Tag Archives: banking

Business

El Salvador’s president adopts McDonald’s uniform for Twitter profile after bitcoin plunge

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El Salvador President Nayib Bukele, says Human Rights Watch, has “undermined basic democratic checks and balances” since taking office.

But he seems to have a sense of humor.

Bukele changed his Twitter profile to that of a McDonald’s employee, in wake of the latest plunge in bitcoin that brought the cryptocurrency down as much as 50% from its highs.

That’s a reference to an internet meme, where HODL’ers indicate their future career prospects when bitcoin slumps. McDonald’s pays as low as $11 per hour.

Bitcoin
BTCUSD,
-4.44%
again started to slide early Monday after a turbulent weekend, falling below $34,000. The cryptocurrency is down over 50% from its record high.

Under Bukele’s direction, El Salvador has been buying bitcoin, and uniquely has adopted it as legal tender. Coindesk reports the country now holds over 1,500 bitcoin, worth some $53 million in fiat Yankee dollars.

Financial markets have not been impressed. Since El Salvador adopted bitcoin as legal tender, its 5-year credit default swaps have surged to 1,812.81 , from 412.54, according to S&P Global Market Intelligence.

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Business

Bitcoin, Netflix, Peloton, Coinbase: What to Watch When the Stock Market Opens Today

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Stock futures are falling after disappointing earnings reports from some popular technology stocks. Here’s what we’re watching at the end of a rough week on Wall Street:

  • Bitcoin’s price fell below $40,000, and crypto stocks were dragged down with it.

    Coinbase

    COIN 0.97%

    dropped 5.6% ahead of the bell, and bitcoin miners

    Marathon Digital

    MARA -0.08%

    and

    Riot Blockchain

    RIOT -0.11%

    slid 7.8% and 8.7% respectively.

  • Netflix

    NFLX -1.48%

    plunged 19% premarket. The streaming giant said it expects to add a much smaller number of subscribers this quarter than it did a year ago as it adjusts to growing competition and lasting disruptions from the coronavirus pandemic. The bad news seemed to rub off on streaming-device maker Roku, which shed 4% premarket.

  • Peloton

    PTON -23.93%

    powered 5.5% higher premarket, but that only makes up a bit of Thursday’s 24% drop. The company is reviewing the size of its workforce and resetting production levels as it adapts to more seasonal demand for its exercise equipment.

A Peloton stationary bike at one of the fitness company’s studios in New York, Dec. 4, 2019.



Photo:

Scott Heins/Getty Images

  • Intel

    INTC -2.95%

    nudged down 0.2%. The company plans to invest at least $20 billion in new chip-making capacity in Ohio.

  • CSX

    CSX -0.03%

    fell 3.2%, though the railroad operator is projecting that shipping volume will rise faster than GDP this year and reported a slight earnings beat.

  • Ally Financial

    ALLY -0.02%

    shares slipped 2.4% premarket after it reported lower earnings per share during the recent quarter from a year prior.

  • Huntington Bancshares

    HBAN -2.51%

    ticked down 4.5% after it also reported a slight drop in earnings per share.

Chart of the Day
  • Europe’s tech scene has struggled to emerge from the shadows of giants in the U.S. and Asia, but friendly local policies and a global overflow of investment capital are now giving the region a gusher of cash.

Write to James Willhite at james.willhite@wsj.com

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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Business

Morgan Stanley Posts Higher Profit, Capping Mixed Quarter for Big Banks

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A booming market for deals and brisk demand for financial advice lifted

Morgan Stanley’s

MS 1.83%

fourth-quarter earnings and helped the Wall Street firm set a full-year profit record.

The bank posted a profit of $3.7 billion, up 9%, or $2.01 a share. Analysts expected $1.94 a share, according to FactSet. Revenue rose 7% to $14.5 billion in the quarter, which fell just short of expectations.

Morgan Stanley capped off a mixed quarter for the nation’s biggest banks. Windfall trading revenues across Wall Street are slowing down as market volatility subsides. Banks are offering bigger paydays to attract and keep employees in a tight labor market.

Goldman Sachs Group Inc.,

JPMorgan Chase

& Co. and

Citigroup Inc.

all reported lower fourth-quarter profits, ending a streak of big gains. Morgan Stanley,

Bank of America Corp.

and

Wells Fargo

& Co. saw profits rise.

Morgan Stanley shares closed up 1.8% on Wednesday.

Deal making remains a bright spot. Morgan Stanley’s investment banking revenue rose 6% in the fourth quarter. Goldman, JPMorgan and Citigroup also reported gains in investment banking.

