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Business

Kohl’s Gets $9 Billion Bid From Starboard Value Group

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A consortium backed by activist hedge fund Starboard Value LP has offered roughly $9 billion to buy department store

Kohl’s Corp.

KSS -2.60%

, according to people familiar with the matter.

A group led by Acacia Research Corp., which Starboard controls, offered to buy the department-store chain for $64 a share in cash Friday, the people said. It told the company it has received assurances from bankers that it would be able to get financing for the bid, the people said.

There are no guarantees that the group will ultimately line up all the funding needed and make a firm offer or that Kohl’s will be receptive. Other suitors may emerge too.

Kohl’s shares closed at $46.84 Friday. The bid represents a 37% premium.

Based in Menomonee Falls, Wis., Kohl’s has been under pressure to boost its share price, which rose early last year but is little changed from roughly two decades ago. Two activist shareholders—Macellum Advisors GP LLC and Engine Capital LP—have recently called on the company to explore selling itself.

Kohl’s said earlier this week that its strategy is producing results and that its board “regularly works with specialized advisers to evaluate paths that have the potential to create long-term value.” It said it plans to unveil its strategic plans at an investor day in March.

Little-known Acacia has a market value of just $215 million, but the consortium told Kohl’s it received what is known as a “highly confident” letter from a bank asserting that it will be able to attain a debt-financing package for a portion of the bid, the people said. While such letters are no guarantee, they can be a meaningful vote of confidence.

Led by Chief Executive Jeff Smith, Starboard Value is one of the most visible activist investors.



Photo:

Christopher Goodney/Bloomberg News

Other details of the consortium’s proposal—and who is in the group—couldn’t be determined. Reuters reported earlier this week that Acacia was exploring a possible bid for Kohl’s.

Should it succeed, the group could aim to sell the company’s real estate to another party, which could make pulling off the transaction easier. Activists have proposed that Kohl’s explore sale-leasebacks of its real estate, which they have estimated could be worth $7 billion or more.

Macellum said in an open letter to Kohl’s shareholders Tuesday it has been pushing the company to add additional directors with retail experience or to hire bankers to explore a sale.

Before Starboard invested in the firm and joined its board in 2019, Acacia was primarily a holding company for patents. It now focuses on buying and improving companies. In October, it bought privately held Printronix Holding Corp., a manufacturer of line matrix printers, for $33 million, and it has made offers for other companies including

Comtech Telecommunications Corp.

Starboard, led by Chief Executive

Jeff Smith,

is one of the most visible activist investors. It holds seats on the boards of companies including

Papa John’s International Inc.

and

NortonLifeLock Inc.

Write to Cara Lombardo at cara.lombardo@wsj.com

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

Appeared in the January 22, 2022, print edition as ‘Group Offers To Buy Kohl’s for $9 Billion.’

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Business

Stock Futures Rise After Nasdaq Enters Correction

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U.S. stock futures gained, putting indexes on course to pare some of the sharp losses that have come as investors reposition their portfolios, spooked by the prospect of tightening monetary policy and slowing growth.

Nasdaq-100 futures rose 0.9% Thursday, a day after a late tech selloff dragged down indexes. Futures tied to the S&P 500 rose 0.5% and blue-chip Dow Jones Industrial Average futures added 0.4%. 

In premarket trading, Travelers Companies rose over 4% after reporting record net income in the fourth quarter.

American Airlines

Group gained 1.6% after saying it had trimmed its losses.

Netflix

will be one of the first tech giants to post its fourth-quarter results, after markets close, when

PPG Industries

will also report.

The technology-heavy Nasdaq Composite shed 1.1% on Wednesday.



Photo:

BRENDAN MCDERMID/REUTERS

Hong Kong-listed Chinese stocks jumped after an interest-rate cut by China’s central bank lifted shares of property developers and tech giants. The Hang Seng Index rose 3.4%, while mainland China’s Shanghai Composite Index edged down 0.1%. Elsewhere in Asia, the Nikkei 225 rose 1.1%. The pan-continental Stoxx Europe 600 edged up 0.1%. 

