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Business

Avaya’s Collapsing Debt Deal Hits Clients of Goldman, JPMorgan

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The two banks sold new loans and bonds for Avaya, a cloud-communications company, in late June. Investors included Brigade Capital Management LP and Symphony Asset Management LLC, people familiar with the matter said.

A few weeks later, Avaya announced that it would miss by more than 60% its previous forecasts for adjusted earnings in the third quarter, which ended June 30. It gave no explanation. The company also said that it would miss revenue targets and announced it was removing its chief executive officer.

Prices of the newly issued debt plummeted, hitting investors who lent Avaya the money with paper losses exceeding $100 million, according to analyst commentary and data from MarketAxess and Advantage Data Inc.

Avaya said Tuesday that it “has determined that there is substantial doubt about the Company’s ability to continue as a going concern.” It also said that the audit committee of the board of directors had opened an internal investigation “to review the circumstances surrounding” the most recent quarter. The committee is also investigating a whistleblower letter, but it didn’t give details.

Avaya also tapped law firm Kirkland & Ellis LLP and turnaround adviser AlixPartners LLP as it considers its options, The Wall Street Journal reported Tuesday.

New CEO

Alan Masarek

held an abbreviated conference call Tuesday to discuss third-quarter earnings and declined to take questions from Wall Street analysts. Mr. Masarek attributed Avaya’s poor performance in part to clients signing up for smaller and shorter software subscription contracts than expected, potentially out of fear about the company’s debt load.

“I understand very clearly that there is disappointment, there’s worry, there’s concern out there across effectively all Avaya stakeholders,” Mr. Masarek said. “I’m going to thank you in advance for your patience… Give us some time to demonstrate a better future.”

Avaya’s 6.125% bond due 2028 fell as low as 48.50 cents on the dollar after the presentation, down from a close of 56.25 cents on Monday, according to data from MarketAxess.

Some analysts were already skeptical of Avaya’s financial forecasts.

“Why [are] your projections always faltering when you report quarterly results? Why can’t you have a stable outlook?” asked

Hamed Khorsand,

an analyst at BWS Financial, after the company’s last quarterly earnings report in May. Avaya undershot that quarter’s adjusted-earnings targets by about 10%.

Avaya’s former CEO Jim Chirico, applauding at the company’s stock listing in 2018, was removed last month.



Photo:

Richard Drew/Associated Press

Then-CEO

Jim Chirico

attributed the fumble to Avaya’s adoption of a new sales strategy that forced the company to recognize revenue more slowly. “We believe we’re over that hurdle,” he said at the time.

Avaya emerged as a telecommunications-equipment supplier to corporations in 2000, when it spun out of Lucent Technologies. Private-equity firms TPG and Silver Lake Partners bought the company in 2007, but it struggled to transition from selling hardware to selling software, and with servicing debt from the buyout. The company filed for bankruptcy protection a decade later before reorganizing. Mr. Chirico took the helm in 2017 and shifted to developing cloud-based software for enterprises.

“Avaya squandered a lot of money and time and has little to show for it,” independent enterprise communications analyst Dave Michels wrote in a recent report. “Many of us have wondered why the board didn’t act sooner—years sooner.”

A spokeswoman for Avaya declined to comment on analysts’ critiques.

The financial crunch hit this spring when Avaya’s cash reserves shrank to $324 million—down from almost $600 million a year earlier, according to company filings. The company tried to raise new debt to refinance a $350 million convertible bond that was coming due in 2023, according to company filings.

Goldman initially proposed a $500 million loan with a 12.6% yield but found few buyers, according to data provider LevFin Insights. The bank ultimately placed a $350 million secured loan yielding 15.5% with investors. Lenders included Symphony, which has invested in Avaya since before its bankruptcy, the people familiar with the matter said.

Avaya approached JPMorgan in late June to raise additional funds, according to one of the people. The bank placed a $250 million secured convertible bond. Investors included Brigade, the people said.