The year is off to a good start, with a healthy pipeline for new deals, Morgan Stanley Chief Financial Officer

Sharon Yeshaya

said on a conference call with analysts. “That said, a lot will depend on monetary and fiscal policy and its impact on sentiment,” she added.

Stock and bond trading revenue fell 6% in the fourth quarter. Trading revenue also fell at Goldman, JPMorgan and Citigroup.

Full-year compensation expenses at Morgan Stanley rose 18% to $24.6 billion. Banks increased salaries for junior bankers across Wall Street in 2021, and firms are also paying up to keep senior executives.

“We feel good that we’ve paid for performance,” Ms. Yeshaya said in an interview.

JPMorgan Chief Executive

Jamie Dimon

said last week that his bank would remain competitive in compensating its traders and bankers, even if it pressured profit margins.

Morgan Stanley’s wealth-management division grew fourth-quarter revenue 10% from a year earlier. The unit’s net interest income, a measure of its lending profitability, grew 16%. That growth could continue in the year ahead, as the Federal Reserve has signaled that several interest-rate increases are likely in 2022.

SHARE YOUR THOUGHTS

What do you find most interesting in Morgan Stanley’s quarterly report? Join the conversation below.

The number of retail-trading clients at Morgan Stanley was 7.4 million, in line with the third quarter total. The average daily number of retail trades the company handled for the quarter topped one million but was down 6% from a year ago.

Investment management revenue rose 59% from a year earlier. That rate was boosted by Morgan Stanley’s acquisition of Eaton Vance, which closed last March.

Write to Charley Grant at charles.grant@wsj.com

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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Business

Stocks Open Higher, While Bond Yields Edge Down

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U.S. stocks and government-bond prices rose on Wednesday, clawing back some of their losses after a stretch of declines.

The S&P 500 rose 0.5% in early trading Wednesday. The benchmark gauge lost 1.8% Tuesday, its second decline in three trading days. The technology-heavy Nasdaq Composite Index added around 1% and the Dow Jones Industrial Average rose 0.2%.

Some of the U.S.’s biggest lenders reported rising earnings before the market opened. Bank of America shares rose 2.9% after the lender reported a jump in fourth-quarter profits, while Morgan Stanley’s shares gained 1.7% on profits that topped forecasts. U.S. Bancorp fell almost 6% after the bank holding company posted a rise in compensation costs. This earnings season, Goldman Sachs,

JPMorgan Chase

and

Citigroup

have also reported shelling out more in compensation. 

Procter & Gamble

said consumers were undeterred by higher prices, leading to higher revenue and lifting shares of the consumer-goods company 4.2%.

Investors have stepped up bets that major central banks will tighten monetary policy.



Photo:

Wang Ying/Zuma Press

Government-bond prices edged up, pushing down yields. Yields on benchmark 10-year Treasury notes slipped to 1.852% from 1.866% Tuesday, which was their highest level since January 2020. Yields on interest rate-sensitive two-year notes were down to 1.010% from 1.038% Tuesday.

The first few weeks of the year have been tumultuous. In January, many investors started positioning for a world that looks very different from last year. Interest rates are supposed to start rising and some investors are positioning for the Covid-19 pandemic to turn into an endemic.

Investors have stepped up bets that the Federal Reserve and other major central banks will tighten monetary policy in the coming months, withdrawing a pillar of support for markets. Mounting expectations of interest-rate rises follow evidence that the drivers of inflation have broadened beyond the supply-chain shock that fueled price gains for much of 2021.

As a result, many investors have backed away from one of the hottest areas of the market: tech. The Nasdaq Composite was down almost 10% from its high as of Tuesday.

And there are signs that individual investors—a key force behind 2021’s stock-market rally—are cooling on tech, according to analysts at Vanda Research. Retail investors have been buying shares of financials and energy companies while their purchases of highflying stocks like

Advanced Micro Devices

and

Nvidia

have been dwindling, according to Vanda.

The S&P 500’s value index is outperforming its growth index by around 6.8 percentage points this month, on pace for the biggest monthly outperformance since December 2000, according to Dow Jones Market Data.

Recent volatility is “really all about inflation and how aggressive central banks are going to be to counteract it,” said

Brian O’Reilly,

head of market strategy at Mediolanum Asset Management, adding that inflation could also curtail economic growth by knocking consumption. ”Certainly, the market is nervous at the moment.”