Faced with the prospect of multiple interest-rate rises, cooling growth and inflation at multidecade highs, investors have been reassessing the pandemic-era playbook that focused on outsize gains for growth stocks, such as tech. In recent sessions, investors have rotated into sectors expected to perform better in the coming year, such as financials and energy. 

“I don’t see a whole lot in the market that is really alarming me. There is no one out there saying ‘run for the hills,’ but there are those saying they are going to take off risk and reposition to other areas of the market,” said

Kara Murphy,

chief investment officer of Kestra Holdings.

That has prompted tumultuous trading. On Wednesday, the Nasdaq Composite closed more than 10% below its all-time closing high, putting it in correction territory.

Investors are selling government bonds in anticipation of higher interest rates, pushing up yields, and in the process, pressuring tech companies, whose future earnings become less attractive when compared with bonds with rising yields.

The yield on the 10-year U.S. Treasury note crept down to 1.823% Thursday from 1.826% Wednesday, after rising steadily in recent weeks. Benchmark German bund yields fell further into negative territory, a day after they briefly turned positive. The yield on the 10-year German government bond fell to minus 0.037% Thursday from minus 0.014% Wednesday.

U.S. home prices hit an all-time high in 2021, but those increases are expected to slow in 2022 thanks to a number of economic factors. Here’s what’s driving the housing market and what that could mean for prospective buyers and sellers. Photo: George Frey/Bloomberg News

Investors are awaiting data on the U.S. housing market, a bright spot for the economy. The data, due at 10 a.m. ET, is expected to show that existing home sales slowed in December, but were still on track for the best year since 2006. 

Brent crude, the international oil benchmark, fell 0.5% to $88.01 a barrel. This follows a rally partly driven by the potential for supply disruptions in Russia and the Middle East. On Wednesday, Brent crude futures hit their highest level since October 2014.

Write to Will Horner at william.horner@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.

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World

Kazakhstan Protests: Russia Sends Troops as Dozens Killed in Unrest

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MOSCOW—Russia sent paratroopers to help Kazakhstan’s leader stamp out a wave of protests as, further west, Russian President Vladimir Putin confronts the U.S. and its allies over the future of another former Soviet republic, Ukraine.

Dozens of people were killed in clashes between protesters and Kazakhstan’s security forces in the early hours of Thursday, including 18 law enforcement officers, according to Russian state media. Initially sparked by a sharp increase in fuel prices at the beginning of year, the protests quickly spiraled into a broader outpouring of frustration with the resource-rich nation’s authoritarian leaders. Protesters accuse them of squandering its wealth, including its uranium reserves, echoing the kind of uprisings that toppled one of Mr. Putin’s protégés in Ukraine in 2014 and a wave of protests against Belarus’s pro-Kremlin leader in 2020.

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Business

Stock Market Today: Dow Rose as Moderna Slumped Again

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The


Dow Jones Industrial Average
had one of its best days this year on Monday, as value and defensive stocks led a rebound from last week’s market declines.

The news Monday was relatively positive, with signs that the Omicron variant of Covid-19 might be less severe than earlier strains and reports that China is considering easing monetary policy. On the Federal Reserve policy front, the latest reporting suggested that the central bank could announce plans at its next meeting to more quickly pull back from its bond-buying program.

The Dow surged 647 points, or 1.9%, for its best one-day point gain since November 2020 and the largest percentage increase since last March. The


S&P 500
closed up 1.2% and the Nasdaq Composite rose 0.9%, while the small-cap


Russell 2000
gained 2.1%, for its fourth-straight daily move of 2% or more.

Post-pandemic reopening stocks were among the biggest gainers on Monday. The


U.S. Global Jets
exchange-traded fund (ticker: JETS) added 5.3%, as


American Airlines Group

(AAL) added 7.9% and


United Airlines Holdings

(UAL) jumped 8.3%. Cruise lines


Carnival

(CCL) and


Royal Caribbean Cruises

(RCL) surged 8.0% and 8.3%, respectively.


Marriott International

(MAR) added 4.5%,


Live Nation Entertainment

(LYV) rose 6.1%, and


Cinemark Holdings

(CNK) gained 7.7%.