During the marketing process, Avaya executives told lenders that the company was on track to hit its earnings guidance, some of the people familiar with the matter said.

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The company had set Ebitda guidance of about $145 million for the quarter ended June 30 but cut that to between $50 million and $55 million on July 28. (Ebitda refers to earnings before interest, taxes, depreciation and amortization.) Avaya reported $54 million of Ebitda for the quarter on Tuesday, a figure that barely covers the quarterly interest expenses it disclosed in recent earnings reports.

“It is a surprising outcome for a company that priced $600 million of fresh capital…just four weeks ago,” said

Lance Vitanza,

a stock analyst at Cowen Inc. “It may be too late to accomplish much without radically restructuring Avaya’s balance sheet.”

The newly issued loans were quoted around 65 cents on the dollar Tuesday, down from 87 cents in late July, according to Advantage Data. The new convertible bond is likely to trade at similar prices in the near future, Mr. Vitanza said.

Losses have been heavier for owners of Avaya stock, which fell to as low as 82 cents last week from around $2.50 in early July and about $10 at the start of May. Avaya shares fell 46% Tuesday to 61 cents.

Alexander Gladstone and Andrew Scurria contributed to this article.

Write to Matt Wirz at matthieu.wirz@wsj.com

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Business

Robinhood Lays Off 23% of Staff as Retail Investors Fade from Platform

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Robinhood Markets Inc.

HOOD 2.10%

is slashing about 23% of its full-time staff as the flashy online brokerage continues to reel from a sharp slowdown in customer trading activity.

The job cuts mark the second round of layoffs this year at Robinhood, which in April reduced its staff by about 9%. Together, the two rounds have cut more than 1,000 jobs from the company.

The layoffs come alongside a broader company reorganization,

Vlad Tenev,

Robinhood’s chief executive, said in a message posted to the company’s blog. In the statement, Mr. Tenev said the previous round of layoffs in April “did not go far enough” in helping the company cut costs.

“Last year, we staffed many of our operations functions under the assumption that the heightened retail engagement we had been seeing with the stock and crypto markets in the Covid era would persist into 2022,” Mr. Tenev said in the message. “In this new environment, we are operating with more staffing than appropriate. As CEO, I approved and took responsibility for our ambitious staffing trajectory—this is on me.”

Robinhood also moved up the release of its second-quarter results a day earlier than scheduled, reporting its monthly active users tumbled to 14 million, down 34% from a year earlier. Revenue fell 44% to $318 million.

Launched less than a decade ago, Robinhood ushered in a free-stock trading phenomenon during the Covid-19 pandemic, thanks to its easy-to-use, mobile-first online brokerage platform.

By the second quarter of last year—Robinhood’s best, according to public filings—the company boasted more than 21 million active users, who flocked to the app to trade flashy meme stocks, options and cryptocurrencies.

But the pandemic-darling has seen its fortunes unwind this year as markets have tumbled and customers are no longer stuck at home like they were during the Covid-19 pandemic. Revenue tied to customers’ trading activity dropped 55% in the latest quarter to $202 million.

Robinhood’s stock price plunged this year and finished Tuesday at $9.23, down 76% from its initial public offering price last year of $38 a share. Its stock fell 1.6% in recent after-hours trading.

Robinhood scaled up staffing quickly during the Covid-19 pandemic to meet the surge in demand for its services. On the company’s earnings call in April, Mr. Tenev said the company grew its head count to nearly 3,900 in the first quarter of this year from roughly 700 at the end of 2019. Tuesday’s reduction will bring the head count to about 2,600.

In his blog post, Mr. Tenev said all employees would receive an email and a Slack message with their employment status immediately following Tuesday’s companywide meeting where the layoffs were announced. Employees who were laid off will be able to remain employed through October, Mr. Tenev said.

“The reality is that we over-hired, in particular in some of our support functions,” Mr. Tenev said later on the call with reporters. He noted that employees in support, operations, marketing and program management would be most acutely affected.