Europe’s most closely watched government bond yield turned positive for the first time since 2019. The yield on 10-year German bund rose as high as 0.021% Wednesday after trading in negative territory for over 30 months. It then eased to 0.010%. Ten-year U.K. yields, meanwhile, reached their highest level since March 2019 after data showed inflation hitting a 30-year high.

To keep out Covid-19, China closed some border gates late last year, leaving produce to rot in trucks. Restrictions like these and rules at some Chinese ports, the gateways for goods headed to the world, could cascade into delays in the global supply chain. Photo composite: Emily Siu

Oil prices rose again after touching seven-year highs Tuesday. Most-active U.S. crude futures rose around 1% to $85.55 a barrel, extending a rally driven in part by the potential for supply disruptions in Russia and the Middle East.

Overseas stock markets were mixed following Tuesday’s selloff on Wall Street. The Stoxx Europe 600 rose 0.7%, as gains for retail and resource stocks offset losses for food, drink and insurance companies. Asian stocks came under pressure, with Japan’s Nikkei 225 skidding 2.8%. China’s Shanghai Composite Index slipped 0.3%.

Write to Joe Wallace at joe.wallace@wsj.com and Gunjan Banerji at gunjan.banerji@wsj.com

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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Business

Brace for a volatile 2022, but cling to this tech stalwart when the storm comes, says investment adviser

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The pain is piling up for equity investors after the long U.S. holiday weekend, with bond yields at levels not seen since early 2020, and oil prices tapping 2014 highs.

The pace of Federal Reserve monetary policy tightening amid the highest inflation in about 40 years, a bumpy start to the corporate earnings reporting season and pandemic uncertainties are just a few things on the worry list. Technology stocks
COMP,
-1.12%
are set to take the biggest hit on Tuesday, as a rapid rise in short term interest rates tends to make their future cash flows less valuable.

While a Deutsche Bank chart (below) reveals more tech-bubble worries, our call of the day makes a case for one of the biggest tech stalwarts, Apple
AAPL,
-0.43%,
saying the iPhone maker has an ace in the hole that few are paying attention to.

That call comes from investment adviser Wedgewood Partners, who kick off their fourth-quarter 2021 client letter with a warning about market volatility for 2022, triggered by central bankers who are about to usher in some market chaos by pulling the plug on years of cheap money. Even Chinese President Xi Jinping was heard warning the Fed not to hike interest rates at a virtual Davos on Tuesday.

However, the adviser also sees opportunities ahead as selling picks up speed, and they plan to stick to Apple, which they’ve owned for 16 years.

While Wedgewood said it couldn’t foresee the many products the company unveiled, “we did know that Apple’s vertically integrated [software and hardware] product development strategy was unique and extremely capable of creating products and experiences that customers thought worthwhile enough to spend growing amounts of time and money on,” said the adviser.

Today, that strategy remains intact, but more important Apple is commanding a key new realm, having developed over a dozen custom processors and integrated circuits, since launching its “A-series” processors. For example, one it produced in 2017 provided the iPhone X with enough power to operate FaceID 3-D algorithms, used to unlock phones and make digital payments.

“Apple has effectively created a semiconductor business that rivals and even surpasses some of the most established semiconductor-focused businesses in the industry,” said Wedgewood. “Apple continues to differentiate through vertical integration, which has been a hallmark of Apple’s long-term strategy to grow and capture superior profitability. It is difficult to predict what new products will be unveiled; however, we think this strategy should continue to serve
shareholders quite well.”

Other top positions recommended by Wedgewood include telecom group Motorola
MSI,
-1.73%,
another tech stalwart Microsoft
MSFT,
-0.23%
and retailer Tractor Supply
TSCO,
-1.14%.

Here’s a final comment from Wedgewood about the stock storm it sees brewing. “The graphic below reminds us that when speculation reigns, markets can go far higher than what seems sober,” but when they fall “markets will repeat their long history of falling faster and further than what seems sober.”


Wedgewood Partners

“Long term investors should root for such downside. Such times are opportunities to improve portfolios. Our pencils are sharpened for opportunities as Mr. Market serves them up.”

The markets

Microsoft shares are slipping after the tech group confirmed it will buy Activision Blizzard
ATVI,
+27.39%
in a $68.7 billion cash deal. The gaming group’s shares are flying, along with those of rival Electronics Arts
EA,
+6.72%.

Goldman Sachs
GS,
-7.72%
added to a disappointing batch of bank results from last week, with shares down as earnings came up short, with Charles Schwab
SCHW,
-4.29%
also falling on gloomy results. Kinder Morgan
KMI,
-0.14%
and Alcoa
AA,
-1.43%
are still to come.

