How hawkish will the Federal Reserve be this year?
At the moment, Wall Street economists seem to be telling their clients “more hawkish than we thought five minutes ago.”
The strong U.S. consumer inflation data reported Thursday has set off what looks like a chain reaction of upward revisions to projected interest rates rises and where the Fed is headed with monetary policy.
Fed watchers are talking seriously about an “emergency” interest rate hike before the Fed’s next formal meeting on March 16.
The consumer price index rose 0.6% in January, with broad based gains. The year-over-year rate rose to 7.5%, the highest level in 40 years.
Read: Consumer price inflation increases sharply in January
In the wake of the data, Goldman Sachs said it now sees seven consecutive 25 basis point rate hikes at each of the remaining Fed policy meeting this year. The investment bank’s earlier prediction was five hikes.
Economists at Citi said that their base case is a now for a 50 basis point hike in March followed by quarter point hikes in May, June, September and December.
Marc Cabana, head of U.S. rates strategy at BofA Securities, told Bloomberg Radio that it is very likely the Fed is going to raise rates by 50 basis points in March and “who knows, maybe even 50 in May.”
The talk about an inter-meeting rate hike before March 16 erupted late Thursday after St. Louis Fed President James Bullard said was open to having that discussion.
Market analyst Mohamed Ed-Erian said the frenzy of speculation is a sign the Fed has lost control of the policy narrative. He said he didn’t want to see the Fed take aggressive moves because the market will price in aggressive moves again and again.
“This is what typically happens in a developing country when a central bank loses control of the policy narrative,” he said.
March Chandler, forex analyst for Bannockburn Global Forex, said it will be difficult for Fed officials to get ahead of the curve of expectations.
It is a strange time for the Fed. The central bank has been slowly “tapering” or reducing the amount of securities is is buying under its quantitative easing program started in the depth of the pandemic. The buying of Treasurys and mortgage backed securities is scheduled to end in mid-March.
Some Fed watchers think the Fed may decide to end these purchases “cold turkey,” with the announcement coming Friday.
Under the Fed’s QE program, the Fed is scheduled to release its schedule for the last month of asset purchases.
“If the Fed releases that calendar at 3 p.m, it is pretty strong forward guidance they’re not going to do an intermeeting hike,” Cabana said.
Cabana said he didn’t expect a rate hike before the March 16 meeting. He suggested that investors who want to bet on an intermeeting hike would be better positioned to play for a 75 basis point hike in March.
However, Robert Perli, head of global policy at Piper Sandler, said the firestorm among Fed watchers felt like “much ado about little.”
“We are first to recognize that inflation is too high for comfort. But what we learned yesterday from both the CPI report and FOMC members doesn’t seem enough to change the policy outlook nearly as much as the market did,” Perli said, in a note to clients.
Three Fed officials were not as hawkish as Bullard in their comments the wake of the CPI report.
Richmond Fed President Tom Barkin told the Stanford Institute for Economic Policy Research on Thursday evening that he would have to be convinced of a need for a 50 basis point rate hike, Reuters said.
In an interview with Market News International, San Francisco Fed President Mary Daly downplayed the chances of a half-a-percentage point hike in March.
And Atlanta Fed President Raphael Bostic told CNBC after the CPI data that he was sticking with his call for four rate hikes this year, including a 25 basis point hike in March.
Tim Duy, chief U.S. economist at SGH Macro Advisors, called these dovish Fed comments “nonsensical.”
“It is just getting to the point where the distance between the Fed’s current position and reality is too wide to ignore any longer,” Duy said, in a note to clients.
U.S. stocks
DJIA,
-0.17%
SPX,
-0.45%
were mixed late morning Friday after a wild week on Wall Street. The yield on the 10-year Treasury note
TMUBMUSD10Y,
2.024%
stayed above 2%, the highest level since 2019.
WASHINGTON—The Justice Department said Tuesday it seized over $3.6 billion worth of digital currency stolen during a hack of a cryptocurrency exchange and arrested two suspects for allegedly trying to launder the proceeds.
The value of the cryptocurrency at the time it was seized last week marks the largest financial seizure ever by the Justice Department, officials said.
Ilya Lichtenstein,
34 years old, and his wife,
Heather Morgan,
31, were both arrested without incident Tuesday morning in Manhattan, the department said. They have promoted themselves on social media as entrepreneurs with deep knowledge of tech and a love of travel.
According to court documents, the suspects allegedly conspired to launder nearly 120,000 bitcoin stolen from Bitfinex’s platform in 2016 after a hacker breached the exchange’s systems and initiated more than 2,000 unauthorized transactions. The transactions included the use of computer programs to rapidly automate bitcoin movements and deposits to try to conceal their origin, with some of the funds eventually landing in financial accounts tied to the couple, federal prosecutors said.
“Today’s arrests, and the department’s largest financial seizure ever, show that cryptocurrency is not a safe haven for criminals,” said Deputy Attorney General
Lisa Monaco.
“In a futile effort to maintain digital anonymity, the defendants laundered stolen funds through a labyrinth of cryptocurrency transactions.”
While the SEC hasn’t announced major actions against big crypto exchanges, the commission has threatened to sue companies offering crypto lending. WSJ’s Dion Rabouin explains why this one part of the crypto market has drawn such a strong reaction. Photo: Mark Lennihan/Associated Press
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At the couple’s appearance in Manhattan court Tuesday, U.S. Magistrate Judge Debra Freeman set bond at $5 million for Mr. Lichtenstein and $3 million for Ms. Morgan, requiring that their parents’ homes be posted as security. The judge also ordered that they not have devices with internet access and prohibited them from conducting cryptocurrency transactions.