A number of technology companies have laid off employees in recent months as they grapple with a slowdown in growth and the threat of a looming recession.

Twitter Inc.,

Netflix Inc.

and

Tesla Inc.

are among those that have made staff cuts.

Within the brokerage landscape, Robinhood has found itself more deeply affected by the current market environment. Compared with larger, entrenched players in the industry, Robinhood’s users tend to be younger and have less money in their brokerage accounts. Jason Warnick, Robinhood’s chief financial officer, said Robinhood customers tend to invest in growth stocks and cryptocurrencies. Both categories were hammered by a downturn in markets this year.

In addition to slowing growth, Robinhood has found itself under the watchful eye of regulators. The New York State Department of Financial Services said Tuesday that it imposed a $30 million fine on Robinhood’s cryptocurrency trading unit for alleged violations of anti-money-laundering and cybersecurity regulations.

The company, meanwhile, has encountered questions about the future viability of part of its business model, after Securities and Exchange Commission Chairman

Gary Gensler

earlier this year outlined a revamp of trading rules that could threaten one of the key ways Robinhood makes money.

As its business has struggled this year, Robinhood has increasingly been considered a takeover target by some market watchers, especially in the highly competitive brokerage industry. In May, one of the biggest names in cryptocurrency,

Sam Bankman

-Fried, unveiled a roughly $648 million investment in Robinhood in exchange for 7.6% of the company’s Class A shares.

Any outside investor, including Mr. Bankman-Fried, would face an uphill battle in mounting an aggressive takeover bid for Robinhood, due to a dual-class share structure that gives the majority of voting control to Mr. Tenev and

Baiju Bhatt,

Robinhood’s other co-founder.

Mr. Warnick reiterated on Tuesday’s media call that Robinhood intends to continue as a stand-alone, independent company.

“We’ve got an incredibly strong balance sheet with $6 billion in cash and we’ve got a lot of momentum on the product side,” he said. “To the contrary of being acquired, we actually think that we should be looking more aggressively at opportunities to acquire other companies that would help speed our innovation.”

Mr. Warnick added that Robinhood plans to roll out tax-advantaged retirement accounts later this year, following its earlier launch of other products including a new debit card. Some former employees, customers and analysts, however, have criticized the brokerage for being too slow to unveil new products that could diversify its revenue stream.

Write to Caitlin McCabe at caitlin.mccabe@wsj.com

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Business

Individual Investors Ramp Up Bets on Tech Stocks

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Technology stocks have taken a beating this year. Many individual investors have used it as an opportunity to double down.

The Nasdaq Composite Index—home to the big tech stocks that propelled the market’s decadelong rally—has fallen 21% in 2022. Shares of

Amazon.com Inc.

AMZN 10.36%

and the parents of Google and

Facebook

META -1.01%

have suffered double-digit declines as well, stung by higher interest rates and souring attitudes about their growth prospects. 

Yet many of those stocks remain the most popular among individual investors who say they are confident in a rebound and expect the companies to continue powering the economy. 

In late July, purchases by individual investors of a basket of popular tech stocks hit the highest level since at least 2014, according to data from Vanda Research. The basket includes the FAANG stocks—Facebook parent Meta Platforms Inc., Amazon,

Apple Inc.

AAPL 3.28%

,

Netflix Inc.

and Google parent

Alphabet Inc.

GOOG 1.79%

—along with a handful of others like

Tesla Inc.

and

Microsoft Corp.

Meanwhile, Apple, chip company

Advanced Micro Devices Inc.

and the tech-heavy Invesco QQQ Trust exchange-traded fund have remained among the most popular individual bets since 2020. 

Interest in risky and leveraged funds tied to tech and stocks like

Nvidia Corp.

has also swelled, a sign that investors have stepped in to play the wild swings in the shares. 