Airbnb shares
ABNB,
-2.49%
are slumping after ratings and target cut from an analyst who sees multiple headwinds and too-few catalysts.

The New York Empire state manufacturing index for January fell well short of expectations. A National Association of Home Builders index for the same month is still ahead.

An unpublished study by an Israeli hospital showed second Pfizer
PFE,
-1.78%
-BioNTech
BNTX,
-7.77%
or Moderna
MRNA,
-4.70%
boosters aren’t halting omicron infections. Separately, Moderna’s CEO Stephane Bancel said his company is working on a combined flu/COVID booster, while White House chief medical advise Dr. Anthony Fauci, said it’s too soon to tell if omicron will bring us out of the pandemic.

Another study says COVID infections are turning children into fussy eaters due to parosmia disorders that distort their sense of smell. And China state media says packages from the U.S. and Canada had helped spread omicron, as Hong Kong gets ready to cull thousands of hamsters.

An airline lobby group is warning of “chaos” for U.S. air travelers due to 5G services rolling out this month, in a letter signed by big carriers, UPS
UPS,
-1.55%
and FedEx
FDX,
-1.39%.

Larry Fink, chairman and chief executive of BlackRock
BLK,
-1.72%
said investors need to know where company leaders stand on societal issues.

Retailer Walmart 
WMT,
-1.28%
is looking at creating its own cryptocurrency and nonfungible tokens, according to U.S. patent filings.

The markets

Uncredited

The Nasdaq Composite
COMP,
-1.12%
is sprinting ahead with losses, with the Dow
DJIA,
-1.43%
and S&P 500
SPX,
-1.24%
also lower Tuesday led by those for the Nasdaq-100
NQ00,
-1.28%
as bond yields
TMUBMUSD10Y,
1.848%

TMUBMUSD02Y,
1.034%
surge across the curve. Oil prices
BRN00,
+1.06%

CL00,
+1.56%
are surging after Iran-backed Houthi rebels launched a deadly drone attack on a key oil facility in Abu Dhabi. Goldman Sachs also predicted Brent could top $100 a barrel in 2023, while the OPEC left its 2022 global oil-demand forecast unchanged.

Losses spread to Asian
NIK,
-0.27%
and Europe stocks
SXXP,
-0.77%,
with a key German bund yields
TMBMKDE-10Y,
-0.012%
about to turn positive for the first time in three years.

The chart

A January survey of more than 500 investors polled by Deutsche Bank shows a slightly gloomier mood. For example, they are more bearish:


Uncredited

Many, especially those over 34, think tech shares are in a bubble:


Uncredited

And they continue to see inflation as the biggest risk to markets, but are also fretting a more aggressive Fed:


Uncredited

Here are the top stock tickers on MarketWatch as of 6 a.m. Eastern Time.

Ticker Security name
TSLA,
+1.47% 		Tesla
GME,
-5.61% 		GameStop
AMC,
-6.32% 		AMC Entertainment
BBIG,
+29.75% 		Vinco Ventures
NIO,
-0.71% 		NIO
AAPL,
-0.43% 		Apple
CENN,
-4.72% 		Cenntro Electric Group
NVDA,
-1.57% 		Nvidia
BABA,
-0.85% 		Alibaba
NVAX,
-4.04% 		Novavax
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Tulsa pastor apologizes for wiping his saliva on a man’s face during a sermon.

The high environmental cost of your beloved fish-oil pills.

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Business

Credit Suisse’s António Horta-Osório Lost Board Support Over Covid-19 Rules Breach

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He came to fix

Credit Suisse Group AG’s

broken culture. Then he became part of the problem. 

António Horta-Osório

was hoping for a slap on the wrist Sunday from the

Credit Suisse

CS 0.38%

board for breaking coronavirus quarantine rules on trips to events, according to people familiar with his departure. Instead, he had to leave his job as the bank’s chairman for not upholding the high standards he set when joining Credit Suisse eight months ago.

Mr. Horta-Osório had to leave after most members of the board refused to back him at a meeting that ran late into the Zurich evening, ending weeks of attempts by the bank to contain its latest crisis. A bank probe into Mr. Horta-Osório’s travel found he had breached quarantine rules in England and Switzerland since starting at Credit Suisse, including to attend the Wimbledon tennis final in July. 

The Portugal-born banker also used private aircraft hired by Credit Suisse to combine personal travel and work trips that made some on the board uncomfortable, according to people familiar with the matter.