Anirudh Bansal, a lawyer for Mr. Lichtenstein and Ms. Morgan, told the judge that his clients had been aware of the government’s investigation since November and hadn’t tried to flee the country. Mr. Bansal declined to comment further.
Mr. Lichtenstein and Ms. Morgan face charges relating to conspiracy to commit money laundering and conspiracy to defraud the U.S. They weren’t charged with carrying out the hack of Bitfinex. The Justice Department’s investigation is ongoing, officials said.
Hong Kong-based digital-currency exchange Bitfinex said it was hacked in 2016, causing the price of bitcoin to sharply drop. At the time, the value of the stolen bitcoin was valued at around $70 million, officials said.
Bitcoin, like many virtual currencies, can fluctuate wildly in price and has soared enormously since 2016. The $3.6 billion recovered by the Justice Department is the value of the bitcoin at the time of seizure, which occurred last week, officials said. Overall the current value of the stolen bitcoin linked to the hack is valued today at about $4.5 billion, officials said, but only about 94,000 of the roughly 119,754 stolen bitcoin were recovered.
Bitcoin is a popular type of so-called cryptocurrency, a kind of digital currency that exists as open-source computer code and that is maintained by the operations of a vast world-wide network of computers. Officials said the fact that blockchain—the inalterable ledger that records bitcoin transactions—is public was helpful in their investigation.
The Justice Department last year created a team to prosecute criminals that rely on cryptocurrency and recover illicit proceeds
Photo:
Ariel Zambelich/The Wall Street Journal
Ari Redbord, a former senior Treasury Department official now at the blockchain analytics firm TRM Labs, said the arrests show the developing capabilities of investigators to trace cryptocurrency flows, including years after illicit transactions occurred.
“As the obfuscation techniques evolve, so do the tools authorities have to track them,” said Mr. Redbord. “The blockchain is forever.”
The case also helps law enforcement understand the strategies hackers, terrorists and other criminals are using in digital-currency markets to try to move illicit funds, he said.
The Justice Department created a National Cryptocurrency Enforcement Team last October to prosecute criminals that rely on cryptocurrency and recover illicit proceeds.
Last year, authorities were able to claw back about $2.3 million in bitcoin that was paid by Colonial Pipeline Co. to a Russian ransomware gang that hacked the major conduit, causing a shutdown that lasted for days on the pipeline that runs from the Gulf Coast to New Jersey.
The couple arrested Tuesday, Mr. Lichtenstein and Ms. Morgan, allegedly used their laundered proceeds to purchase a variety of material goods and assets, including gold, nonfungible tokens and
Walmart
gift cards, officials said.
Only a small portion of the stolen money had been spent by the time of their arrest, according to officials.
Federal prosecutors unsuccessfully requested at Tuesday’s proceeding that the Ms. Morgan and Mr. Lichtenstein be held without bond, saying they were a flight risk.
During a search of the couple’s Manhattan home this month, federal agents found a bag of burner phones, $40,000 in cash and a device with an electronic file that had fake identities used to open bitcoin accounts, Assistant U.S. Attorney Maggie Lynaugh said. Another file found in the search, she said, had information on how to purchase passports on the dark web.
The couple is also believed to have access to $330 million in bitcoin that the federal government hasn’t located, Ms. Lynaugh said.
Ms. Morgan and Mr. Lichtenstein, who also goes by the nickname Dutch, have promoted themselves as veteran tech and crypto entrepreneurs, according to their social-media posts. Their enterprises include co-founding Demandpath, a venture-capital fund; Endpass, a cryptocurrency wallet; and SalesFolk, a marketing firm.
All three companies were used by the couple to justify some of their cryptocurrency transactions, Christopher Janczewski, special agent for the Internal Revenue Service’s criminal investigation division, said in a court filing.
On Medium, a publishing platform, Mr. Lichtenstein’s profile describes him as a “tech entrepreneur, explorer, and occasional magician.” His profile on LinkedIn, the professional networking platform, says he is a “coder and investor interested in blockchain technology, automation, and big data.”
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Ms. Morgan’s profile on Forbes.com, where her articles are posted under the site’s ForbesWomen banner, says she is an international economist and serial entrepreneur specializing in software development.
“When she’s not reverse-engineering black markets to think of better ways to combat fraud and cybercrime, she enjoys rapping and designing streetwear fashion,” her Forbes.com bio reads. Her LinkedIn page links to a personal website, in which she refers to herself as rapper Razzlekhan, with a “fearless entrepreneurial spirit and hacker mindset.”
A friend of Ms. Morgan said the couple, while planning to buy a $2 million apartment in New York, didn’t live a lavish lifestyle and weren’t splashy spenders. The friend said their wedding in November was modest and the couple said they often used air miles to fly.
Bitfinex, the exchange platform that was hacked in 2016, said it had been cooperating with the Justice Department since its investigation began and said it would “follow appropriate legal processes to establish our rights to a return of the stolen bitcoin.” Updates on the return of stolen bitcoin would be forthcoming, the company said.
Some financial crime experts said the seizure and others in the past several years show that cryptocurrency markets can be increasingly monitored by law enforcement. Top law-enforcement officials whose agencies investigate cryptocurrency crimes, including the U.S. Secret Service, have said the blockchain ledger provides a digital trail for their probes, but have urged policy makers to strengthen reporting rules on the identities of users.
