Tag Archives: Computers/Electronics

Despite ban, China nuclear-weapons lab has bought U.S. chips for years

SINGAPORE — China’s top nuclear-weapons research institute has bought sophisticated U.S. computer chips at least a dozen times in the past two and half years, circumventing decades-old American export restrictions meant to curb such sales.

A Wall Street Journal review of procurement documents found that the state-run China Academy of Engineering Physics has managed to obtain the semiconductors made by U.S. companies such as Intel Corp.
INTC,
-6.41%
and Nvidia Corp.
NVDA,
+2.84%
since 2020 despite its placement on a U.S. export blacklist in 1997.

The chips, which are widely used in data centers and personal computers, were acquired from resellers in China. Some were procured as components for computing systems, with many bought by the institute’s laboratory studying computational fluid dynamics, a broad scientific field that includes the modeling of nuclear explosions.

Such purchases defy longstanding restrictions imposed by the U.S. that aim to prevent the use of any U.S. products for atomic-weapons research by foreign powers. The academy, known as CAEP, was one of the first Chinese institutions put on the U.S. blacklist, known as the entity list, because of its nuclear work.

A Journal review of research papers published by CAEP found that at least 34 over the past decade referenced using American semiconductors in the research. They were used in a range of ways, including analyzing data and generating algorithms. Nuclear experts said that in at least seven of them, the research can have applications to maintaining nuclear stockpiles. CAEP didn’t respond to requests for comment.

The findings underline the challenge facing the Biden administration as it seeks to more aggressively counter the use of American technology by China’s military. In October, the U.S. expanded the scope of export regulations to prevent China from obtaining the most advanced American chips and chip-manufacturing tools that power artificial intelligence and supercomputers, which are increasingly important to modern warfare.

An expanded version of this report appears on WSJ.com.

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Opinion: This record number in Nvidia earnings is a scary sight

Nvidia Corp.’s financial results had a bit of a surprise for investors, and not on the good side — product inventories doubled to a record high as the chip company gears up for a questionable holiday season.

Nvidia reported fiscal third-quarter revenue that was slightly better than analysts’ reduced expectations Wednesday, but the numbers weren’t that great. Revenue fell 17% to $5.9 billion, while earnings were cut in half thanks to a $702 million inventory charge, largely relating to slower data-center demand in China.

Gaming revenue in the quarter fell 51% to $1.57 billion. Nvidia said it is working with its retail partners to help move the currently high-channel inventories.

While the company was writing off the inventory for China, its own new product inventory was growing. Nvidia
NVDA,
-4.54%
reported that its overall product inventory nearly doubled to $4.45 billion in the fiscal third quarter, compared with $2.23 billion a year ago and $3.89 billion in the prior quarter. Executives cited its coming product launches, designed around its new Ada and Hopper architectures, when asked about the inventory gains.

In the semiconductor industry, high inventories can make investors nervous, especially after the industry had so many supply constraints in recent years that quickly swung to a glut of chips in 2022. With doubts about demand for gaming cards and consumers’ willingness to spend amid sky-high inflation this holiday season, having all that product on hand just amps up the nerves.

Full earnings coverage: Nvidia profit chopped in half, but tweaked servers to China offset earlier $400 million warning

Chief Financial Officer Colette Kress told MarketWatch in a telephone interview Wednesday that the company’s high level of inventories were commensurate with its high levels of revenue.

“I do believe….it is our highest level of inventory,” she said. “They go hand in hand.” Kress said she was confident in the success of Nvidia’s upcoming product launches.

Nvidia’s revenue reached a peak in the April 2022 quarter with $8.3 billion, and in the past two quarters revenue has slowed, with gaming demand sluggish amid a transition to a new cycle, and a decline in China data-center demand due to COVID-19 lockdowns and U.S. government restrictions.

For its data-center customers, the new architectures promise major advances in computing power and artificial-intelligence features, with Nvidia planning to ship the equivalent of a supercomputer in a box with its new products over the next year. Those types of advanced products weigh on inventory totals even more, Kress said, because of the price of the total package.

“It’s about the complexity of the system we are building, that is what drives the inventory, the pieces of that together,” Kress said.

Bernstein Research analyst Stacy Rasgon believes that products based on Hopper will begin shipping over the next several quarters, “at materially higher price points.” He said in a recent note that he believes Nvidia’s numbers were likely hitting a bottom in this quarter.

“We remain positive on the Hopper ramp into next year, and believe numbers have at this point likely reached close to bottom, with new cycles brewing and an attractive secular story even without China potential,” Rasgon said in an earnings preview note Tuesday.

Read also: Warren Buffett’s chip-stock purchase is a classic example of why you want to be ‘greedy only when others are fearful’

Nvidia Chief Executive Jensen Huang reminded investors on a conference call that the company’s inventories are “never zero,” and said everyone is enthusiastic about the upcoming launches. But it doesn’t take too long of a memory to conjure up a time when Nvidia went into a holiday with an inventory backlog that included new architecture and greatly disappointed investors: Four years ago, Huang had to cut his forecast for holiday earnings twice amid a “crypto hangover” with similar dynamics to the current moment

Investors need faith that this holiday season will not be the same, even as demand for some videogame products declines after a pandemic boom just as the market for cryptocurrency — some of which has been mined with Nvidia products — hits a rough patch. Huang said that Nvidia’s RTX 4080 and 4090 graphics cards based on the Ada Lovelace architecture had an “exceptional launch,” and sold out.