Credit Suisse found Chairman António Horta-Osório had breached quarantine rules in England and Switzerland.



Photo:

Chris J. Ratcliffe/Bloomberg News

A spokesman for Mr. Horta-Osório said the jet use was “in line with that of his predecessor in the role and actually similar to other senior colleagues in the bank. It was also never used without a business-related reason and this has been confirmed by an internal audit.”

Some members of the board were concerned Mr. Horta-Osório was no longer credible with employees or customers to fix what had come to be seen as a broken culture at the bank around risk taking, the people familiar with the matter said.

The sudden departure adds to a nightmarish stretch for the bank. In February 2020, Chief Executive

Tidjane Thiam

was ousted by the bank’s board for failing to contain the reputational fallout from a scandal that involved some staff being followed by private investigators. Then last year it was hit by twin crises, with the collapse of clients Greensill Capital and Archegos Capital Management. 

Axel Lehmann,

Mr. Horta-Osório’s successor as chairman, who was appointed on Sunday, has been vetted by Switzerland’s financial regulator, having joined Credit Suisse’s board in October after working at rival

UBS Group AG

for more than a decade.

Mr. Lehmann is described by people who have worked with him as an archetypal Swiss professional, with a pleasant demeanor and tough interior. An attribute he brings to the role is a high-functioning relationship with Swiss regulators and other power brokers in the country, some of the people said.

Mr. Horta-Osório’s departure makes him one of the biggest casualties of coronavirus rule breaches. Two Canadian executives resigned from their posts last year after traveling to get vaccinated. Separately, the head of a Canadian pension fund resigned after The Wall Street Journal reported he traveled to the Middle East to get an early vaccine dose. 

In December, Mr. Horta-Osório apologized to board members—and publicly—for leaving Switzerland when he was supposed to be in quarantine after a trip to London. He said it was inadvertent. He also apologized to board members for using private aircraft hired by Credit Suisse to stop off for a vacation in the Maldives on the way back from a work trip, people familiar with the trip said. His stance was that the travel complied with company rules, according to some of the people.

The deterioration in some on the board’s trust escalated after Reuters reported in late December on Mr. Horta-Osório’s Wimbledon trip and quarantine breach, according to some of the people. In the new year, the board’s audit committee reviewed a report into his travel and the quarantine breaches, and Credit Suisse started preparing for Mr. Horta-Osório’s possible departure, according to some of the people familiar with the matter. 

Mr. Horta-Osório attended Wimbledon’s tennis finals believing a waiver from England’s quarantine rules had been arranged for him by Credit Suisse, his spokesman said. Mr. Horta-Osorio attended the tournament with members of his family and a bank adviser after Credit Suisse clients canceled, he said.

The timing of the missteps struck a nerve with many Credit Suisse employees, and the order-minded Swiss public. Swiss media compared Mr. Horta-Osório’s conduct to that of British Prime Minister

Boris Johnson

and tennis star Novak Djokovic, who fanned anger this year for appearing to be unfettered from national coronavirus restrictions. 

Credit Suisse is an elite banking brand abroad, but at home in Switzerland has household and business customers of all sizes as the country’s No. 2 bank by assets. Having the top person failing to comply with Swiss rules was seen as an unacceptable situation, according to some of the people familiar with the matter. 

One of the people familiar with the matter said Mr. Horta-Osório attended Sunday’s meeting hoping to be fully supported by the board, which includes recent appointments he made. The chairman resigned when it became apparent he didn’t have enough support. 

Mr. Horta-Osório was supposed to save Credit Suisse from being scandal-prone. He received a British knighthood for his last job turning around the U.K.’s

Lloyds Banking Group PLC,

adding to civil awards in Spain, Brazil and Portugal. People who have worked with him said he is demanding, exacting and takes his reputation seriously. 

He agreed in late 2020 to join Credit Suisse as its chairman, a prestigious role in Switzerland for an institution that dates to 1856. The idea was it would be his main job alongside several other board mandates, to ease into a less-stressful existence than running Lloyds, according to people familiar with his planning. 

Mr. Horta-Osório’s tenure at Lloyds wasn’t without drama. Eight months into that job, in 2011, he took a two-month hiatus to check into a rehabilitation clinic suffering from exhaustion. Then, in 2016, he apologized to Lloyds staff after the Sun newspaper published photographs of Mr. Horta-Osório, who is married with three children, with another woman during a work trip to Singapore. He said he regretted the adverse publicity and damage to Lloyds’s reputation. He said he paid for any personal expenses on the trip. 