Corrections & Amplifications Ari Redbord is a former senior Treasury Department official now at the blockchain analytics firm TRM Labs. An earlier version of this article incorrectly spelled his last name as Redboard. (Corrected on Feb. 8)
—James Fanelli contributed to this article.
Write to Dustin Volz at dustin.volz@wsj.com and Ian Talley at ian.talley@wsj.com
The S&P 500 waffled between small gains and losses Monday, continuing a volatile stretch for the stock market.
The broad stock-market gauge added 0.1%. The Nasdaq Composite hugged the flatline. The Dow Jones Industrial Average gained 0.4%.
Stocks have had a turbulent start to the year, amplified in recent days by extreme moves in big tech stocks. Last week saw a record-breaking decline in Meta Platforms shares and the biggest rise since 2015 for Amazon.com shares, after the companies posted earnings. Friday’s better-than-expected jobs report also turned traders’ attention back to central-bank policy, which is set to tighten as the economy continues to recover.
On Monday, major indexes wavered between small gains and losses before turning higher toward the end of the day. Some analysts said the latest earnings season has helped draw investors back into stocks in recent sessions. Last week, the S&P 500 capped off its best week since December after several twists and turns.
“We think the earnings season has been pretty constructive,” said Greg Boutle, head of U.S. equity and derivative strategy at BNP Paribas.
Companies scheduled to post results this week include
Pfizer
and
KKR
on Tuesday and Uber Technologies and Walt Disney on Wednesday.
Coca-Cola,
PepsiCo
and
Twitter
are slated for Thursday.
Despite the recent rebound, it’s been hard to impress investors this earnings season. Companies that are beating estimates are performing worse than they had historically, while those that are missing estimates are being punished,
JPMorgan Chase & Co.
strategists wrote in a note to clients Monday. This is one of several signs that investors have grown overly bearish in recent weeks, according to JPMorgan’s Marko Kolanovic.
“As overly bearish sentiment clears, we expect the market to lift,” Mr. Kolanovic said.
Shares of Meta and
Netflix
dropped Monday, losing 3.9% and 1%, respectively. Amazon continued to rise, adding 1.4%. The moves continue a recent divergence in so-called FAANG stocks that have led investors to shift how they trade the hot tech group.
The monthly jobs report reveals key indicators about the labor market and the overall state of the economy, but it doesn’t show the entire picture. WSJ explains how to read the report, what it shows and what it doesn’t. Photo illustration: Liz Ornitz
“We’ve been taking advantage of some volatility,” said Mike Bailey, director of research at FBB Capital Partners. “We’ve been adding to some of the tech names during the past few weeks.”
In corporate news, Peloton shares soared 23% after The Wall Street Journal reported that the stationary-bike company was drawing interest from Amazon and other potential suitors.
Spirit Airlines
added 17% after it said it was merging with Frontier Group.
Tyson Foods
climbed around 12% after it said it expected its sales for the year to be at the upper end of its guidance.
Hasbro
slipped around 0.5% after reporting revenue and profit that beat Wall Street’s estimates.
The yield on the 10-year Treasury note hovered at 1.914%, from 1.930% Friday.
“Markets have been repricing, as seen in the move up in yields, but I think we’re arriving at a point where it’s difficult to price in a much more hawkish outlook than we have today. We could now see a bit of stabilization,” said
Esty Dwek,
chief investment officer at FlowBank.
Friday’s better-than-expected jobs report turned traders’ attention back to central-bank policy, which is set to tighten as the economy continues to recover.
Photo:
David L. Nemec/Associated Press
Cryptocurrencies gained Monday, with bitcoin rising 5% from its level at 5 p.m. ET on Friday. It traded around $42,800. The digital currency rose above $40,000 Friday after spending two weeks below that level and has maintained its gains.
Overseas, the pan-continental Stoxx Europe 600 added 0.7%. European government bond yields extended last week’s gains as markets continued to price in hawkish signals from the European Central Bank’s press conference on Thursday. Benchmark 10-year Italian and Greek bond yields rose to the highest levels since spring 2020.
In Asia, major benchmarks were mixed. The Shanghai Composite Index climbed 2%, reopening after China’s New Year holiday week, despite a private gauge of China’s services sector slipping to a five-month low. The gain was its best one-day rise since May.
Hong Kong’s Hang Seng Index closed roughly flat and Japan’s Nikkei 225 declined 0.7%.
Write to Anna Hirtenstein at anna.hirtenstein@wsj.com and Gunjan Banerji at gunjan.banerji@wsj.com
Facebook’s parent company shed more than $230 billion in market value Thursday, a one-day loss that would be the biggest ever for a U.S. company and increase the pressure on a stock market long powered by technology shares.
The setbacks reflect the increased scrutiny companies are under as major U.S. stock indexes remain near record highs and the Federal Reserve is preparing to raise interest rates for the first time since 2018. Rising rates tend to reduce the multiples that investors are willing to pay for a share of company profits, a trend that stands to mean pain for stocks that are already trading at lofty valuations.
That has put heightened pressure on the companies to show their financial results justify their price tags. In recent days, several have fallen short, raising concerns among investors that further declines in major indexes could lie ahead.
“The level of forgiveness has gone down,” said
Daniel Genter,
chief executive and chief investment officer at RNC Genter Capital Management. “When boards come to their shareholders to confess their sins, they’re just not going to be pardoned with one Hail Mary.”
Some strategists say the recent slide in shares of speculative tech companies should serve to remind investors that a robust market rally relies on advances by a variety of stocks. And they warn they expect more big stock swings ahead at any hint of slowing growth.