Nvidia shares gained more than 2% in after-hours trading Wednesday, suggesting that some are betting that this time will be different. That enthusiasm needs to translate into revenue for Nvidia so that this big gain in inventories does not end up being part of another write-down at some point in the future.

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Apple introduces new iPad and iPad Pro with speed enhancements

Apple Inc. quietly announced upgrades to two of its iPad models Tuesday, through announcements lacking the fanfare of the company’s recent iPhone 14 debut.

Instead of hosting an event to reveal the iPad updates as it did for the iPhone, Apple
AAPL,
+0.94%
simply announced the refreshed devices in a series of press releases. The company is enhancing its iPad Pro with the inclusion of its faster M2 chip and also delivering speed upgrades in its new base-level iPad.

The M2 chip seems to be the biggest change in the new iPad Pro. Apple says the chip has a central processing unit (CPU) that’s up to 15% faster than what was on the prior-generation M1 chip, while the graphics processing unit (GPU) can bring up to 35% faster graphics performance.

Apple suggests the chip will prove helpful to power users, such as “photographers editing massive photo libraries and designers manipulating complex 3D objects.”

The iPad Pro also supports a “hover” feature for the Apple Pencil, which detects the pencil up to 12 millimeters above the display so that users can see a preview of their mark before they touch the screen to draw or write.

The 11-inch iPad Pro will begin at $799 for the Wi-Fi version and $999 for the cellular version, while the 12.9-inch iPad Pro starts at $1,099 with just Wi-Fi and $1,299 with the cellular option.

Apple also updated its base iPad model, this time moving the front-facing camera to the landscape edge of the device in what Apple says is a first for any of its iPads.

“Whether users are on a FaceTime call or recording a video for social media, they will always be looking right toward the camera,” Apple said in the release. The camera has a 12-megapixel sensor and a 122-degree field of view.

Apple is putting its A14 Bionic chip in the new base-level iPad, which the company says will bring improvements in CPU and graphics performance. Apple is also moving the Touch ID reader to the top button on the iPad.

The device will come in blue, pink, yellow, and silver color options. The Wi-Fi version starts at $449 and the cellular-connected version begins at $599.

Both refreshed models are currently up for preorder, with availability beginning Oct. 26.

The upgrades come as Apple looks to once again drive growth in the iPad category. The device proved popular during the pandemic as people sought new electronics that would help them work and study from home, but now momentum is harder to come by: Apple posted $7.22 billion in iPad revenue during its June quarter, down from $7.37 billion a year before.

The company refreshed its 4K Apple TV as well on Tuesday, giving a performance boost with the A15 Bionic chip that the company says will make gameplay faster.

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These 11 stocks can lead your portfolio’s rebound after the S&P 500 ‘earnings recession’ and a market bottom next year

This may surprise you: Wall Street analysts expect earnings for the S&P 500 to increase 8% during 2023, despite all the buzz about a possible recession as the Federal Reserve tightens monetary policy to quell inflation.

Ken Laudan, a portfolio manager at Kornitzer Capital Management in Mission, Kan., isn’t buying it. He expects an “earnings recession” for the S&P 500
SPX,
+2.69%
— that is, a decline in profits of around 10%. But he also expects that decline to set up a bottom for the stock market.

Laudan’s predictions for the S&P 500 ‘earnings recession’ and bottom

Laudan, who manages the $83 million Buffalo Large Cap Fund
BUFEX,
-2.86%
and co-manages the $905 million Buffalo Discovery Fund
BUFTX,
-2.82%,
said during an interview: “It is not unusual to see a 20% hit [to earnings] in a modest recession. Margins have peaked.”

The consensus among analysts polled by FactSet is for weighted aggregate earnings for the S&P 500 to total $238.23 a share in 2023, which would be an 8% increase from the current 2022 EPS estimate of $220.63.

Laudan said his base case for 2023 is for earnings of about $195 to $200 a share and for that decline in earnings (about 9% to 12% from the current consensus estimate for 2022) to be “coupled with an economic recession of some sort.”

He expects the Wall Street estimates to come down, and said that “once Street estimates get to $205 or $210, I think stocks will take off.”

He went further, saying “things get really interesting at 3200 or 3300 on the S&P.” The S&P 500 closed at 3583.07 on Oct. 14, a decline of 24.8% for 2022, excluding dividends.

Laudan said the Buffalo Large Cap Fund was about 7% in cash, as he was keeping some powder dry for stock purchases at lower prices, adding that he has been “fairly defensive” since October 2021 and was continuing to focus on “steady dividend-paying companies with strong balance sheets.”

Leaders for the stock market’s recovery

After the market hits bottom, Laudan expects a recovery for stocks to begin next year, as “valuations will discount and respond more quickly than the earnings will.”

He expects “long-duration technology growth stocks” to lead the rally, because “they got hit first.” When asked if Nvidia Corp.
NVDA,
+5.93%
and Advanced Micro Devices Inc.
AMD,
+3.77%
were good examples, in light of the broad decline for semiconductor stocks and because both are held by the Buffalo Large Cap Fund, Laudan said: “They led us down and they will bounce first.”