S&P 500 value stocks as a group gained 1.4% on Monday, versus a 0.9% rise for growth stocks in the index.

Investor attention remains focused on the newly discovered Omicron variant of coronavirus, news of which recently brought about the Dow’s worst day of the year and saw volatility rock markets last week. The latest headline driving sentiment comes from South Africa, where data—though from a small sample size—suggest that symptoms caused by Omicron were milder than with other variants.

Investors aren’t out of the woods yet, however. The broad market will remain sensitive to daily headlines about Omicron—both good and bad.

“It still feels like we’re in the guesswork stage of working out what the impact of Omicron will be,” said Russ Mould, an analyst at broker AJ Bell. “It would be naive to rule out further volatility as markets attempt to work out exactly what’s going on.”

On Monday, the news was positive and investors bought the market. All 11 S&P 500 sectors closed in the green.

Fed policy has been pushing investor sentiment the other way. Chair Jerome Powell indicated last week that the central bank would consider speeding up its slowing, or tapering, of monthly asset purchases, which add liquidity to markets, amid higher inflation.

“We’re really at a fascinating crossroads in markets at the moment,” said Jim Reid, a strategist at Deutsche Bank. “The market sentiment on the virus and the policy makers at the Fed are moving in opposite directions.”

Those trends mean different things for different kinds of stocks and indexes.

If Omicron is less severe than feared, then the economy might hold up better than expected. That would be good for economically-sensitive cyclical stocks, like many of those in the Dow. Higher bond yields and interest rates, however, can put downward pressure on stock valuations, particularly those with nosebleed price-to-earnings ratios, many of which are found in the Nasdaq.

“Like Friday, how the Nasdaq trades will likely determine the day, as markets want to see the tech sector stabilize after intense weakness late last week,” wrote the Sevens Report’s Tom Essaye. “If the Nasdaq can stabilize, the broad market can bounce.”

The tech-heavy index bounced from a loss of about 1% shortly after Monday’s opening bell.

In the commodity space, oil prices rose Monday after Saudi Arabia raised its January prices for Asian and U.S. customers over the weekend by $0.60, in a sign of firmer demand expectations.

Futures contracts for the international oil benchmark Brent rose 4.6%, to above $73 a barrel, with U.S. futures for West Texas Intermediate crude up 4.9% to about $69.50 a barrel.

“Given that OPEC+ is proceeding with its planned 400,000 barrels per day increase this month, it appears that Saudi Arabia is taking a punt that Omicron is a virus in a teacup,” said Jeffrey Halley, an analyst at broker Oanda. “Saudi Arabia’s confidence, along with the South African Omicron article over the weekend, is a boost to markets looking for good news in any corner they can find it.”

Cryptocurrency markets remained depressed after digital assets took a tumble over the weekend.


Bitcoin
and


Ether,
the two leading cryptos, remained off their lows following the stark fall Saturday, but were slipping after steadying Sunday. Bitcoin was trading hands around $49,000—down from more than $57,000 as recently as Friday—with Ether holding above $4,000.

Here are several stocks on the move Monday:


Nvidia

(ticker: NVDA) was among the most actively traded stocks in the U.S. Monday, closing down about 2.1%. Shares of fellow semiconductor firm Advanced Micro Devices (AMD) lost 3.4%.


Lucid Group

(LCID) stock dropped 5.1% after the electric-vehicle startup revealed that it had received a subpoena from the Securities and Exchange Commission, without offering many details.


Kohl’s

(KSS) gained 5.4% after an activist investor said it should explore selling itself.


Moderna

(MRNA) fell 13.5% after its president said that the risk that vaccines don’t work as well against Omicron is high. Pfizer (PFE) stock slid more than 5%.

Alibaba Group Holding (BABA) stock closed up 10.4% after a management shakeup at the e-commerce giant.


Deutsche Bank

(DB) rose 3.6% after JPMorgan upgraded the bank to Overweight from Neutral, adding that the group shows positive revenue developments in key divisions.

Pharma giant


Roche

(ROG.Switzerland) rose 1.5% in Zurich after announcing that it would release rapid antigen tests for Covid-19 and flu viruses next month.