It has been a fruitful bet for many. Tech stocks have been on the rebound of late, partly on investor hopes for a slower path of interest-rate increases in the months ahead. The Nasdaq gained 12% in July, its best month since April 2020, outperforming the broader S&P 500, which rose 9.1%.

Individual investor Jerry Lee says: ‘The market is severely undervaluing how much tech can actually play into our lives.’



Photo:

Peggy Chen

“I’m extremely bullish on tech,” said Jerry Lee, a 27-year-old investor in New York who co-founded a startup that helps people find jobs. “The market is severely undervaluing how much tech can actually play into our lives.” 

In coming days, investors will be parsing earnings reports from companies such as AMD and

PayPal Holdings Inc.

for more clues about the market’s trajectory. Data on manufacturing and the jobs market are also on tap. 

Mr. Lee said he recently stashed cash into a technology-focused fund that counts Apple and Nvidia among its biggest holdings, after years of pouring money into broad-based index funds. His experience working at firms such as Google has made him optimistic about the sector’s future, he said.

Gabe Fisher holds stock in Meta Platforms, Amazon and Alphabet.



Photo:

Ethan Kaplan

Even last week when many of the industry’s leaders, including Apple, Amazon and Alphabet, warned their growth is slowing, investors pushed the stocks higher and expressed confidence in the ability of the companies to withstand an uncertain economy. Apple logged its best month since August 2020, while Amazon finished its best month since October 2009, helped by a 10% jump in its shares on Friday alone.

Many investors also pounced on the tumble in shares of Facebook parent Meta Platforms. The stock was the top buy among individual investors on the Fidelity brokerage Thursday when it fell 5.2% in the wake of the social-media giant’s first-ever revenue drop. Tesla,

Ford Motor Co.

and leveraged exchange-traded funds tracking the tech-heavy Nasdaq-100 index were also widely traded that day.

Gabe Fisher, a 23-year-old investor near San Francisco, said he is holding on to stocks like Meta, Amazon and Alphabet. 

“Even if these companies never grow at as fast of a pace, they’re still companies that are so relevant and so prevalent that I’m going to hold on to them,” Mr. Fisher said.

He said he also has a small position in

Cathie Wood’s

ARK Innovation Exchange-Traded Fund that he doesn’t plan to sell soon, even though the fund has lost more than half of its value this year. 

Other investors have been turning to riskier corners of the market. Leveraged exchange-traded funds tracking tech have been the third- and fourth-most-popular ETFs for individual investors to buy this year, behind funds tracking the S&P 500 and Nasdaq-100 indexes. These funds allow investors to make turbocharged bets on the market and can double or triple the daily return of a stock or index.

Many individual investors have also turned to the options market to bet on tech. Bullish bets that would pay out if Tesla shares rose have been among the most widely traded in the options market, according to Vanda. Individual traders have spent more on Tesla call options on an average day this year than on Amazon, Nvidia and options tied to the Invesco QQQ Trust combined, according to Vanda. The firm analyzed the average premium spent on options that are out-of-the-money, or far from where the shares are currently trading. 

Jeff Durbin, a 59-year-old investor based in Naples, Fla., said he regrets missing out on buying big tech stocks decades ago.  

He has scooped up shares of companies like artificial intelligence firm

Upstart Holdings Inc.

and

Shopify Inc.

SHOP -3.01%

—and hung on despite their sharp swings. Shopify, for example, dropped 14% in a single session last week as it said it would cut about 10% of its global workforce. “It’s painful, but I missed out on things like Amazon and Netflix when they were cheap,” Mr. Durbin said. “Who is going to be the Amazon and Apple 20 years from now?”

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Write to Gunjan Banerji at gunjan.banerji@wsj.com

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Business

Stocks End Higher, Lifted by Retailer Results

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U.S. stocks rose Thursday, with the Dow Jones Industrial Average notching a fifth consecutive day higher, after strong results from retailers lifted sentiment across the market.