Laudan said his “largest tech holding” is ASML Holding N.V.
ASML,
+3.60%,
which provides equipment and systems used to fabricate computer chips.

Among the largest tech-oriented companies, the Buffalo Large Cap fund also holds shares of Apple Inc.
AAPL,
+3.13%,
Microsoft Corp.
MSFT,
+3.85%,
Amazon.com Inc.
AMZN,
+6.28%
and Alphabet Inc.
GOOG,
+4.05%

GOOGL,
+3.86%.

Laudan also said he had been “overweight’ in UnitedHealth Group Inc.
UNH,
+1.31%,
Danaher Corp.
DHR,
+2.60%
and Linde PLC
LIN,
+2.30%
recently and had taken advantage of the decline in Adobe Inc.’s
ADBE,
+1.97%
price following the announcement of its $20 billion acquisition of Figma, by scooping up more shares.

Summarizing the declines

To illustrate what a brutal year it has been for semiconductor stocks, the iShares Semiconductor ETF
SOXX,
+2.02%,
which tracks the PHLX Semiconductor Index
SOX,
+2.22%
of 30 U.S.-listed chip makers and related equipment manufacturers, has dropped 44% this year. Then again, SOXX had risen 38% over the past three years and 81% for five years, underlining the importance of long-term thinking for stock investors, even during this terrible bear market for this particular tech space.

Here’s a summary of changes in stock prices (again, excluding dividends) and forward price-to-forward-earnings valuations during 2022 through Oct. 14 for every stock mentioned in this article. The stocks are sorted alphabetically:

Company Ticker 2022 price change Forward P/E Forward P/E as of Dec. 31, 2021
Apple Inc. AAPL,
+3.13%
-22% 22.2 30.2
Adobe Inc. ADBE,
+1.97%
-49% 19.4 40.5
Amazon.com Inc. AMZN,
+6.28%
-36% 62.1 64.9
Advanced Micro Devices Inc. AMD,
+3.77%
-61% 14.7 43.1
ASML Holding N.V. ADR ASML,
+3.60%
-52% 22.7 41.2
Danaher Corp. DHR,
+2.60%
-23% 24.3 32.1
Alphabet Inc. Class C GOOG,
+4.05%
-33% 17.5 25.3
Linde PLC LIN,
+2.30%
-21% 22.2 29.6
Microsoft Corp. MSFT,
+3.85%
-32% 22.5 34.0
Nvidia Corp. NVDA,
+5.93%
-62% 28.9 58.0
UnitedHealth Group Inc. UNH,
+1.31%
2% 21.5 23.2
Source: FactSet

You can click on the tickers for more about each company. Click here for Tomi Kilgore’s detailed guide to the wealth of information available free on the MarketWatch quote page.

The forward P/E ratio for the S&P 500 declined to 16.9 as of the close on Oct. 14 from 24.5 at the end of 2021, while the forward P/E for SOXX declined to 13.2 from 27.1.

Don’t miss: This is how high interest rates might rise, and what could scare the Federal Reserve into a policy pivot

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Opinion: Adobe’s stock got slammed for spending $20 billion on Figma. But it now owns a rare company.

Adobe beat revenue and profit expectations, and on the same day announced it would acquire a smaller but faster-growing rival in online design-collaboration tools. The stock market rewarded the company by pushing down its shares
ADBE,
-3.12%
to the lowest level in almost three years. 

Investors punished the company not for its earnings report, released Thursday, but for their disdain of the Figma deal. Specifically, the deal’s price. 

Read: Nervous investors are slamming tech deals. Just look at Adobe.

In a $20 billion half-cash, half-stock transaction, Figma became the highest-multiple cloud-scale SaaS deal ever done. An estimated $400 million in revenue for all of 2022 marks this deal at around 50 times this year’s revenue in what I believe to be the second-largest software as a service deal in history. 

In this market, where growth is persona non grata, the market deemed this deal a bridge too far. However, in this case, the market may have gotten this wrong.

Figma is among the fastest-growing companies 

If you aren’t familiar with Figma, it’s a red-hot, venture-backed (before Thursday) company that makes collaboration tools used for digital experiences. While Figma was founded in 2011, the first five years were spent trying to get to product. The company printed its first dollar in revenue in 2017 and will hit $400 million in annual recurring revenue (ARR) in 2022. 

For those who aren’t familiar with SaaS economics, hitting $400 million in recurring revenue in just over 10 years is remarkable. However, doing so five years from the first dollar of revenue is even more impressive.

For reference, the average cloud-scale SaaS company books $10 million in revenue after about 4.5 years, according to Kimchi Hill. In the same study, assessing more than 72 SaaS companies that reached $100 million, only eight did so in less than five years from the first dollar — and that was precisely $100 million. Most take five to 10 years to hit $100 million, and well-known names like DocuSign
DOCU,
-6.14%,
Coupa
COUP,
-4.28%,
RingCentral
RNG,
-5.34%
and Five9
FIVN,
-4.22%
took 10 to 15 years. 

Beyond its speedy growth, the company is also performing in a way that should have been lauded by at least the savviest of investors. Its 150% net customer retention rate, 90% gross margins, high organic growth and positive operating cash flow make it more of what investors want in a company today. Adobe already grows in the double digits, plays in attractive markets, compounds ARR and, at this point, has seen its multiple come way down off its highs. 