“The market can’t just be driven by a small number of megacap companies or tech companies,” said
Yung-Yu Ma,
chief investment strategist at BMO Wealth Management. “There should start to be more of a recognition that it’s not going to be technology that leads us out of this pullback.”
Earnings season had been overshadowed until recent days as investors fretted over the Fed’s plans to raise rates. They sold stocks across sectors, helping to send the S&P 500 down 5.3% in January, its worst monthly performance since the March 2020 slump.
The market briefly stabilized this week—with all three major stock indexes rising for four consecutive sessions—before tumbling again Thursday. The S&P 500 dropped 2%, while the tech-heavy Nasdaq Composite fell 3.1%.
All eyes have now turned to
Amazon.com Inc.,
which reports after the closing bell. The e-commerce company warned in late 2021 of a challenging end of the year as it confronted global supply-chain problems.
Amazon shares dropped more than 7% ahead of the report, while shares of speculative tech stocks like
Snap Inc.
and
Pinterest Inc.
also tumbled. Snap fell 24%, while Pinterest declined 10%.
The giant stock moves show how serious investors have become about demanding that companies deliver on their promises for growth after a steep and swift climb in share prices.
Meta, PayPal and Spotify entered 2022 at rich valuations. While the S&P 500 ended December trading at 21.5 times its projected earnings over the next 12 months, Meta was trading at 23.6 times, PayPal at 36 times and Spotify at 543.9 times, according to FactSet. Spotify isn’t an index constituent.
By Wednesday, Meta’s multiple had pulled back to 22.6 times forward earnings, while PayPal traded at 27.2 times, and Spotify at 287.6 times.
“Those stocks were really priced way beyond perfection,” Mr. Genter said. “People are saying, well, guess what, perfection is not here.”
The Facebook parent company surprised investors late Wednesday with a deeper-than-expected decline in profit and a downbeat outlook. The company said it expects revenue growth to slow and shared that it lost about one million daily users globally. Shares declined 27%, on course for their worst daily performance since they started trading in 2012.
The company’s challenges include a new ad-privacy policy from Apple Inc. that Meta expects to cost it more than $10 billion in lost sales for 2022. The requirement that apps ask users whether they want to be tracked limited the ability to gather data used to target digital ads, driving advertisers to change their spending.
Meta’s $234 billion drop in market value is set to exceed the record that Apple Inc. set in September 2020 when the iPhone-maker lost about $182 billion in a single day, according to Dow Jones Market Data.
PayPal lowered its profit outlook for 2022 and abandoned a target it set last year of roughly doubling its active user base. Executives said business this year will be pressured by forces including inflation, supply-chain problems, the Omicron variant and the runoff in government stimulus. Shares slumped 25% Wednesday in their worst selloff on record and continued sliding Thursday.
PayPal Holdings lowered its profit outlook.
Photo:
Justin Sullivan/Getty Images
And Spotify, which is embroiled in a controversy over
Joe Rogan’s
podcast, said it added users but declined to give annual guidance, pulling shares down 16% on Thursday.
Earnings results out of the tech segment haven’t been all bad. Google parent
Alphabet Inc.
reported robust sales growth and unveiled plans for a stock split this week, helping the company add more than $135 billion in market value Wednesday.
Alphabet has outperformed the other stocks in the popular FAANG trade lately. Its shares are about flat this year, while Meta, Amazon and
Netflix Inc.
are down by double-digit percentages.
Apple Inc.
is off modestly.
Broadly, the corporate earnings season has surpassed expectations. With results in from about half the constituents of the S&P 500, analysts estimate that profits from index constituents rose 26% in the holiday quarter from a year earlier, according to FactSet. That is up from forecasts for 21% growth at the end of September.
Money managers, though, say they have been particularly focused on what company executives have to say about their expectations for the coming months in the wake of higher rates and the continuing Covid-19 pandemic.
“Not too many of them are painting a rosy picture because of the uncertainty,” said
Robert Schein,
chief investment officer at Blanke Schein Wealth Management.
WASHINGTON—The Biden administration is finalizing its targets for a barrage of economic sanctions against Russia if it attacks Ukraine—hitting major Russian banks, state companies and key imports, though the strategy faces obstacles that have hindered previous pressure campaigns.
Administration officials said the planned actions are unparalleled in recent decades against Russia, putting teeth into President Biden’s threat to apply punishing financial and other sanctions in the event of a Russian assault.
President Biden said on Wednesday that the U.S. is ready to unleash sanctions against Russia if President Vladimir Putin makes a move against Ukraine. Biden also laid out a possible diplomatic resolution. Photo: Susan Walsh/Associated Press
While final decisions haven’t been made, the officials said, the potential targets include several of Russia’s largest government-owned banks, such as
VTB Bank,
the banning of all trade in new issues of Russian sovereign debt and the application of export controls across key sectors such as advanced microelectronics.
Russian President Vladimir Putin, left, meets with Andrey Kostin, president and chairman of the management board at VTB Bank, at the Kremlin in Moscow last November.
Photo:
Mikhail Metzel/Zuma Press
Past U.S. efforts to wage economic warcraft have produced mixed results. Iran and North Korea, for example, have adjusted over time to broad economic embargoes over their nuclear-weapons programs, though not without ongoing pain for their economies and people. After Russia invaded Ukraine in 2014, the Obama administration went after some energy-technology exports, sovereign debt and some government-owned banks and firms, though the narrow scope of those sanctions didn’t exact deep damage.