The blue chips added 1.6%, while the S&P 500 advanced 2%. The tech-heavy Nasdaq Composite climbed 2.7%, helped by gains in shares of

Apple,

Microsoft,

Amazon.com

and

Tesla.

The outlook for stocks turned cheerier Thursday when several retailers delivered strong results.

Macy’s

reported robust sales growth and lifted its earnings guidance, while discount chains

Dollar General

DG 13.71%

and

Dollar Tree

DLTR 21.87%

beat Wall Street’s earnings expectations.

Last week, results from retailers including Walmart, Target and Kohl’s raised concerns that rising costs are eroding profits while inflation prompts some consumers to rethink their budgets.

“After having a real challenging time with retail last week, you’re starting to see some other signs that not everybody in retail is doing poorly,” said

Wayne Wicker,

chief investment officer at MissionSquare Retirement. “It probably provides a little more confidence that the consumer continues to be reasonably strong.” 

Equity investors have endured a particularly volatile period lately. At the end of last week the S&P 500 fell far enough that it was on track to close at least 20% below its January peak. The benchmark then reversed course to avoid closing in bear market territory.

Despite the advances by major indexes this week, many investors expect markets to remain unsettled for some time to come.

“I think we’re going to still go through some more volatility ahead,” said

Leslie Thompson,

chief investment officer at Spectrum Wealth Management.

Investors have been considering how the Federal Reserve’s plans to tighten monetary policy to combat inflation could weigh on economic growth and the performance of financial markets.

Fed meeting minutes released Wednesday showed that policy makers were in agreement for half-percentage point increases in June and July, in line with previous communication. Major stock indexes closed higher after the release. 

“To some extent, markets have been reassured that the Fed isn’t going to tighten more aggressively than what is expected,” said

Luc Filip,

head of investments at SYZ Private Banking.

Traders worked on the floor of the New York Stock Exchange on Tuesday.



Photo:

justin lane/Shutterstock

Money managers are closely watching fresh data as they gauge the health of the economy. On Thursday a second reading of first-quarter U.S. gross domestic product came in worse than the first with a contraction at an annual rate of 1.5%.

“Economic data has come in weaker than expected lately. We do see this tightening in the economy. How severe the growth slowdown is what markets are thinking about now,” said

Shaniel Ramjee,

a multiasset fund manager at Pictet Asset Management.

Initial jobless claims fell last week and hovered near historic lows, suggesting a mixed economic picture. 

Earnings reports continued to drive moves in individual stocks. Analysts have been scrutinizing results for indications that inflation has begun to weigh on profits.

“We are focusing on earnings and profitability. A lot of stable companies are reporting lower guidance,” Mr. Ramjee said. “Even the tech sector is not immune to margin pressure, especially from input costs like wages.” 

Nvidia

shares rose more than 5% after the chip maker posted record revenue, though its sales outlook for the current quarter came in below Wall Street’s estimates.

Shares of

Williams-Sonoma

jumped 13% after the retailer posted profits that beat analysts’ expectations. Macy’s shares climbed 19% after it raised full-year earnings guidance.

Dollar Tree shares advanced nearly 22% and Dollar General shares rose nearly 14% after the discount retail chains reported profits higher than expectations.

Shares of

VMware

added 3.4% after

Broadcom

confirmed that it will acquire the cloud computing firm for $61 billion in cash and stock. Broadcom shares rose 3%.

In the bond market, the yield on the benchmark 10-year U.S. Treasury note rose to 2.756%, from 2.746% Wednesday. Yields rise as bond prices fall.

Global oil benchmark Brent crude added 3% to trade at $117.40 a barrel.

Overseas, the pan-continental Stoxx Europe 600 rose 0.8%. In Asia, major benchmarks were mixed. The Shanghai Composite Index added 0.5% while Hong Kong’s Hang Seng fell 0.3%. Japan’s Nikkei 225 also declined 0.3%. 

South Korea’s central bank raised a key policy rate to 1.75% on Thursday and signaled it would tighten policy further to keep fighting against high inflation. 