It is also worth considering how Figma may benefit from Adobe’s strong market position, known product portfolio and defined channels, and go-to-market strategies to speed its growth in this space with a total addressable market of about $16.5 billion. 

Rare companies are still rare 

Perhaps it sounds as if I’m gushing over this deal. I want to be clear that I am not. At least not yet.

However, the hive mind of the market can be quite perplexing at times, and there is a data-driven story here that justifies Adobe’s decision to buy Figma at such a lofty price. Unfortunately, we won’t know with any certainty for five or even 10 years. Investors may not like that, but Adobe’s longevity depends on operating with the longer term in mind. 

Tough economy or not, rare companies are still rare, and Figma is traversing market conditions and delivering growth in a large market, drawing Adobe in at an unprecedented price. Perhaps higher than it should have, or could have, paid. 

However, based on its rapid revenue growth, strong net dollar retention, 100% growth rate in 2022, massive margins and apparent synergies across the Adobe portfolio, it may be Adobe that has the last laugh on this one. 

Daniel Newman is the principal analyst at Futurum Research, which provides or has provided research, analysis, advising or consulting to Adobe, Five9 and dozens of other technology companies. Neither he nor his firm holds any equity positions in companies cited. Follow him on Twitter @danielnewmanUV.



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Ray Dalio says watch out for rates reaching this level, because Wall Street stocks will take a 20% hit

After that CPI shock earlier in the week, Wall Street is fielding a fresh batch of data on Thursday, with the headline retail sales number coming in stronger than expected. And a disastrous rail strike may be inverted.

But there’s no cheering up billionaire investor and hedge-fund manager Ray Dalio who in our call of the day asserts the Fed has no choice but to keep driving up interest rates, at a high price to stocks.

And he’s putting some fairly precise guesswork out there. “I estimate that a rise in rates from where they are to about 4.5% will produce about a 20% negative impact on equity prices,” Dalio said in a LinkedIn post dated Tuesday.

Some are forecasting the Fed could hike interest rates by 100 basis points next week, a move not seen since the likewise inflationary 80s. The central bank’s short-term rate hovers between 2.25% to 2.5%, but Nomura, for one, sees that rate headed to 4.75% by 2023.

But Dalio thinks interest rates could even reach the higher end of a 4.5%-to-6% range. “This will bring private sector credit growth down, which will bring private sector spending, and hence the economy down with it,” he says.

Behind this prediction is the Bridgewater Associates founder belief that the market is severely underestimating where inflation will end up — at 2.6% over the next 10 years versus what he sees as 4.5% to 5% in the medium term, barring shocks.

Read: Why a single U.S. inflation report roiled global financial markets — and what comes next

As for what happens when people start losing money in the markets — the so-called “wealth effect” — he expects less spending as they and their lenders grow more cautious.

“The upshot is that it looks likely to me that the inflation rate will stay significantly above what people and the Fed want it to be (while the year-over-year inflation rate will fall), that interest rates will go up, that other markets will go down, and that the economy will be weaker than expected, and that is without consideration given to the worsening trends in internal and external conflicts and their effects.”

The markets

Stock futures
ES00,
-0.25%

YM00,
+0.02%

NQ00,
-0.48%
are slightly lower post data, as Treasury yields
TMUBMUSD10Y,
3.437%

TMUBMUSD02Y,
3.852%
keep climbinging and the dollar
DXY,
-0.10%
firms up.

Oil prices
CL.1,
-1.63%
are lower, along with gold
GC00,
-0.83%.
China stocks
SHCOMP,
-1.16%

HSI,
+0.44%
slipped after the country’s central bank left rates unchanged. European natural-gas prices
GWM00,
+4.13%
are on the rise again. Bitcoin
BTCUSD,
+0.64%
is trading at just over $20,000.

The buzz

Shares of Union Pacific
UNP,
-3.69%,
Norfolk Southern 
NSC,
-2.16%
and CSX
CSX,
-1.05%
 are rallying in premarket after the White House said it has reached a tentative railway agreement with unions. No deal by Friday would mean strikes and havoc for supply chains, grain markets and even the coming holidays. Read more here.

August retail sales rose a stronger-than-expected 0.3% as Americans spent on new cars while weekly jobless claims came in lower for a fifth-straight week and import prices dropped 1%. Elsewhere, the Empire State manufacturing index perked up on the heels of a deep negative reading, but the Philly Fed factory index worsened. Industrial production and business inventories are still to come.

Adobe shares
ADBE,
+0.85%
are dropping after a report the software company is mulling a $20 billion deal to buy graphic design startup Figma .

Vitalik Buterin, one of the co-founders of Ethereum, says the so-called “merge” is done, meaning the birth of a more environmentally friendly crypto. Ethereum
ETHUSD,
-1.22%
is up just a little right now.

A new lawsuit claims Tesla
TSLA,
+3.59%
has made false promises over Autopilot and Full Self Driving features. And move over Tesla, Apple
AAPL,
+0.96%
is now Wall Street’s biggest short bet.

Ericsson
ERIC,
-3.32%

ERIC.A,
-1.78%

ERIC.B,
-3.34%
is dropping after a double downgrade at Credit Suisse, who cited inflationary headwinds. Analysts lifted Nokia
NOKIA,
-0.51%

NOK,
-0.40%
to outperform, though the stock is barely moving.