Russia is better prepared now, with deeper foreign-currency reserves, less reliance on foreign debt, faster economic growth and rising prices for oil—the country’s primary revenue source. Russia’s role as a top exporter of oil and gas and its economic integration with Europe have previously deterred the U.S. from applying broad sanctions out of concern that they would upset global markets and European allies.
Off the table, for now, are sanctions on oil and natural-gas exports or disconnecting Russia from SWIFT, the basic infrastructure that facilitates financial transactions between banks across the world, the U.S. officials said, but that could change depending on Russian actions.
Still, this time around, the officials said, the U.S. is doing away with the incremental approach that blunted the impact of the 2014 and other efforts—and instead is moving to prohibit a broader range of activities from the start.
“We and our allies have a full range of high-impact sanctions ready to go, both immediately after a Russian invasion and in waves to follow. Nothing is off the table,” said National Security Council spokeswoman
Emily Horne.
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“We would start high and stay high, and maximize the pain to the Kremlin,” one of the officials said.
European allies are also more in sync with the U.S. than in 2014, the officials said, given that Russian President
Vladimir Putin’s
demands go beyond Ukraine this time to include a reworking of post-Cold War security arrangements in Europe.
Europe understands “that if we’re going to change Putin’s calculus, we have to be ready together to impose massive consequences,” the official said. The U.S. and European Union actions won’t be identical, but will “deliver a severe and immediate blow to Russia and over time make its economy even more brittle,” the official said.
Russian Foreign Minister
Sergei Lavrov
said this week that the sanctions threats are part of the West’s “militaristic frenzy.” Russia, he said, is “ready for any developments.”
Other than VTB Bank, other large government-owned or controlled banks under consideration for blacklisting are Gazprombank and
Sberbank,
said one of the officials. Sberbank, which accounts for 30% of net assets in Russia’s financial system, may not get hit in the first round of sanctions to hold a potent option in reserve, according to former officials.
VTB, Gazprombank and Sberbank didn’t respond to requests for comment.
The possible blacklisting technically prohibits U.S. banks and other American entities from doing business with the targeted banks, and the administration may grant exceptions. But the risk of violators being punished by the U.S. usually encourages foreign banks to comply.
“Banks in Paris and London aren’t going to be doing what U.S. banks aren’t doing,” said Brian O’Toole, a former top Treasury sanctions official in the Obama administration and now a senior fellow at the Atlantic Council, a nonpartisan Washington think tank.
Government-owned companies are also targets of similar sanctions, the U.S. officials said. Though the officials didn’t specify which companies, some financial analysts said blacklisting firms like Russian insurance giant Sogaz, which insures companies tied to the Kremlin, and
Sovcomflot,
a large energy-shipping company, would hurt the Kremlin and, longer term, the economy.
An oil tanker operated by Sovcomflot is moored at the Primorsk Commercial Seaport, the end point of the Baltic Pipeline System, three years ago.
Photo:
Alexander Ryumin/Zuma Press
Sovcomflot’s chief financial officer,
Nikolay Kolesnikov,
said his company has no indication it would be targeted. Given that half his firm’s business is outside the country, a blacklisting would likely disrupt petroleum exports and hit global tanker rates, he said.
Sogaz didn’t respond to a request for comment.
Some former officials and critics of the Biden administration are skeptical that its approach will work or prove different from past efforts. Aside from a more robust Russian economy, they said, Mr. Putin is counting on Germany and other EU leaders to block measures that would have financial repercussions for Europe.
“Putin has concluded that the Biden administration, which is full of the same people who mounted a feeble response to his first invasion of Ukraine back in 2014, would impose pinprick financial costs at best, certainly measures that he thinks Russia can weather,” said Marshall Billingslea, the Treasury Department’s sanctions deputy in the Trump administration and now at the Hudson Institute, a right-leaning think tank.
Previous sanctions haven’t undermined Mr. Putin’s domestic popularity enough to loosen his grip on power or fundamentally alter his foreign policies, said some analysts. New sanctions, they said, may bolster Mr. Putin’s position, affect Western-facing companies and drive Russia further toward China.
New sanctions will “hit the most pro-Western part of the business elite and the economically Western-oriented population the most,” said Mikhail Barabanov, a fellow at the Center for Analysis of Strategies and Technologies, a private Moscow think tank.
“Politically, it’s not painful. It’s destructive,” Kremlin spokesman Dmitry Peskov said this week.
Mr. Barabanov predicted that sanctions would inspire a restructuring of the Russian banking market, which, after an initial shock, would tap Chinese intermediary banks for financing.
Sanctions “are not a magic bullet,” said Daniel Fried, a senior State Department official in the Obama administration involved in sanctions policy who is also currently at the Atlantic Council
“Even the stronger recommended sanctions won’t cause Putin to reverse course overnight,” he said. On the other hand, governments and analysts “often underestimate what can be achieved in the long run,” he said.
Write to Ian Talley at ian.talley@wsj.com and Brett Forrest at brett.forrest@wsj.com
stock fell 14% in premarket trading after the brokerage reported a loss of $423 million for the fourth quarter.
The company had an increase in technology and administrative expenses that ate into its results.
The brokerage used by individual investors recorded revenue of $363 million for the October-through-December period, an increase of 14%.
For the year, Robinhood recorded an 89% jump in revenue to $1.82 billion, up from $959 million the previous year. The company’s net loss totaled $3.7 billion for the year.
Robinhood’s results missed analyst expectations. Analysts polled by FactSet expected fourth-quarter revenue of $376 million and a net loss of $225 million.