Food delivery group


Just Eat Takeaway.com

(JET.U.K.) fell 4.9% in London following a price target cut and downgrade to Market Perform from Outperform by Bernstein, which sees few positive catalysts in the pipeline for the company.

Write to Jack Denton at jack.denton@dowjones.com

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Business

Stock Market Today: Dow Holds Near Records, the Fed Meets, Zillow Slumps

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Text size

Fed Chair Jerome Powell’s press conference Wednesday afternoon will be closely watched.


Kevin Dietsch/Getty Images

The


Dow Jones Industrial Average
was slightly lower Wednesday morning after closing at a record high Tuesday as markets await the Federal Reserve’s monetary policy decision.

In morning trading, the Dow was off 75 points, or 0.2%, after the blue-chip benchmark closed above 36,000 for the first time. The


S&P 500
fell 0.1%, while the


Nasdaq Composite
was essentially flat. All three indexes ended Tuesday at new all-time highs.

Today the spotlight is squarely on the Federal Open Market Committee (FOMC)—the Federal Reserve’s monetary-policy body. Its monthly meeting got under way Tuesday and will wrap up Wednesday with a statement from Fed Chair Jerome Powell.

“Stock futures are little changed near record highs as a sense of Fed paralysis grips the markets ahead of the FOMC announcement today,” wrote Tom Essaye, founder of Sevens Report Research before the market opened. 

It’s largely expected that the central bank will announce that it will start slowing, or tapering, its Covid-19 pandemic-era program of monthly asset purchases, which add liquidity to markets. The Fed has been buying $120 billion in bonds to keep their prices high and yields low since June 2020, when it settled into a steady pattern after more fervent bond-buying near the beginning of the pandemic.

Markets now largely expect that the Fed will begin slowing these purchases, which consist of Treasury securities and agency mortgage-backed securities, at a rate of about $15 billion a month, starting this month. If the central bank announces a faster pace, investors could react negatively, and it could put pressure on stocks.

The larger risk is that the Fed could indicate that it is considering short-term interest rate hikes sooner rather than later. With inflation running hot and economic growth slowing, an indication of a rate hike too soon could also cause a selloff in stocks.

“It is widely expected the central bank will commence tapering in November or perhaps December,” wrote Kent Engelke, chief economic strategist at Capitol Securities Management. “The question at hand is whether or not it will change its time line as to when it intends to increase the overnight rate.” 

As the Fed looms, not even solid economic data could move stocks higher. The ADP jobs report showed that the U.S. added 571,000 private-sector jobs in October, above the consensus forecast for 395,000. 

Also read: Is Inflation Here to Stay? The Data Are Cause for Worry. The Fed Will Have its Say Today

Overseas, Hong Kong’s


Hang Seng Index
slipped 0.3% as investors in Asia tread water ahead of the FOMC meeting. The pan-European


Stoxx 600
was up 0.1% as investors in Europe adopted a similar wait-and-see attitude.

In commodity markets, oil prices fell back amid indications that U.S. crude supply is higher than expected and pressure on the OPEC+ group of national producers to ramp up production.

U.S. futures for West Texas Intermediate crude were down 2.5% to around $81.80 after trading near $85 earlier in the week—the highest levels since late 2014.

Analysts cited data from the American Petroleum Institute Tuesday showing that U.S. crude inventories jumped by 3.6 million barrels last week—far more than the 1.5 million estimated—in a surprise to supply expectations. That puts the spotlight on official data Wednesday from the U.S. Energy Information Administration.

Here are six stocks on the move Wednesday:


Lyft (ticker: LYFT) stock gained 11% after the company’s earnings report showed a more than 50% rise in adjusted earnings before interest, tax and non-cash expenses. Sales were $864 million, above expectations for $863 million.

Lyft’s results helped rival


Uber (UBER) stock rise 5.6% ahead of its Thursday earnings report.


Bed Bath & Beyond (BBBY) stock gained 34% after the company announced a partnership with


Kroger (KR) to sell certain products at the grocer’s locations and through online channels. Still, the Bed Bath & Beyond stock is also benefiting from its status as a “meme stock,” so the initial buying has forced short-sellers to buy shares back.