Cathie Wood’s Ark Investment Management went on a dip-buying spree after Tuesday’s market meltdown, scooping up chiefly Roku
ROKU,
+0.44%.

Opinion: Pinterest never considered itself a social network. Until now.

Patagonia billionaire Yvon Chouinard is donating his entire company — worth $3 billion — to the climate fight.

Best of the web

No U.S. shale rescue for Europe.

Turkey finds an extra $24.4 billion laying around.

Queue to pay respects to Queen is 2.6 miles long and counting.

The tickers

These were the top-searched tickers on MarketWatch as of 6 a.m. Eastern Time:

Ticker Security name
TSLA,
+3.59%
Tesla
GME,
+1.01%
GameStop
AMC,
+1.95%
AMC Entertainment
BBBY,
+4.66%
Bed Bath & Beyond
HKD,
+311.78%
AMTD Digital
NIO,
-0.14%
NIO
AAPL,
+0.96%
Apple
APE,
+0.94%
AMC Entertainment preferred shares
AMZN,
+1.36%
Amazon
NVDA,
-0.02%
Nvidia
Random reads

Scientists try to teach robots comedic timing

Sausage, mozzarella, batter. Meet South Korea’s hot dog.

Need to Know starts early and is updated until the opening bell, but sign up here to get it delivered once to your email box. The emailed version will be sent out at about 7:30 a.m. Eastern.

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Apple plans to unveil iPhone 14 at Sept. 7 event: report

Apple Inc. is expected to unveil its latest line of iPhones and smartwatches on Sept. 7, according to a new report.

Bloomberg News reported Wednesday that the tech giant will update its flagship smartphones amid a busy fall product rollout that includes three new Apple Watch models and multiple new versions of Macs and iPads by year’s end.

But the iPhone 14 launch is by far the biggest deal for Apple. Last quarter, Apple reported $40.67 billion in revenue from iPhone sales, up from $39.57 billion a year prior, and roughly half of the company’s total revenue. That beat analysts’ expectations, defying global supply-chain problems and rising inflation.

The iPhone 14 will reportedly feature a better camera but otherwise fairly minor technological upgrades, and will add a version with a 6.7-inch screen while eliminating the 5.4-inch “mini” version.

Analysts are bullish on Apple’s outlook. Credit Suisse’s Shannon Cross on Wednesday named Apple of of her “top picks,” raising her rating on the stock to outperform from neutral, with a $201 price target, while Wedbush’s Dan Ives told CNBC that demand for Apple products will likely remain strong next year.

Apple shares
AAPL,
+0.88%
closed slightly higher Wednesday, at $174.55, and are down about 2% year to date, following a 24% rally over the past three months. In comparison, the S&P 500
SPX,
-0.72%
is down 10% in 2022, after a 9% gain over the past three months.

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Opinion: Google and Microsoft earnings show the bar has been lowered for Big Tech

Alphabet Inc. and Microsoft Corp. both reported results that missed Wall Street’s expectations Tuesday, but not only did investors not melt down, both actually saw their stocks rise in after-hours trading.

Amid troubling economic signs, tech stocks have been battered so far this year, and fears about a slowdown among Big Tech names had Wall Street on edge heading into this week. But the reactions to earnings misses Tuesday afternoon show that the fears and declines so far this year have resulted in a lowered bar for even the biggest of the Big Tech names.

Microsoft
MSFT,
-2.68%
missed on both revenue and profit expectations, and forecast that its cloud business, Azure, will grow about 43% in the September quarter, amid fears of slowing cloud growth. While the four-percentage-point deceleration from the previous quarter’s growth rate may have led to sharp declines in the past, Microsoft stock jumped as soon as the forecast was provided.

Google parent Alphabet
GOOGL,
-2.32%

GOOG,
-2.56%
reported an earnings decline for a second quarter in a row, and told analysts on its conference call that a slowdown by ad buyers impacted its second quarter. Yet Alphabet shares were up nearly 5% in after-hours trading.

“In context of the weakening macro backdrop, Alphabet’s Q2 results were decent, with close to in-line revenues across all key business segments,” wrote Colin Sebastian, an analyst with Baird Equity Research, in a note to clients, summing up the general view on Wall Street that things were not yet as bad as feared.

Much like the relief rally seen by Meta Platforms Inc.
META,
-4.50%
shares three months ago, however, this is a case of numbers that, while good enough to avoid tanking their stocks, still shouldn’t actually be seen as “good.” Both companies warned about the macroeconomy, and clearly each company has businesses that are slowing sharply right now.

In Alphabet’s case, revenue at YouTube, a recent star, grew a scant 3% in the second quarter, compared with 14.3% growth in the first quarter, due to overall advertiser pullbacks in spending and more competition from TikTok. Microsoft saw its PC business soften, as the big PC boom of the pandemic is over. The advertising slowdown is also affecting its LinkedIn business, while the Xbox business is slowing rapidly as the pandemic-fueled surge in videogames wears off.

But those stocks are not facing the wrath reserved for some smaller competitors. Last week, social-media company Snap Inc.
SNAP,
-3.22%
raised more fears among investors about internet ad spending, and its stock plunged as the overall economy battles with inflation, changing consumer patterns and higher interest rates.

