent development and expertise in digital transformation” in its announcement of her hire. The pharmacy specialist is trying to become more of a health care company than retailer as sales of drugs and convenience products increasingly shift online. Amazon shook up the prescription drug market with its $1 billion deal for PillPack in 2018.
There have been only 18 Black chief executives of Fortune 500 companies since 1999, according to Fortune. Two have been women: Ursula Burns, who led Xerox from 2009 to 2016, and Mary Winston, who led Bed Bath & Beyond as interim chief in 2019.
While companies have talked about promoting diversity in their top ranks for years, the killing of George Floyd and protests that followed jolted executives to confront racial inequality more directly. That, in conjunction with pressure from shareholders, lawmakers, banks and other financial providers, has pushed companies to accelerate their efforts.
GameStop One-Week Share Price
Millions of amateur stock traders collectively are taking on some of Wall Street’s most sophisticated investors. They’ve piled into trades around companies that other investors had written off, pushing stock prices to stratospheric levels.
The main focus is GameStop, the troubled video game retailer. Its stock is up 1,600 percent so far this month, including Wednesday’s climb of 120 percent. AMC Entertainment was up 225 percent on Wednesday, and BlackBerry is up more than 250 percent this month.
The surging shares have become detached from the factors that traditionally help establish a company’s value to investors — like growth potential or profits. But the traders who are piling in probably aren’t thinking about those fundamentals.
Instead, they are part of a frenzy that appears to have originated on a Reddit message board, WallStreetBets, a community known for irreverent market discussions, and on messaging platforms like Discord. (One comment from WallStreetBets read, “PUT YOUR LIFTOFF DIAPERS ON ITS ABOUT TO START.”) Both Tesla’s Elon Musk and the billionaire tech investor Chamath Palihapitiya have encouraged the crowd via Twitter.
Egged on by the message boards, these traders are rushing to buy options contracts that will profit from a rise in the share price. And that trading can create a feedback loop that drives the underlying share prices higher, as brokerage firms that sell the options have to buy shares as a hedge.
As more traders snap up options, the brokers have to buy up more shares, driving the astounding rise in the company’s stock prices. GameStop began the year at $19 and opened for trading on Wednesday at around $350, double the previous day’s close.
Another reason the shares are rising so quickly is that, until recently, they were heavily targeted by big investors who bet the stocks would decline by taking on short positions. As the shares surge, the shorters also have to buy the stock in order to cut their losses, and that triggers a so-called short squeeze — a sudden spike in a share’s value.
Gabe Plotkin, the hedge fund trader whose Melvin Capital was shorting GameStop, confirmed to CNBC on Wednesday that he had exited his position after having to raise a $2.75 billion bailout from Citadel and his former boss, Steve Cohen, amid the short squeeze. Mr. Plotkin’s other short bets appear to be suffering, possibly because they are being targeted by traders — Melvin and Mr. Plotkin are often pilloried on the message boards.
Jen Psaki, the White House press secretary, said Wednesday that the Biden administration’s economic team is “monitoring the situation” surrounding the volatile trading in some stocks.
Officials at the Securities and Exchange Commission and elsewhere are closely watching internet chat rooms for signs of potential market manipulation, though they can do only so much without clear signs of fraud. If a big group of traders simply decides to buy options on a stock at the same time, out in the open, proving malfeasance may be difficult.
The automaker formerly known as Fiat Chrysler has agreed to pay $30 million to settle a federal corruption investigation involving former executives and the United Auto Workers union.
Under the agreement, which is subject to approval by a federal judge, the company has agreed to plead guilty to one count of conspiracy to violate the Labor Management Relations Act.
The charge against Fiat Chrysler, which this month completed a merger with PSA, the French automaker and is now known as Stellantis, is part of a wider investigation into the union that has resulted in guilty pleas by more than a dozen senior union officials, including two past presidents.
The investigation by the U.S. attorney in Detroit found that a former top labor executive at Fiat Chrysler, Alphons Iacobelli, used hundreds of thousands of dollars of union funds to pay for a Ferrari sports car, other luxury goods and renovations to his 6,000-square-foot home. He pleaded guilty to federal charges in 2018.
The union reached an agreement with federal prosecutors in December on anticorruption reforms to avoid having the union put under government control. Two past union presidents, Dennis Williams and Gary Jones, are scheduled to be sentenced next month after pleading guilty to corruption charges.
It is America’s biggest lender by assets. And for the first time, JPMorgan Chase is planning to expand its consumer-banking operations abroad, announcing on Wednesday that it will offer checking accounts in Britain later this year.
The business, which will operate via a mobile app under the Chase name, plants the firm’s flag in an increasingly crowded market as JPMorgan looks to expand its financial technology offerings. It already has hired 400 employees in the country.
In the future, the bank may offer other banking products, like credit cards and mortgages, according to a person briefed on the matter.
JPMorgan itself has had a presence in Britain for more than 160 years, but only as a commercial lender, investment bank and asset manager. That lack of a consumer operation has meant that American employees of JPMorgan who moved to Britain had to open accounts at lenders like HSBC. Few of JPMorgan’s American rivals have a retail banking operation in Britain, aside from Citigroup and Goldman Sachs’s Marcus arm.
But Britain has become a haven for digital “challenger” banks seeking to chip away incumbents like HSBC, Barclays and Natwest. Among them are Monzo, which says it has nearly 5 million customers, Starling and Revolut.