Zillow Group (ZG) stock dropped 19% after seeing several analyst downgrades after the company said it will terminate its home buying and selling business. 


Shake Shack (SHAK) stock gained 3.8% after getting upgraded to Buy from Neutral at Northcoast.


CVS Health (CVS) stock rose 3.6% after the company reported a profit of $1.97 a share, beating estimates of $1.78 a share, on sales of $73.8 billion, above expectations for $70.5 billion.

Write to Jacob Sonenshine at jacob.sonenshine@barrons.com

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Business

Tesla Stock Is Dropping. Here’s What’s Really Behind the Slide.

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Tesla shares are dropping. Recalls and uncertainty could be responsible. A third reason, however, is most likely.


Joe Raedle/Getty Images

Text size


Tesla

stock can’t go up forever, and finally turned lower on Tuesday. Reports of recalls and uncertainty about the company’s deal with Hertz are two potential reasons, but a third factor may be the real key.

Tesla (ticker: TSLA) stock was down 1.6% in morning trading, following a slump of as much as 5% before the open. The


S&P 500
and


Dow Jones Industrial Average
were up 0.3% and 0.2%, respectively.

Tesla stock has been on a tear. It has risen eight of the past nine trading sessions, and has gained 70% over the past three months. Its shares have been buoyed by signs that the company really has won the EV race, signing a deal with Hertz (HTZ) for 100,000 electric vehicles. Companies such as


Ford

Motor (F) and


General Motors

(GM) have announced enormous spending plans to try to close the gap.

No surprise, then, that the stock would react badly to potentially negative headlines. First, Musk himself tweeted that Tesla had yet to sign a contract with


Hertz

(HTZZ). Then came the announcement that the company would be recalling 11,700 vehicles.

The Musk tweet, however, was intended as a positive. The Hertz deal is Tesla’s first large fleet sale. Fleet sales tend to be lower-margin. Fleet buyers look for volume discounts and don’t often buy all the high-end options individual consumers do.

Musk has assured investors, on


Twitter

(TWTR), a couple of times that Tesla is selling all the cars it can make and isn’t giving any discounts these days.

Hertz shares initially took a hit because of the tweet, starting off with a loss of about 6% in premarket trading. But nothing happens in a vacuum.

Hertz’s peer


Avis Budget

(CAR) reported better-than-expected results Monday evening, sending the stock up about 1% in premarket trading, despite year-to-date gains of about 360%. Rental-car demand and operating metrics are improving.

In late morning trading, it looked as if meme traders were squeezing short sellers, as they did with


GameStop

stock at the start of the year. Avis stock was up 162% to $450 a share, bringing Hertz is along for the ride with a gain of about 16%.

For Tesla stock, the recall might be a bigger deal than the status of the sale to Hertz. The cars are being recalled because of a software-communication error that can activate automatic emergency braking. The fix is an over-the-air software update. Tesla has faced more regulator scrutiny over driver-assistance features in recent months.

What’s more, Tesla recently introduced a “beta” version of its latest full-self-driving software to Tesla drivers who qualified for the upgrade. Tesla believes its software makes vehicles safer. Regulators, however, still need to adjust to cars being improved by software updates and how to handle changes made to software to fix bugs.

Any news, however, could have sparked a selloff in Tesla stock. The stock is extremely overbought, which is to say that it is rising quickly relative to its own history. When things get extreme, stocks can revert to the mean. Tesla’s relative strength reading is at 94. A reading of 50 is, essentially, normal and levels of above 70 generally have traders looking for a drop.

Coming into Tuesday, Tesla stock has outperformed the S&P 500 by about 77 percentage points over the past 100 days, as Datatrek Research pointed out in a Tuesday note. That’s a lot, but not unheard of for Tesla.

“Crazy as it sounds, the stock’s recent rally is pretty normal action for this name,” the research outfit said. With outperformance like that, investors don’t really need an excuse to take profits.

Tesla stock has a long way to go before it will look ripe for a hit.