Microsoft and Google were able to avoid the same fate, though it’s possible that it will just take longer for the slowdown to actually affect companies so large, and with dominant positions in important industries. But make no mistake, there is a slowdown, and it is affecting Big Tech, just maybe not to the degree that it will result in big chunks taken out of their gargantuan market caps — yet.

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U.S. stocks push higher as Powell sees path back to 2% inflation while sustaining strong labor market

U.S. stock indexes pushed higher after a wobbly start Wednesday, leaving Wall Street potentially on to gain ground after back-to-back losses, as investors tune in to remarks by central bankers while fretting that soaring inflation is damaging the world’s biggest economy.

How are stock indexes trading?
  • The Dow Jones Industrial Average
    DJIA,
    +0.12%
     was up 196 points, or 0.6%, at 31,143.
  • The S&P 500
    SPX,
    -0.23%
     traded up 15 points, or 0.4%, at 3,836.
  • The Nasdaq Composite
    COMP,
    -0.43%
    gained 42 points, or 0.4%, to 11,223.

On Tuesday, the Dow fell 491.27 points, or 1.6%. The S&P 500 fell 2% and the Nasdaq Composite dropped 3%. All three booked their worst daily percentage declines since June 16, according to Dow Jones Market Data.

What’s driving markets?

Federal Reserve Chair Jerome Powell said Wednesday at a European Central Bank forum on central banking that he sees a path back to 2% inflation while sustaining strong labor market, but warned there was “no guarantee that we can do that.”

Investors were also listening to remarks from European Central Bank President Christine Lagarde, Bank of England Gov. Andrew Bailey and Augustin Carstens, head of Bank for International Settlements, to speak at speak at the same conference.

On U.S. economic data, the first-quarter GDP was revised to show an 1.6% decline, compared with the prior 1.5% drop.

Equities were limping toward the end of a miserable first half of the year. The S&P 500 is down 19.6% so far in 2022, hit by concerns that inflation rates at multidecade highs are badly damaging household sentiment and that the Federal Reserve’s response to surging prices may tip the economy into recession.

Read: What’s next for the stock market after the worst 1st half since 1970? Here’s the history.

On Tuesday, the Conference Board’s consumer-confidence index dropped in June to a 16-month low of 98.7, with consumers’ outlook on the state of the economy at the most cautious in nearly 10 years. The news helped turn early gains for Wall Steet into heavy losses, with the Nasdaq Composite shedding 3%, leaving the tech-heavy index nursing a loss of 28% for the year to date.

“Last week, U.S. equity markets rallied on the back of the arcane logic that a U.S. recession would mean a lower terminal Fed funds rates and thus, was bullish for stocks… That premise was boosted by weak Michigan Consumer Sentiment data,” said Jeffrey Halley, senior market analyst at OANDA, in a note to clients.

See: Wall Street’s favorite stock sector has potential upside of 43% as we enter the second half of 2022

On Tuesday, “even weaker U.S. Conference Board Consumer Confidence data provoked the opposite reaction, with U.S. stocks plummeting,” he added.

Wall Steet’s dive left Asian and European bourses floundering. Hong Kong’s Hang Seng
HSI,
-1.88%
fell 2% and the Nikkei 225
NIK,
-0.91%
in Japan slipped 0.9%. China’s Shanghai Composite
SHCOMP,
-1.40%
shed 1.4% after President Xi Jinping reiterated that the regime’s strict COVID-19 policy was “correct and effective.”

The comments added to worries that supply constraints in China could exacerbate global inflationary pressures. And such concerns were illustrated in Spain on Wednesday, where data showed prices rising by 10.2% in June, their fastest pace in 37 years. Europe’s Stoxx 600
SXXP,
-0.41%
fell 0.8%.

Oil prices crept higher, with WTI crude
CL.1,
+1.61%,
up 1.5% to $113.41 a barrel.

The yield on the U.S. 10-year Treasury note
TMUBMUSD10Y,
3.135%
eased 1.3 basis points to 3.167%.

Companies in focus
  • Shares of Pinterest Inc.
    PINS,
    -2.36%
    rose 0.2% after the social-media company said co-founder Ben Silbermann is stepping down as chief executive and is being replaced by an e-commerce executive from Google.
  • Bed Bath & Beyond Inc.
    BBBY,
    -22.21%
    shares fell 18.7% after it announced disappointing fiscal first-quarter results and the ouster of its chief executive, Mark Tritton.
  • General Mills Inc.
    GIS,
    +5.31%
    shares rose 4.7% after beating quarterly expectations. The company posted fourth-quarter net income of $822.8 million, or $1.35 per share, nearly double $416.8 million, or 68 cents per share, last year. Adjusted EPS of $1.12, ahead of the FactSet consensus for $1.01 per share. 
Other assets
  • The ICE U.S. Dollar Index
    DXY,
    +0.30%
     edged down 0.01%.
  • Bitcoin
    BTCUSD,
    -1.04%
     fell 4.6% to trade near $20,120.
  • August gold futures
    GCQ22,
    -0.12%
    gained $6.30, or 0.4%, to settle at $1,827.90 an ounce.

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‘Workers don’t want toys or free food, they want a higher quality of life’: The Great Resistance is here — as companies struggle to get workers back to the office

Amy Faust Liggayu, 32, a market-research project manager based in Tinley Park, Ill., mother of a 7-month-old son, never imagined she would have a life where she could spend five days a week with him, while also working full time. But that was before March 2020, when the COVID-19 pandemic forced offices across the country to tell their employees to work from home.