The brokerage in 2021 experienced momentum in its options and cryptocurrency trading business, as individual investors dabbled in riskier and more speculative trading strategies. But in the fourth quarter, the company said, revenue tied to stock trading fell 35% to $52 million from $80 million.
In contrast, revenue tied to customers’ options trading rose 14% to $163 million.
Robinhood became a darling of the Covid-19 era, as millions of new investors began trying their hand at trading. The brokerage now has 22.7 million customers, it said Thursday, up from 12.5 million in 2020.
The company faces stiff competition. Asset managers such as Fidelity Investments and
BlackRock Inc.
have used their scale to increase profits even while cutting fees. They have also focused on adding products with higher fees.
Robinhood started the first half of 2021 in a strong position as millions of investors entered the market to trade meme stocks such as
GameStop Corp.
and cryptocurrencies such as dogecoin. Yet as the year went on, it was hard to keep the momentum. The company experienced a slowdown in revenue tied to customers’ trading. Revenue tied to cryptocurrency trading was particularly hard hit in the third quarter.
Shiba Inu Coin’s recent surge, and subsequent fall in value, is part of a growing trend of meme coins that are rivaling some of the largest digital tokens in the world. WSJ retail investing reporter Caitlin McCabe explains why investors are pouring money into this meme based cryptocurrency. Photo: Amber Bragdon/Getty Images
The new year hasn’t provided relief, with trading continuing to fall, the company said.
Robinhood lowered its revenue expectations for the first quarter to less than $340 million, which, at the top end would be a 35% decline.
Jason Warnick,
Robinhood’s chief financial officer, said in a call with the media that trading activity has picked up in recent days.
Mr. Warnick said the company is planning to roll out products that focus on longer-term investing. He said the company expects to begin introducing tax-advantaged retirement accounts midyear and that there is an opportunity to expand internationally—particularly in the cryptocurrency space.
The company started rolling out cryptocurrency wallets this month to some customers, he said. The move allows customers to move their crypto holdings in and out of the Robinhood app.
Shares sank in after-hours trading after finishing Thursday at $11.61, down 6.5% from Wednesday’s close. Robinhood’s stock has been punished lately as investors rotate out of growth companies that were popular last year. Based on Thursday’s close, Robinhood has lost 69% from its initial public offering price of $38 a share.
WASHINGTON—A federal appeals court reversed the convictions of two former
Deutsche Bank AG
traders found guilty of rigging a global lending benchmark, overturning one of the U.S. government’s highest-profile court victories linked to the 2008 financial crisis.
The decision Thursday dealt a blow to the legacy of an investigation that Washington poured resources into after the financial crisis, when prosecutors were criticized for not pursuing enough cases against individual traders and executives. The cases focused on how traders and brokers world-wide influenced the daily London interbank offered rate, known as Libor, which helped set the value of lucrative derivatives they traded and made banks appear healthier.
Thursday’s reversal shows how difficult it has been for prosecutors to use broadly written antifraud laws to punish traders operating in sophisticated markets where standards of conduct weren’t always clear. A panel of the U.S. Court of Appeals for the Second Circuit found evidence used to convict Matthew Connolly and Gavin Black wasn’t enough to stand up fraud and conspiracy charges. A jury in New York had convicted the two men in 2018.
The Manhattan-based appeals court in 2017 also tossed Libor-related verdicts against two traders who had worked at Rabobank Group.
The court action Thursday means every Libor trial conviction in the U.S. has now been overturned. Six other traders from Rabobank and Deutsche Bank pleaded guilty in the U.S. to Libor-related misconduct from 2014 to 2016. Many convictions in the U.K. stand, including that of Tom Hayes, a former star trader at
UBS Group AG
, who was found guilty of rigging Libor and served more than five years in prison before being released last year.
Libor, a gauge of the rates at which banks could borrow from other banks, was published for many years by the British Bankers’ Association. The BBA’s version of Libor was vulnerable to manipulation because traders could influence the rates submitted by their banks.
Financial markets have since started a shift away from Libor in favor of a new reference rate that is calculated based on actual trades. U.S. banks weren’t allowed to issue new debt tied to Libor beginning in January.
A series of Wall Street Journal articles in 2008 raised questions about whether global banks were manipulating the interest-rate-setting process by lowballing Libor to avoid looking desperate for cash during the financial crisis.
The three judges wrote that prosecutors hadn’t proved that Messrs. Connolly and Black made false statements—a requirement for proving fraud—when they gave input related to what Deutsche Bank should submit to the BBA.
The government’s case, according to the judges, depended on the flawed idea that there was one true Libor rate that Deutsche Bank should have offered, when in fact the number was a hypothetical measure influenced by many factors.
Prosecutors didn’t present evidence suggesting that Deutsche Bank couldn’t actually have borrowed at the rates it submitted, the judges wrote. While nudging Libor one way or another to make money might be wrong, the submissions weren’t false if the bank could have gotten cash at those rates, according to the panel.
The BBA’s own instructions for submitting Libor around the time of the financial crisis didn’t prohibit taking a bank’s derivatives bets into consideration. In effect, the judges wrote, prosecutors tried to criminalize conduct that was just unseemly.
“In some ways, these reversals underscore what a screwed-up benchmark Libor was to begin with, when you are not being asked to submit actual offers or bids, but just hypotheticals,” said Aitan Goelman, a former director of enforcement for the Commodity Futures Trading Commission, a civil regulator that fined many banks for Libor violations. “It almost begged to be manipulated.”