Write to Ben Levisohn at ben.levisohn@barrons.com

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Business

Stock Market Today: S&P 500, Nasdaq Dip After Apple and Amazon Woes

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Oil companies Chevron and Exxon Mobil will be in the earnings spotlight at the end of a busy week.


David McNew/Getty Images

The stock market retreated from earlier gains Friday after


Apple

and


Amazon.com

reported disappointing quarterly results. Plus, signs of caution about the economy weighed on stocks across the board.

In afternoon trading, the


Dow Jones Industrial Average
was flat, after the index climbed 239 points Thursday to close at 35,780. The


S&P 500
and the


Nasdaq Composite
were both down 0.1% Both the Nasdaq and the S&P 500 hit record highs at the close Thursday.

Despite the weak finish, October has been a strong month for stocks. The S&P 500 has gained 5.5% for the month of October, which saw the market rebound from an early autumn drawdown. In September, concerns about supply chain constraints and rising bond yields pushed stocks lower.

Several factors enabled stocks to rebound this month. Bond yields have paused in their larger ascent. Companies have mostly beat earnings estimates. And while risks still remain—yields aren’t necessarily finished rising and supply chain constraints aren’t easing much—retail investors bought the dip.

“They [retail investors] saw the 5% [market decline] and so when they see the opportunity to buy down 5% they step in and they do that,” said John Ham, wealth advisor at New England Investments & Retirement Group.  

Big Tech earnings put the issue of shortages on center stage on Friday.


Apple

(ticker: AAPL) stock fell 2.1% after the company reported a profit of $1.24 a share, in line with estimates, on sales of $83.4 billion, below expectations for $84.9 billion. The company said supply-chain constraints due to chip shortages were worse than expected. iPhone sales were $38.9 billion, below expectations for $41.5 billion. 


Amazon

(AMZN) stock dropped 2.9% after the company reported a profit of $6.12 a share, missing estimates of $8.92 a share, on sales of $110.8 billion, below expectations for $111.6 billion. The company said labor shortages, higher shipping costs, and other rising expenses are eating into profits. Management also guided for current quarter sales of $135 billion at the midpoint of its range, below analysts’ expectations for $142 billion. 

Even if Apple and Amazon stocks were having a better day, the stock market would still look fairly weak. Just over half of S&P 500 stocks were in the red, according to FactSet. 

This comes as the yield curve—the difference in yield between long-dated and short-term debt—declined. The 10-Year Treasury yield slipped to 1.56% from hitting 1.61% earlier. The 2-Year yield held at 0.5%, where it has mostly sat since Tuesday. Higher short-term rates indicate markets anticipate a Federal Reserve rate hike sooner rather than later, which could lower long-term economic demand and inflation. Some on Wall Street have recently flagged the falling yield curve as a potential risk to monitor.

In cryptocurrency markets, Ethereum—the leading crypto asset after Bitcoin—hit an all-time high above $4,400, according to data from CoinDesk.

Here are six stocks on the move Friday:


Chevron

(CVX) gained 0.9% after the company reported a profit of $2.96 a share, beating estimates of $2.21 a share, on sales of $44.7 billion, above expectations for $40.5 billion. 


Starbucks

(SBUX) stock dropped 7.4% after the company reported a profit of $1, beating estimates of 99 cents, on sales of $8.1 billion, below expectations for $8.2 billion. 


Newell Brands

(NWL) stock rose 5.1% after the company reported a profit of 54 cents a share, beating estimates of 50 cents a share, on sales of $2.79 billion, above expectations for $2.78 billion. 


Caterpillar

(CAT) stock rose 0.3% after getting upgraded to Buy from Neutral at UBS. 


Synchrony Financial

(SYF) stock rose 0.3% after getting upgraded to Buy from Neutral at Citigroup. 


U.S. Steel

(X) soared 12% following third-quarter earnings Thursday that smashed expectations and an announcement that the company would raise its dividend.

Write to Jacob Sonenshine at jacob.sonenshine@barrons.com

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Business

Here’s what the Fed will do — if it follows what Powell said at last year’s Jackson Hole address

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Get out your popcorn, and get your trading apps open — after months in the waiting, Federal Reserve Chair Jerome Powell is set to deliver remarks on the economic outlook at the Kansas City Fed’s Jackson Hole economic symposium.