A few weeks before his April 30 start date, Credit Suisse incurred a loss of more than $5 billion when Archegos, a family investment firm led by

Bill Hwang,

defaulted on large stock positions.

Mr. Horta-Osório sought to reset the risk button, shedding the bulk of Credit Suisse’s unit servicing hedge funds and centralizing oversight at its main units. He exhorted employees to be more personally responsible and accountable for their actions, and, according to people familiar with the matter, put Chief Executive

Thomas Gottstein

and other top executives on notice to hit the top of their game or leave.

Write to Margot Patrick at margot.patrick@wsj.com and Emily Glazer at Emily.Glazer@wsj.com

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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Business

Citigroup Sticks With Its Covid-19 Vaccine Mandate, While GE Drops Its Rules

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Citigroup Inc.

C -1.25%

is sticking with its Covid-19 vaccine mandate for its U.S. workers.

General Electric Co.

GE 0.68%

is not.

The two American companies are going in opposite directions after the Supreme Court blocked Thursday the Biden administration’s rule that big employers require their employees to get vaccines or submit to testing.

Citigroup, which has about 65,000 employees in the U.S., said it had reached 99% compliance one day before a Jan. 14 deadline the bank had set for U.S. workers to get vaccinated or request an accommodation for medical or religious reasons.

“Our goal has always been to keep everyone at Citi, and we sincerely hope all of our colleagues take action to comply,” the company’s human-resources chief Sara Wechter said in a LinkedIn post on Thursday after the high court’s decision.

The bank previously told employees anyone who was still unvaccinated would be placed on unpaid leave, according to people familiar with the matter. Their employment would terminate on Jan. 31, the people said. Saturday, after a wave of last minute vaccinations, around 150 employees were being placed on leave, one of the people said. They could keep their jobs if they comply by the end of the month.

General Electric suspended its remaining Covid-19 vaccine requirements.



Photo:

alwyn scott/Reuters

Citigroup and GE announced vaccine requirements for U.S. staff in October, after the Biden administration said large employers and government contractors would be required to enforce vaccination mandates. Both companies count the U.S. government as an important client.

At the start of 2021, GE had about 56,000 employees in the U.S. It originally told them they were required to get vaccinated or seek a religious or medical accommodation by early December. It suspended that policy in December after a court challenge temporarily blocked the rule for federal contractors.

The manufacturer still required U.S. employees to show proof of vaccination or submit to testing under the White House’s mandate for companies with more than 100 workers, until the Supreme Court blocked that policy on Thursday.

GE on Friday suspended its remaining Covid-19 vaccine requirements, a spokeswoman said. The company said most of U.S. employees are vaccinated and it was on track to comply with the federal contractor executive order before the court injunction.

Write to Thomas Gryta at thomas.gryta@wsj.com and David Benoit at david.benoit@wsj.com

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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Business

Get ready for the climb. Here’s what history says about stock-market returns during Fed rate-hike cycles.

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Bond yields are rising again so far in 2022. The U.S. stock market seems vulnerable to a bona fide correction. But what can you really tell from a mere two weeks into a new year? Not much and quite a lot.

One thing feels assured: the days of making easy money are over in the pandemic era. Benchmark interest rates are headed higher and bond yields, which have been anchored at historically low levels, are destined to rise in tandem.

Read: Weekend reads: How to invest amid higher inflation and as interest rates rise

It seemed as if Federal Reserve members couldn’t make that point any clearer this past week, ahead of the traditional media blackout that precedes the central bank’s first policy meeting of the year on Jan. 25-26.

The U.S. consumer-price and producer-price index releases this week have only cemented the market’s expectations of a more aggressive or hawkish monetary policy from the Fed.

The only real question is how many interest-rate increases will the Federal Open Market Committee dole out in 2022. JPMorgan Chase & Co.
JPM,
-6.15%
CEO Jamie Dimon intimated that seven might be the number to beat, with market-based projections pointing to the potential for three increases to the federal funds rate in the coming months.

Check out: Here’s how the Federal Reserve may shrink its $8.77 trillion balance sheet to combat high inflation

Meanwhile, yields for the 10-year Treasury note yielded 1.771% Friday afternoon, which means that yields have climbed by about 26 basis points in the first 10 trading days to start a calendar year, which would be the briskest such rise since 1992, according to Dow Jones Market Data. Back 30 years ago, the 10-year rose 32 basis points to around 7% to start that year.