She had previously spent $20 a day commuting four days a week, and worked the fifth day from home, but when her manager called employees back full time, a move many other businesses are making now that vaccines are widely available and the worst days of the pandemic appear to have receded, she was not willing to give up all that freedom remote work had given her. 

Those early months of COVID-19 when millions of people worked from home gave them a rare opportunity to reevaluate the role of work in their lives. And in 2022 they have leverage: Unemployment is falling and wages are rising, as companies struggle to attract and retain workers. In fact, there are two job openings for every unemployed American, the highest level on record since 2001. 

But many companies want workers back. Google parent company Alphabet
GOOGL,
-1.34%

GOOG,
-1.29%,
Apple
AAPL,
+0.17%,
Facebook parent Meta
FB,
+1.18%,
and Microsoft Corp.
MSFT,
-0.23%
have requested workers go back to the office at least a few days a week. Jefferies Financial Group
JEF,
-0.98%,
JPMorgan Chase
JPM,
-0.82%
and Goldman Sachs Group
GS,
-0.45%
are among the financial institutions that have also asked workers to return.

Amid these efforts, Faust Liggayu counts herself among the Great Resistance. “I’m very outspoken about my desire to never work in an office again,” she said. “The quality of life is so much better when you can cut out that commute or spend your lunch break with your family.” She would often not arrive home until 6:30 p.m. if she left the office at 5 p.m. Those were precious hours lost with her son.

When she received news that all employees were going to be back in the offices, she told MarketWatch that she was frustrated. “They haven’t been listening to me,” she recalls thinking. “They know I don’t want to go back.” So she took a stand. “Job recruiters were reaching out to me on LinkedIn. All the jobs they reached out to me about were working from home.”

The outcome was a win-win for her: She found a new job two months ago that paid more money, while working full-time from home. “I went from making $50,000 a year to $80,000. When I get to stop at 5 p.m., I’m done. I get to spend that time with my son. Time moves quickly. It means so much at this age. It means so much to get those extra two hours a night with him.”

Amid labor shortage, employees flex their muscles

The Great Resignation — regarded by some observers as more of a Great Negotiation for better pay and working conditions — has led to the Great Resistance, a battle of wills between senior management and, well, everyone else. For those who are fortunate enough to have the option to work remotely, which other figures put at 40% of the workforce, they’re not giving up.

“There is definitely a sense of resistance amongst employees against the full-week, all-day, in-person work concept,” said Vanessa Burbano, associate professor of business at Columbia Business School in New York.Remote working enables a degree of flexibility in the day that is practically impossible to recreate in a physical co-working space.”

Faust Liggayu said her breakup with her former employer was respectful and without animosity. She had worked at that previous job from 2017 to March 2022, and it was a small team. But the standoff between some employees and their companies has not always been so free of drama. Apple, for one, has suffered at least one high-profile resignation as a result. 

The Great Resignation has led to the Great Resistance, a battle of wills between senior management and, well, everyone else.

A group, “Apple Together,” signed an open letter to the tech giant, claiming over 3,000 signatures from workers, rejecting a hybrid work model and asking the company to allow them to make their own decisions. “Stop treating us like school kids who need to be told when to be where and what homework to do,” they wrote. (Apple did not respond to a request for comment.)

Thus far, workers have successfully dug their feet into their sofas. Some 64% said they would consider looking for a new job if they were required to return to the office full time, a survey by ADP, a provider of human resources management software and services, found. Younger people (18- to 24-year-olds) are the most reluctant (71%) to return to the workplace full time.

“This shift from the traditional 9-to-5, office-based model cannot be undone and has long-term implications for the jobs market,” the report said. “As companies — and employees — re-evaluate their approach to the workforce, it is clear that having a flexible approach is key, as there are advantages and drawbacks to both exclusively, whether fully remote or fully in office.”

Last month, Airbnb acknowledged that the era of full- or even part-time office working is over, telling workers they could work from home or the office, if they choose, and they can work from anywhere in the U.S. without a change in pay. Starting in September, they can also live and work in over 170 countries for up to 90 days a year in each location.

Ken Steinbach: ‘There is a special connection when we are in the same space together face to face.’

There’s no such thing as a free lunch

Chris Herd, CEO of Firstbase, which helps companies go remote, said there’s no such thing as a free lunch. “Workers don’t want toys or free food, they want a higher quality of life. Forcing people to commute two hours a day — where they carry laptops to an office to sit in a chair for eight hours and then Slack or Zoom
ZM,
-1.32%
people who aren’t in the office all day — has created broken ways of living.”

He said the Great Resignation reflects people’s desperation for better work-life balance and believes that giving ultimatums will lead to “armageddon” inside companies. “Over the last two years, companies have found out people don’t need to be in the office for great work to keep happening,” he said. “Now, companies are pushing back for employees to return to office again.”

Nicholas Bloom, professor in the Department of Economics at Stanford University, said neither hard nor soft nudges will work. His own poll of 3,000 people revealed a “fiendishly hard” task for managers to get people back. “Nobody commutes for one hour for a free bagel or box or to use a ping-pong table,” he said. “They come in to catch up with friends and work in person.”

‘If you have to force somebody to come to the office it is not in their interests to come in.’