Mr. Black, a U.K. citizen who had worked for the bank in London, was sentenced in November 2019 to three years of probation including nine months of home confinement, which he was allowed to serve in his home country. Mr. Connolly, who worked for Deutsche Bank in New York, was sentenced to two years of probation including six months of home confinement.
“We have long maintained that Gavin Black committed no crime, and we are deeply appreciative that the Court of Appeals carefully reviewed the record and reached the same conclusion,” said Seth Levine, a lawyer for Mr. Black at Levine Lee LLP. “This is a case that never should have been brought, and the court has now vindicated Mr. Black’s position.”
“We are elated that Matt Connolly has been fully exonerated in this contrived case that never should have been brought,” said Kenneth Breen, a lawyer at Paul Hastings LLP for Mr. Connolly.
Deutsche Bank in 2015 agreed to pay $2.5 billion in fines to resolve Libor charges in the U.S. and the U.K., and a London unit of the bank pleaded guilty in the U.S. to one count of wire fraud.
Spokesmen for Deutsche Bank and the Justice Department declined to comment.
U.S. stocks opened higher as economic growth data came in stronger than expected, and investors parsed more earnings from major companies.
The Dow Jones Industrial Average rose 382 points, or 1.1%, shortly after the opening bell. The S&P 500 added 1.2% and the Nasdaq Composite climbed 1.0%.
The economy grew at an annualized rate of 6.9% last quarter, the biggest one-year jump since 1984. Economists had forecasted 5.5% growth, propelled by consumer spending, business investment and efforts to rebuild inventories.
The Stoxx Europe 600 added 0.6%, reversing direction after declining moderately. Earlier, Asia-Pacific indexes fell sharply, with gauges in China, Japan and South Korea hitting their lowest closing levels in more than a year.
The moves came after a bout of volatility that saw U.S. indexes swing wildly this week. The VIX hit its highest level in a year on Wednesday. Markets have been buffeted by concerns about central-bank policy around interest rates and inflation, and geopolitical tensions over Russia.
Earnings season is ongoing and is seen as the next big test of whether the stock market’s sky-high valuations can be justified.
McDonald’s shares were little changed after the company missed analysts’ profit estimates, despite a sales boost. Blackstone rose 8% after it reported that net income nearly doubled.
Mastercard
declined 0.5% after it said operating expenses had jumped.
“What I’m looking for this earnings season is inflationary pressures and margins—if companies are able to hold on to their profits,” Fahad Kamal, chief investment officer at Kleinwort Hambros, said. “Are they able to pass along prices, are they able to maintain pricing power?” As central banks rein in liquidity, that is what becomes really important, he added.
To temper elevated inflation, Federal Reserve Chairman Jerome Powell said the central bank intends to raise short-term interest rates in mid-March. Photo: Federal Reserve
On Wednesday, the Fed signaled it would begin raising interest rates in mid-March, its latest step toward removing stimulus to bring down inflation. Fed Chairman
Jerome Powell
said the central bank could continue to lift rates faster than it did during the past decade.
The news shows the central bank “is in a hurry,” said
John Vail,
chief global strategist at Nikko Asset Management in Tokyo. “The Fed got serious really fast and it’s having an effect on markets.”
The yield on the benchmark 10-year Treasury note edged down to 1.836% Thursday from 1.845%. Shorter-dated government bonds continued to sell off, with the two-year Treasury yield rising to 1.179%, notching a new pandemic high.
The greenback strengthened, with the WSJ Dollar Index rising to the highest level since July 2020.
“The yields in the U.S. have gone up as the path of rate hikes increases. There’s a bit of a safe-haven play mixed in there as well, that will be a support environment for the dollar,” said Mr. Kamal.
Earnings season is seen as the next big test of whether sky-high valuations can be justified.
Photo:
Allie Joseph/Associated Press
Apple,
Visa
and food and beverage giant Mondelez are due to report Thursday after markets close.
Netflix
rose 6.1% after billionaire investor
William Ackman
said his hedge fund had bought 3.1 million shares. Moderna climbed 3.3% after the company said it has started testing a version of its Covid-19 vaccine modified to target the Omicron variant.
Teradyne,
an equipment manufacturer, tumbled close to 16% premarket after its profit guidance for missed analysts’ expectations. Records showed that company insiders have sold thousands of shares in recent days. Software firm
ServiceNow
rose nearly 11% after beating Wall Street’s estimates on revenue.
Weekly jobless claims were 260,000, a decline from the previous week. Analysts were expecting a drop amid a tight labor market. Orders for durable goods in December slipped 0.9%.
Oil prices edged up. Brent, the global benchmark for crude, climbed 1.1% to trade at $89.72 and hit a fresh seven-year high. Declining inventories have been pushing up prices, according to Nordic bank SEB.
Cryptocurrencies edged up, with bitcoin extending its decline into a third day to trade around $36,500.
Meta Platforms,
formerly known as Facebook, is winding down its plans to build a cryptocurrency payments network and is selling its technology to a small bank, The Wall Street Journal reported.
—Quentin Webb contributed to this article.
Write to Megumi Fujikawa at megumi.fujikawa@wsj.com, Suryatapa Bhattacharya at Suryatapa.Bhattacharya@wsj.com and Anna Hirtenstein at anna.hirtenstein@wsj.com
Facebook’s ambitious effort to bring cryptocurrency to the masses has failed.
The Diem Association, the consortium Facebook founded in 2019 to build a futuristic payments network, is winding down and selling its technology to a small California bank that serves bitcoin and blockchain companies for about $200 million, a person familiar with the matter said.
The bank,
Silvergate Capital Corp.