Write to Karen Langley at karen.langley@wsj.com and Anna Hirtenstein at anna.hirtenstein@wsj.com

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Business

Stocks Edge Higher Ahead of Fed Minutes

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U.S. stocks edged up ahead of the release of minutes from the Federal Reserve’s most recent policy meeting, which will be combed for details on the path of coming interest-rate rises. 

After briefly opening lower, stock indexes turned green in early trading. The S&P 500 rose 0.3% after the broad-market index closed down 0.8% on Tuesday. The Nasdaq Composite Index rose 0.4%, a reversal from a sharp selloff in tech stocks the day before. The Dow Jones Industrial Average edged up 0.1%, or 26 points.

Stocks have had a volatile start to the week, buffeted by concerns about the Federal Reserve tightening monetary policy to combat the bout of high inflation and how sharp of a slowdown in growth it could cause. The S&P 500 is down nearly 18% from its last record high in January and briefly fell into bear-market territory last Friday before paring losses.

“It’s been really volatile, to say the least. This is linked to the question of recession, whether that’s coming or not. That’s effectively what the market has been pushing and pulling between,” said Fahad Kamal, chief investment officer at Kleinwort Hambros.  

Minutes from the Federal Reserve meeting earlier this month will be out at 2 p.m. ET and are expected to provide more signals for investors about the outlooks of policy makers on the economy and inflation. U.S. durable goods orders for April increased by 0.4%, a slower pace than economists expected.

The yield on the benchmark 10-year Treasury note was down to 2.73% from 2.758% on Tuesday. It has declined for four of the past five trading sessions. Yields fall when prices rise. 

“The market is pricing the slowdown that will eventually come from the Fed tightening. It also forecasts that inflation in 2023 will slow to much more reasonable levels,” said Antonio Cavarero, head of investments at Generali Insurance Asset Management. 

Government debt tends to perform well during times of slower economic growth, which has led to a stabilization in the bond market in recent days. 

When markets are turning downward, some investors try to make a profit by using a strategy known as buying the dip. WSJ’s Gunjan Banerji tells us why this approach is risky in today’s volatile market, even though it can be tempting. Illustration: Reshad Malekzai

Oil prices climbed with global benchmark Brent crude rising 0.6% to trade at $111.40 a barrel. The U.S. energy secretary said the Biden administration hasn’t ruled out a ban on oil exports to tame domestic fuel prices, Reuters reported.

In individual stocks,

Snap

shares added 2%. The Snapchat maker’s stock plunged 43% on Tuesday after it issued a profit warning, citing macroeconomic conditions that have deteriorated faster and further than expected. 

“Clearly there’s been a revaluation of tech valuations. It’s impossible to know how far it goes, but some of these are quality businesses and significantly cheaper than they have been trading recently,” Mr. Kamal said. “If you’re a long-term investor, that’s going to be something of interest.” 

Retailer Nordstrom climbed 2.4% after raising its guidance for full-year revenue growth. Home builder

Toll Brothers

rose 0.3% after reporting revenue and profit that beat analysts’ expectations. Apparel company

Express

jumped 11% after posting a narrower-than-expected loss and raising sales guidance.

Tech giant

Nvidia

and retailer

Williams-Sonoma

are scheduled to report earnings on Wednesday. 

The tech-focused Nasdaq Composite closed down about 2.4% on Tuesday.



Photo:

justin lane/Shutterstock

Overseas, the pan-continental Stoxx Europe 600 edged up 0.3%. British online grocer

Ocado

fell 5.2% after cutting sales guidance for a joint venture due to rising prices changing consumer behavior. 

In Asia, major benchmarks were mixed. The Shanghai Composite Index added 1.2% while Hong Kong’s Hang Seng ticked up 0.3%. Japan’s Nikkei 225 declined 0.3%. 