“The U.K. has a vibrant and highly competitive consumer banking marketplace, which is why we’ve designed the bank from scratch to specifically meet the needs of customers here,” Gordon Smith, the chief executive of JPMorgan’s consumer banking arm, said in a statement.
One advantage in running a digital operation is not having to manage an array of expensive physical bank locations. In recent years, JPMorgan and other American lenders have been winnowing their branch networks.
JPMorgan briefly ran an online-focused banking app, Finn, in the United States, but shuttered the project in 2019 after just a year. Nevertheless, the bank is focused on expanding its so-called fintech offerings, amid competition from rivals on a number of fronts.
Credit…Clay Enos/Warner Bros. Entertainment, via Associated Press
When AT&T’s WarnerMedia group announced it would release “Wonder Woman 1984,” one of its most anticipated blockbusters, on HBO Max at the same time as it would in theaters, it sent shock waves throughout Hollywood.
But for AT&T, the reason in doing so was simple: drive HBO Max subscriptions. In its fourth-quarter earnings report, the phone giant said the strategy helped, boosting HBO Max customers to 17.2 million.
It’s not clear how many specific subscribers “Wonder Woman” helped to add. Box office dollars add more profit than streaming dollars, so the financial trade-off is also unclear.
But AT&T is banking on its new streaming platform to help drive overall growth. The mobile phone industry is saturated, creating a pitched battle between the top three players, which includes Verizon and T-Mobile. Offering HBO Max to higher-end phone customers as a freebie or at a discount helps keep customers from defecting to rivals.
The streaming world is also a tough battleground. Netflix has 204 million subscribers, with about 67 million of them in the United States. Disney+ attracted over 86 million worldwide about a year after it launched. HBO Max, which costs more than the others, has a long way to go before it catches up.
Fourth-quarter revenues for AT&T were flat at $36.7 billion, but higher costs associated with HBO Max ate into operating profits, which fell nearly 13 percent to $6.6 billion.
The rise of streaming also hurt AT&T’s more traditional pay-TV group, which includes satellite provider DirecTV. The division saw a loss of 617,000 customers in the quarter as the pandemic crippled household budgets and cord-cutting accelerated. The company also took a $15.5 billion write-down of its DirecTV unit, reflecting the declining value of satellite television. AT&T paid nearly $50 billion to acquire the company in 2015.
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Boeing lost more than $11.9 billion last year, its worst year ever, as it struggled to overcome the crisis surrounding its 737 Max jet as it also endured the disastrous slowdown in global aviation caused by the coronavirus pandemic.
The company’s bottom line suffered especially during the final three months of the year, during which Boeing reported a loss of more than $8.4 billion. In that quarter, the company recorded a $6.5 billion charge related to the development of the 777X, a wide-body plane that has suffered several delays in recent years. On Wednesday, Boeing extended the plane’s expected arrival once more, to 2023, amid tightening certification requirements and weakening demand for large jets, which has been exacerbated by the pandemic.
Over the course of the year, Boeing brought in more than $58 billion in revenue, which was down 24 percent from 2019.
In a letter to staff, Boeing’s president and chief executive, Dave Calhoun, described 2020 as “a year of profound societal and global disruption, which significantly impacted our industry.”
The financial results were announced on Wednesday morning, shortly after aviation regulators in Europe approved the 737 Max to fly again, joining counterparts in Brazil, Canada and the United States. The Federal Aviation Administration became the first regulator to allow the Max to return to service in November, ending a global ban that had been in place since March 2019, after 346 people were killed in two crashes involving the plane.
Five airlines have resumed Max service, racking up more than 2,700 flights, according to Boeing. In the United States, only American Airlines is flying the Max, though United Airlines is expected to start using the jet next month, followed in the second quarter by Southwest Airlines.
Boeing has started making deliveries and collecting payments on the Max again, a huge relief for its commercial airplane business, which rests heavily on the 737 line. Still, the steep decline in travel caused by the pandemic has hurt Boeing’s airline customers, muting hopes for a recovery this year.
Credit…Anna Moneymaker for The New York Times
John Kerry, President Biden’s special envoy for climate change, urged business leaders on Wednesday to recommit themselves to reducing emissions, promising big profits for those who do so.
“A zero emissions future offers remarkable opportunity for business, for clean green jobs, for economic growth,” he said at the virtual World Economic Forum, traditionally held in Davos. “The highest valued auto company in the world today is Tesla, and it only makes electric vehicles. Mitsubishi is building the world’s largest zero emissions steel plant in Austria.”
Mr. Kerry, a former secretary of state and Democratic presidential nominee, went on to list a number of companies that are succeeding and added, “Globally, the cheapest new electric power plant you can install is based on renewables.’’
In many parts of the world, including in the Southwest United States, India and the Middle East, solar panels increasingly generate electricity at a much lower cost than plants that run on coal or natural gas. Wind turbines also provide cheap power in many areas, including in Texas and Europe.
But he warned that time was running out for companies and countries to rein in climate change. “As a world we have yet to be really serious and do what we need to do,” he said.
Mr. Kerry spoke on the same day Mr. Biden was expected to sign a package of executive orders to elevate the U.S. government’s response to climate change, including pausing new leases for oil and gas development on federal lands and in offshore waters “to the extent possible.”
Mr. Kerry was speaking on a panel moderated by a deputy managing editor for The New York Times, Rebecca Blumenstein.