— Nicholas Bloom, professor in the Department of Economics at Stanford University

Indeed, some Silicon Valley companies pulled out all the stops to entice people back and foster a sense of community, he told MarketWatch. “Google got so desperate they hired Lizzo to give a concert, which is great for one day, but unless you are planning on getting Katy Perry, Taylor Swift and then Justin Bieber after that, this is not a permanent solution.”

“The resistance is there when employees do not see the point in coming in,” Bloom said. “If you have to force somebody to come to the office it is not in their interests to come in. To avoid forcing people you need to make it benefit them to come in. That means setting up typically two or three days a week of office time on anchor days when everyone comes in.”

He said it makes more sense to create a hybrid environment where team members show up on the same day rather than enforce a five-day week and fail. “So I see resistance to returning to the office a symptom of over-ambitious return to office plans. Realistic plans centered around anchor days, probably two to start off with, can work well and firms can build on this.”

For those who can work from home, this may be a luxury problem. The Labor Department says only 7.7% of employees teleworked in April. Millions of jobs necessitate in-person interactions. Retail, manufacturing and essential-services workers such as supermarket and hospital staff and public-transport employees put their lives at risk during the pandemic. 

Remote work is a tradeoff for everyone

As managers negotiate with office workers, companies are negotiating with landlords about their office leases. In Manhattan, monthly leasing activity decreased by 11.5% month-over-month to 2.7 million square feet in April, Colliers said. However, companies seem to be betting on some kind of return to office life: Demand more than doubled year over year.

Herd, however, said managers will soon see the advantage of remote work. “E-commerce killed physical stores because people prefer to shop online, it gave them more choice, it was more efficient and costs less,” he said. “E-companies kill office-based companies because workers prefer to work online, it gives them more choice, it is more efficient and costs less.”

It’s obviously not a one-size-fits-all question, even for those who have had the luxury of working from home. “For me, in the mental-health counseling field, I can see both sides,” said Ken Steinbach, a Portland, Ore.,-based counselor. “There is a special connection when we are in the same space together face to face, and I would love to be able to connect that way again.”

“The reality is that most of my clients might not be able to have therapy if they had to block out time to go into an office,” Steinbach told MarketWatch. “Working virtually has made my services much more accessible to a great many people and I can’t see that changing. So yes, I love the idea of being in person, but that may not be the world we live in.”

Peter Gray, professor of commerce at the University of Virginia, said workers miss out on the emotional, social and intellectual stimulation that comes with being around others. For that reason, he favors a hybrid work model. “Employee resistance is to me perfectly natural when people believe that they can be just as effective at home as in the office,” he said.

But spending all that time working from your sofa or kitchen table or — if you’re lucky enough to have one — a home office may be a more expensive tradeoff for employees and management than they anticipate. “What they don’t realize is that their networks will slowly shrink as they spend more time at home, and this can hamper their effectiveness long term,” Gray said.

“Once they realize that some of the rich interactions they used to have in the office have faded, they start to wonder if they might be missing something important,” he added. “And as their broader networks shrink — the ones that expose them to creative new ways of thinking outside of their main work stream — their performance can suffer.”

The resistance appears to be winning

Another obstacle: An empty or half-empty office doesn’t help new employees or interns who rely on those face-to-face interactions for honing their skills and, critically, building a professional network so they can move up the corporate ladder and/or put their name in the hat for a promotion. For every seasoned employee who knows the ropes, there are others who need to be given a helping hand. 

Skeptics also worry that some people may be tempted to take advantage of remote work, spend an hour or two catching up on their favorite TV show, while keeping a casual eye on their work emails, or — worse — take the entire day off and go to the beach, while answering the occasional Slack message from under an umbrella. In fact, eight out of 10 workers have admitted to slacking off. 

Burbano, the Columbia Business School professor, is not surprised by such polls. “Remote work also comes with increased opportunities for worker misconduct, worker shirking and putting in less effort, as my research has shown, which is likely part of the reason that there is a desire amongst employers to bring people back to the physical office.”

Social media is filled with people claiming they will point-blank refuse to commute again. “I’m not going back to the office with these gas prices,” one person recently wrote on Twitter
TWTR,
+2.68%.
“The gas people and the commercial real-estate people are just gonna have to fight it out amongst themselves.” Another added bluntly: “Not in the mood to work or be around people.”

Recent research suggests such resistance is winning. The Conference Board, a nonprofit organization, says only 4% of companies are requiring staff to return to work full time and only 45% were requiring them to work five days a week from the office — even if a few days a week appears too much for some Apple employees and workers like Amy Faust Liggayu.

Faust Liggayu doesn’t fully buy the brainstorming-by-the-watercooler argument. “At my previous job, we had a meeting every morning to go over the workload for the day. That meeting would sometimes last an hour because we would just bulls*** about everything. But if you have enough calls where you can be spontaneous and a good team that works together well, you can still have that environment.”

And now? She is much happier at her new fully-remote, better-paid job. “I make a point of remembering what people are up to and ask them about their plans for the weekend to keep that community together,” she said. “I love it. I officially turned one of our extra bedrooms into an office. I get to spend my lunch with my son, feed him when he’s hungry. The flexibility is incredible.”

Amy Faust Liggayu: ‘I officially turned one of our extra bedrooms into an office.’



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