Expect him to inch up to the line, but not quite announce, that the Fed will end its bond-buying program. The delta variant has supressed progress on a number of economic indicators, ranging from airline travel to purchasing manager gauges of activity, so Powell will have reason to say, let’s wait for another month or two of data before committing to a taper.

But there’s another reason why the Fed should wait — the framework that Powell himself introduced at last year’s Jackson Hole, called average inflation targeting. “We will seek to achieve inflation that averages 2% over time. Therefore, following periods when inflation has been running below 2%, appropriate monetary policy will likely aim to achieve inflation moderately above 2% for some time,” he said in 2020.

Now Powell didn’t actually define the “time” element. If time means three years, inflation is still below target, as the chart shows. “It is needless to say that the hurdle rate for rate hikes due to inflation is extremely high under the new Fed framework and that this year’s US treasury rates move was unwarranted,” said Mondher Bettaieb-Loriot, head of corporate bonds at Vontobel Asset Management.

Bettaieb-Loriot may not be correct in his call that tapering’s unlikely before well into 2022; after all, during the July meeting in which “most” Fed officials said it would make sense to start reducing purchases, the 3-year rolling average of inflation was below target. Put another way, the Fed’s commitment to its new framework has been shaky. It will be interesting to see whether Powell makes a fresh commitment to it, or not.

The buzz

The Powell speech is due at 10 a.m. Eastern, and a gaggle of other policymakers will be interviewed on the major business news networks through the day. Ahead of that, there’s data on the PCE price index for July, as well as trade in goods data from July.

There were a number of corporate earnings releases delivered late Thursday. Gap
GPS,
-4.11%
surged as the retailer’s earnings came in well ahead of estimates, with online sales now representing a third of total revenue. Peloton Interactive
PTON,
-1.86%
shares slumped on the exercise bike company’s outlook and price cuts. Enterprise software provider VMware
VMW,
+0.20%
also slumped after its latest results.

The two U.S. major makers of personal computers, HP
HPQ,
-0.99%
and Dell
DELL,
-0.50%,
also reported results, with HP missing estimates on sales. Read: The PC boom is wobbly as the most important time of year approaches

Apple
AAPL,
-0.55%
will allow app makers to direct consumer payments outside of its App Store, a response to a number of antitrust lawsuits against it.

Microsoft
MSFT,
-0.97%
has warned thousands of its cloud customers that their databases may have been exposed to intruders, according to an email obtained by Reuters.

Tesla
TSLA,
-1.41%
is trying to sell electricity directly to consumers in Texas, according to Texas Monthly.

China plans to ban U.S. initial public offerings for data-heavy tech firms, The Wall Street Journal reported.

Evacuations resumed in Afghanistan after the deadly bombings in Kabul.

The markets

U.S. stock futures
ES00,
+0.26%

YM00,
+0.20%
nudged higher ahead of the Powell speech. The yield on the 10-year Treasury
TMUBMUSD10Y,
1.345%
slipped to 1.34%.

Random reads

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An Austrian bank is trying woo customers — with every meme you can think of.

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Business

Barrick Gold Earnings Beat Forecasts. Its Stock Is Falling.

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Photograph by Carla Gottgens/Bloomberg

Shares of

Barrick Gold

slipped Monday morning despite beating earnings forecasts as gold prices slide.

Barrick Gold (ticker: GOLD) reported a profit of 29 cents a share, beating forecasts for 28 cents, on revenue of $2.89 billion, missing expectations for $3.06 billion. Barrick stock dropped 1% to $20.58 at 10:48 a.m. easter.

Barrick’s revenue miss hurt, but so did an overnight decline in gold prices, which saw the precious metal drops about $60 an ounce in just a few minutes. Gold dropped more than 4% but has rebounded to $1,738.40 an ounce, off 1.4% on the day.

Barrick has dropped 8.7% in 2021 after declining 13% during the past three months. It has underperformed the

S&P 500,

which has gained 18% this year after rising 5.9% during the past three months.

Write to Ben Levisohn at ben.levisohn@barrons.com

 

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