The 2-year note
TMUBMUSD02Y,
0.960%,
which tends to be more sensitive to the Fed’s interest rate moves, is knocking on the door of 1%, up 24 basis points so far this year, FactSet data show.

But do interest rate increases translate into a weaker stock market?

As it turns out, during so-called rate-hike cycles, which we seem set to enter into as early as March, the market tends to perform strongly, not poorly.

In fact, during a Fed rate-hike cycle the average return for the Dow Jones Industrial Average
DJIA,
-0.56%
is nearly 55%, that of the S&P 500
SPX,
+0.08%
is a gain of 62.9% and the Nasdaq Composite
COMP,
+0.59%
has averaged a positive return of 102.7%, according to Dow Jones, using data going back to 1989 (see attached table). Fed interest rate cuts, perhaps unsurprisingly, also yield strong gains, with the Dow up 23%, the S&P 500 gaining 21% and the Nasdaq rising 32%, on average during a Fed rate hike cycle.

Dow Jones Market Data

Interest rate cuts tend to occur during periods when the economy is weak and rate hikes when the economy is viewed as too hot by some measure, which may account for the disparity in stock market performance during periods when interest-rate reductions occur.

To be sure, it is harder to see the market producing outperformance during a period in which the economy experiences 1970s-style inflation. Right now, it feels unlikely that bullish investors will get a whiff of double-digit returns based on the way stocks are shaping up so far in 2022. The Dow is down 1.2%, the S&P 500 is off 2.2%, while the Nasdaq Composite is down a whopping 4.8% thus far in January.

Read: Worried about a bubble? Why you should overweight U.S. equities this year, according to Goldman

What’s working?

So far this year, winning stock market trades have been in energy, with the S&P 500’s energy sector
SP500.10,
+2.44%

XLE,
+2.35%
looking at a 16.4% advance so far in 2022, while financials
SP500.40,
-1.01%

XLF,
-1.04%
are running a distant second, up 4.4%. The other nine sectors of the S&P 500 are either flat or lower.

Meanwhile, value themes are making a more pronounced comeback, eking out a 0.1% weekly gain last week, as measured by the iShares S&P 500 Value ETF
IVE,
-0.14%,
but month to date the return is 1.2%.

See: These 3 ETFs let you play the hot semiconductor sector, where Nvidia, Micron, AMD and others are growing sales rapidly

What’s not working?

Growth factors are getting hammered thus far as bond yields rise because a rapid rise in yields makes their future cash flows less valuable. Higher interest rates also hinder technology companies’ ability to fund stock buy backs. The popular iShares S&P 500 Growth ETF
IVW,
+0.28%
is down 0.6% on the week and down 5.1% in January so far.

What’s really not working?

Biotech stocks are getting shellacked, with the iShares Biotechnology ETF
IBB,
+0.65%
down 1.1% on the week and 9% on the month so far.

And a popular retail-oriented ETF, the SPDR S&P Retail ETF
XRT,
-2.10%
tumbled 4.1% last week, contributing to a 7.4% decline in the month to date.

And Cathie Wood’s flagship ARK Innovation ETF
ARKK,
+0.33%
finished the week down nearly 5% for a 15.2% decline in the first two weeks of January. Other funds in the complex, including ARK Genomic Revolution ETF
ARKG,
+1.04%
and ARK Fintech Innovation ETF
ARKF,
-0.99%
are similarly woebegone.

And popular meme names also are getting hammered, with GameStop Corp.
GME,
-4.76%
down 17% last week and off over 21% in January, while AMC Entertainment Holdings
AMC,
-0.44%
sank nearly 11% on the week and more than 24% in the month to date.

Gray swan?

MarketWatch’s Bill Watts writes that fears of a Russian invasion of Ukraine are on the rise, and prompting analysts and traders to weigh the potential financial-market shock waves. Here’s what his reporting says about geopolitical risk factors and their longer-term impact on markets.

Week ahead

U.S. markets are closed in observance of the Martin Luther King Jr. holiday on Monday.

