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Saturday, February 11, 2023
Corporate earnings season is coming down the other side of the mountain after a hectic couple weeks.
But even in the absence of a Fed meeting, or jobs report, or earrings reports from the market’s biggest companies, the past week offered plenty to investors on the biggest themes in markets and the corporate world that have featured so far in 2023.
Fed bump fades
This past week, the stock market saw the major indexes cap off their worst week of 2023.
All three major indexes rallied to start 2023, with the Nasdaq enjoying its best January since 2001 after gaining more than 11% in the year’s first month.
The early-year rally was punctuated on Wednesday, Feb. 1, when the Nasdaq gained some 2% after Fed Chair Jerome Powell said “disinflation” had become a feature of the U.S. economy in a press conference. In an interview with financier David Rubenstein this week, Powell reiterated his view that disinflationary pressures are reaching the U.S. economy – primarily in the goods sector.
The second time around, Powell’s words didn’t excite investors much.
And as economic data shows the economy gained momentum in January, hopes for an imminent Fed pivot appear to be fading among some investors.
Outside of any Fed-related influence on the market’s day-to-day action, the volatility we continue to see is not suggestive of a healthy market. Even with a rally to start the year that washed some of the stink of 2022’s losses for some investors.
As strategists at Bespoke Investment Group wrote Friday in a note to clients, “Volatility is usually a characteristic of a weak stock market rather than a strong one.” And this year’s market has been notably volatile.
Through the first 27 trading days of 2023 – or the year’s trading through Thursday – the Nasdaq has moved 1% in either direction 15 times, according to Bespoke’s data. In the prior nine instances this volatility was seen, the market was down six times and the largest rally had been 7.2%, which pales in comparison to the ~12% gain seen in the index this year.
Perhaps more troubling for the bulls right now are the other three years the Nasdaq saw this level of volatility through the first six weeks of the year – 1999, 2000, and 2001. The heart of the tech bubble bursting.
In the Corporate World, the dominant theme of the last few months has been the raft of companies announcing job cuts. This week was no exception.
Cuts at Disney (DIS) were the headliner, with the company announcing Wednesday it would trim 7,000 jobs as newly returned CEO Bob Iger looks to cut $5.5 billion out of the business.
In addition to these cuts, Iger also announced another restructuring of the company’s business lines, telling investors on the company’s earnings call these moves “will result in a more cost-effective coordinated and streamlined approach to our operations, and we are committed to running our businesses more efficiently, especially in a challenging economic environment.”
Alongside these cost cuts, Iger also said he would reinstate Disney’s dividend. His reward for this latest act of corporate wizardry? The end of a proxy fight with activist investor Nelson Peltz.
And while job cuts have spread from the tech sector out into the worlds of media, conglomerates, and beyond, the tech sector remains the center of pressure for the white collar workforce right now.
Zoom (ZM), one of the stock market’s first and biggest pandemic-related winners, announced this week it would cut 15% of its workforce, or around 1,300 workers. CEO Eric Yuan will also take a 98% reduction in base pay for this year while the balance of the company’s executive staff will see a 20% pay cut.
Yuan said the company’s trajectory was “forever changed” during the pandemic, but said Zoom “also made mistakes” as it staffed up to meet these challenges.
“We didn’t take as much time as we should have to thoroughly analyze our teams or assess if we were growing sustainably, toward the highest priorities,” Yuan wrote in an email to employees. “[The] uncertainty of the global economy, and its effect on our customers, means we need to take a hard—yet important—look inward to reset ourselves so we can weather the economic environment, deliver for our customers and achieve Zoom’s long-term vision.”
Dell (DELL), eBay (EBAY), and JPMorgan (JPM) were also among the major public companies that saw some level of staff reductions over the last week.
Crypto pressures rise
As markets rallied to start the year, crypto was front and center with bitcoin enjoying its best January performance since 2013, gaining nearly 40% in the year’s first month.
But the early part of February has served as another reminder for the industry that crypto winter is here, even if the price for some blue chip crypto assets has firmed of late.
BNPL giant Affirm – which also announced a 19% cut to its staff – said this week it would shutter its Affirm Crypto initiative. Like most companies cutting back, Affirm said in a shareholder letter due to economic uncertainty, “we are doubling down on our core businesses.”
Evidently buying stuff now and paying for it later with crypto was not core to the business.
Elsewhere in corporate crypto maneuvers, Robinhood said it would take a $12 million charge and had backed out of a deal to buy crypto company Ziglu, a deal initially announced back in April 2022.
On the regulatory side, a busy year remained that way with the SEC announcing on Thursday a settlement with exchange Kraken over its staking business. As part of the settlement, Kraken agreed to pay a $30 million fine and shut down its crypto staking offering for U.S. users.
Ahead of Thursday’s announcement, shares of Coinbase (COIN) fell 13% after CEO Brian Armstrong cryptically tweeted about talk of the SEC trying to shut down all staking for U.S. retail investors. The stock fell another 4% on Friday.
Whether Armstrong’s fears turn out to be founded or not, Thursday’s action from the SEC against Kraken was the agency’s fourth this year against crypto firms as the regulator continues to tighten its control of the industry.
As SEC Chair Gensler told Yahoo Finance in December: “We are enforcing [existing securities laws]. We have publicly been saying to these crypto intermediaries…to come into compliance with the law.”
Gensler told Yahoo Finance he had one goal when it came to regulating crypto in 2023: make crypto exchanges and lending platforms come into compliance.
“They can do that appropriately, working with the SEC, or we can continue on a course with more enforcement actions, and I would have to say that the runway’s getting shorter,” he said.
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