SI -2.52%
, had earlier reached a deal with Diem to issue some of the stablecoins—which are backed by hard dollars and designed to be less volatile than bitcoin and other digital currencies—that were at the heart of the effort.
The sale represents an effort to squeeze some remaining value from a venture that was challenged almost from the start. Facebook, now
Meta Platforms Inc.,
FB -1.84%
launched the project in 2019 as Libra, pitching it as a way for the social network’s billions of users to spend money as easily as sending a text message.
Bloomberg earlier reported that Diem was considering selling its assets.
Libra brought on well-known partners in e-commerce and payments including
PayPal Holdings Inc.,
Visa Inc.
and Stripe Inc.—in part to signal buy-in from the finance industry and in part to distance the project from Facebook itself, which was under pressure about policing its platform. Partners agreed to join the Libra Association, a Switzerland-based group that would govern the stablecoin, and pony up millions of dollars each to develop the project.
But it almost immediately ran into resistance in Washington. Officials voiced concerns about its effect on financial stability and data privacy and worried Libra could be misused by money launderers and terrorist financiers. Federal Reserve Chairman
Jerome Powell
said the central bank had serious concerns. Early backers dropped out, and
Mark Zuckerberg
was called before Congress, where he defended Facebook’s plan to bring financial services to the world’s underbanked.
In 2020, the group recruited
Stuart Levey,
a former U.S. Treasury official and top lawyer at HSBC Holdings PLC, as chief executive and ditched the Libra name in favor of Diem.
The stablecoin deal with Silvergate was part of a revamp last year meant to appease regulators.
David Marcus,
the Meta executive who oversaw the launch of what would become Diem, left the company last year.
Write to Peter Rudegeair at Peter.Rudegeair@wsj.com and Liz Hoffman at liz.hoffman@wsj.com
U.S. stocks posted strong gains ahead of a Federal Reserve announcement that is expected to provide more clarity on coming interest-rate increases—the prospect of which has spooked markets this year.
The S&P 500 added 1.6% Wednesday. The broad index fell Tuesday and has declined in five of the past six trading days. The tech-focused Nasdaq Composite Index rose 2.2%, while the Dow Jones Industrial Average gained 1%, or about 343 points.
Stocks have been whipsawed in recent days by expectations that the Fed will embark on a series of rate increases this year to temper heightened inflation. The prospect of a shrinking balance sheet and higher rates has prompted some to sell risky assets, including shares of technology companies that promise future returns, and cryptocurrencies.
Economists expect the Fed to confirm expectations that it will start raising rates in March when it releases its statement at 2 p.m. ET. Traders in interest-rate futures markets are betting that the Fed will increase rates four or five times this year, according to CME Group.
The advance in markets comes after a rough start to the year. All three major indexes were down year-to-date as of Tuesday’s close, with the Nasdaq declining 13%.
Tech stocks lifted markets Wednesday, with the S&P’s tech sector recently up 2.5%.
Microsoft
shares rose 4.3% after the software giant said its earnings continued to grow as its cloud-services business stayed strong. Semiconductors also advanced:
Nvidia
rose 3.9%,
Micron Technology
added 2.8% and AMD gained 1.8%.
Investors are also monitoring rising tensions between Russia and Ukraine that have drawn the focus of NATO allies. Geopolitical turbulence has buoyed oil in recent days, pushing it to the highest levels since 2014.
“Today the focus is going to be on the Fed,” said
Luca Paolini,
chief strategist at Pictet Asset Management. “It’s more about the tone of the press conference. People may have an expectation that given the market turmoil and the geopolitical tensions, the Fed may tone down its rhetoric.”
The VIX, a measure of expected volatility that is sometimes dubbed Wall Street’s fear gauge, ticked down 1.09 points to 30.07. The gauge has climbed this week as stock markets fell.
Technology shares led the upward turn in stocks Wednesday.
Photo:
Ted Shaffrey/Associated Press
Shares of
Mattel
gained 9.7% after The Wall Street Journal reported that it won the license to produce toys based on
Walt Disney’s
princess lineup, and from the “Frozen” franchise.
Earnings season continues, with Tesla and
Intel
slated to report after markets close. Tesla shares added 2.3%.
In other stocks, shares of
Texas Instruments
gained 4% after the company reported higher revenue.
AT&T
shares fell 3.2% after the company swung to a profit as it improved its wireless revenue and shed the burden of its customer-losing pay-TV business in 2021.
In bond markets, the yield on the benchmark 10-year Treasury note crept down to 1.783% Wednesday from 1.784% Tuesday. Yields move inversely to prices.
Brent crude, the international oil benchmark, added 2.2% to $89.06 a barrel. It traded at hits highest levels since late 2014, with supply questions helping to push prices higher.
U.S. government bond yields influence the cost of borrowing, from mortgages to student loans. WSJ explains how they work and why they are so crucial to the economy. Photo illustration: Tom Grillo/WSJ
Overseas, the pan-continental Stoxx Europe 600 jumped 2%, with the biggest gains in the travel and leisure sector. Stock indexes in Asia closed mixed. China’s Shanghai Composite and Hong Kong’s Hang Seng added 0.7% and 0.2%, respectively. Japan’s Nikkei 225 and South Korea’s Kospi each declined 0.4%.
Bitcoin’s dollar value rose 3.7% from its 5 p.m. ET level Tuesday to $37,993. The world’s largest cryptocurrency by market value has recently sagged alongside broader markets, shedding nearly half its value from its November peak.
—Hardika Singh contributed to this article.
Write to Caitlin Ostroff at caitlin.ostroff@wsj.com