Read: Is the stock market open on Monday? Here are the trading hours on Martin Luther King Jr. Day

Notable U.S. corporate earnings

(Dow components in bold)
TUESDAY:

Goldman Sachs Group
GS,
-2.52%,
Truist Financial Corp.
TFC,
+0.96%,
Signature Bank
SBNY,
+0.07%,
PNC Financial
PNC,
-1.33%,
J.B. Hunt Transport Services
JBHT,
-1.04%,
Interactive Brokers Group Inc.
IBKR,
-1.22%

WEDNESDAY:

Morgan Stanley
MS,
-3.58%,
Bank of America
BAC,
-1.74%,
U.S. Bancorp.
USB,
+0.09%,
State Street Corp.
STT,
+0.32%,
UnitedHealth Group Inc.
UNH,
+0.27%,
Procter & Gamble
PG,
+0.96%,
Kinder Morgan
KMI,
+1.82%,
Fastenal Co.
FAST,
-2.55%

THURSDAY:

Netflix
NFLX,
+1.25%,
United Airlines Holdings
UAL,
-2.97%,
American Airlines
AAL,
-4.40%,
Baker Hughes
BKR,
+4.53%,
Discover Financial Services
DFS,
-1.44%,
CSX Corp.
CSX,
-0.82%,
Union Pacific Corp.
UNP,
-0.55%,
The Travelers Cos. Inc. TRV, Intuitive Surgical Inc. ISRG, KeyCorp.
KEY,
+1.16%

FRIDAY:

Schlumberger
SLB,
+4.53%,
Huntington Bancshares Inc.
HBAN,
+1.73%

U.S. economic reports

Tuesday

  • Empire State manufacturing index for January due at 8:30 a.m. ET
  • NAHB home builders index for January at 10 a.m.

Wednesday

  • Building permits and starts for December at 8:30 a.m.
  • Philly Fed Index for January at 8:30 a.m.

Thursday

  • Initial jobless claims for the week ended Jan. 15 (and continuing claims for Jan. 8) at 8:30 a.m.
  • Existing home sales for December at 10 a.m.

Friday

Leading economic indicators for December at 10 a.m.

Read original article here

Business

Citi to sell consumer banking operations to UOB in Malaysia, Indonesia

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A Citibank branch in New York, U.S., on Friday, Jan. 7, 2022.

Victor J. Blue | Bloomberg | Getty Images

Citigroup will sell its consumer banking businesses in Indonesia, Malaysia, Thailand and Vietnam to Singapore’s United Overseas Bank, the banks announced Friday.

As part of the deal, UOB said it will acquire Citi’s unsecured and secured lending portfolios, wealth management and retail deposit units that make up its consumer banking business in the four markets.

UOB, which has a prominent presence in Southeast Asia, will pay Citigroup for the net assets of the acquired businesses as well as a premium of $690 million.

Citi’s consumer business had an aggregate net value of about 4 billion Singapore dollars ($2.97 billion) and a customer base of approximately 2.4 million as of June 30, 2021, UOB said.

The proposed transaction is expected to be financed through the bank’s excess capital and is estimated to reduce UOB’s common equity tier 1 ratio — which measures a bank’s capital in relation to its assets — by 70 basis points to 12.8%, UOB said. It added that the impact on the CET1 ratio is not expected to be material and will remain within regulatory requirements.

The sale of these four consumer markets, along with our previously announced transactions, demonstrate our sense of urgency to execute our strategic refresh.

“UOB believes in Southeast Asia’s long-term potential and we have been disciplined, selective and patient in seeking the right opportunities to grow,” Wee Ee Cheong, deputy chairman and chief executive officer at UOB, said in a statement.

Approximately 5,000 Citi consumer banking staff and supporting employees in the four markets are expected to transfer to UOB when the proposed deal closes.

“The acquired business, together with UOB’s regional consumer franchise, will form a powerful combination that will scale up UOB Group’s business and advance our position as a leading regional bank,” Wee said.

UOB shares ticked higher by 1.23% Friday afternoon, following the announcement.

Citi said it expects the deal to release approximately $1.2 billion of allocated tangible common equity and an increase to tangible common equity of over $200 million. Tangible common equity is a measure used to assess a financial institution’s ability to deal with potential losses.

The New York-based bank will still retain control of its institutional businesses in Indonesia, Malaysia, Thailand and Vietnam.

Citigroup CEO Jane Fraser said last year that the bank will exit retail operations in 13 countries outside the United States to improve returns. Many of those markets are in Asia-Pacific, including Australia, China, India and Indonesia.

“The sale of these four consumer markets, along with our previously announced transactions, demonstrate our sense of urgency to execute our strategic refresh,” Citi CFO Mark Mason said in a statement on Friday.

Citi expects the deal to be completed between mid-2022 and early 2024, depending on the progress and outcome of regulatory approvals.

Last year, Citi said it agreed to sell its consumer banking businesses in the Philippines and Australia and was winding down consumer banking operations in South Korea.

Read original article here