Write to Anna Hirtenstein at anna.hirtenstein@wsj.com

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Business

Stocks Drop in Volatile Trading

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U.S. stock indexes opened lower and a selloff in technology stocks deepened, weighed down by growing investor concerns about the outlook for economic growth. 

The S&P 500 fell 1.0% Tuesday, while the Dow Jones Industrial Average lost 0.5%. Contracts for the tech-heavy Nasdaq Composite slid 1.8%. 

The losses point to a sharp turnaround from Monday, when major U.S. indexes rallied after a volatile trading session the previous week. But a profit and revenue warning later on Monday from social-media company

Snap

sent investor sentiment souring again. Asian indexes broadly fell amid declines in technology stocks. European markets also traded lower.

Snap’s shares fell 34% premarket Tuesday as investors digested comments that the macroeconomic environment has deteriorated more than expected. Worries about disruptions to Snap’s advertising revenue rippled to other tech stocks that have been battered this year.

Meta Platforms

shed 8.1% before the opening bell and Google-parent

Alphabet

fell 4.4%.

Investors are confronting a range of signals as they try to map out the trajectory of the U.S. economy. Many have grown worried that the Federal Reserve’s plans for monetary tightening to tamp down inflation could tip the economy into a recession.

Disappointing earnings and warnings across the corporate landscape have exacerbated those fears.

Abercrombie & Fitch

became the latest retailer Tuesday to dent investor sentiment after it swung to a first-quarter loss amid higher costs. The company’s shares tumbled 31% premarket. 

Worries about slowing growth amid higher inflation have been among the catalysts that have sent the S&P 500 falling 17% through Monday from its January high. Investors are now keeping a close watch on whether the S&P 500 enters bear market territory, defined as a drop of at least 20% from a recent high. On Friday, the benchmark index came close to finishing in a bear market, though it was saved by a late-session rally.

There have been glimmers of optimism, however, such as on Monday, when

JPMorgan Chase

said U.S. consumers appear to be in good financial health. But that sanguine depiction was quickly counterbalanced by the disclosure from Snap, a company that had never issued a revenue warning before.

“We’re going to have this roller-coaster ride for some time, as investors cling onto more optimistic data points and get fresh disappointment when there’s another downbeat reading coming through,” said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown. “We don’t yet know the full path of interest-rate rises or how resilient consumers will be.” 

Despite Tuesday’s broad premarket technology selloff, there were bright spots in the market.

Zoom Video Communications

advanced 4.9% before the opening bell after the videoconferencing services company raised its profit outlook.

Later Tuesday, Fed Chairman

Jerome Powell

will give remarks at an economic summit in Las Vegas. Investors will be looking for fresh clues about his outlook for inflation, the economy and the path of interest-rate increases.

Several pieces of economic data are also due Tuesday, including U.S. new-home sales data and gauges of U.S. manufacturing activity. Earlier Tuesday, data firm S&P Global said its Purchasing Managers Index for the eurozone’s services and manufacturing sectors fell in May from the month before. Factories in Europe and Japan reported a weakening of new orders amid higher costs and prices, a sign that manufacturing output will slow further over coming months.

Tuesday’s selloff in technology stocks in the premarket session sent investors scooping up government bonds, with the yield on the benchmark 10-year U.S. Treasury note falling to 2.819%, from 2.857% Monday. Yields fall when bond prices rise. 

Gold, considered another haven asset, advanced 0.3% to $1,853.70 a troy ounce.

Traders worked on the floor of the New York Stock Exchange on Monday.



Photo:

Spencer Platt/Getty Images

Brent crude, the international oil benchmark, rose 0.2% to $113.66 a barrel, reversing losses from earlier in the session. 

“You’ve got this push and pull with oil prices—oil prices are being kept down somewhat by global growth, which is not a great signifier for the health of the global economy,” Ms. Streeter said. “But at the same time, it’s not dropping any further because of concerns about tight supply.” 

In Europe, the pan-continental Stoxx Europe 600 lost 0.6%. In Asia, Hong Kong’s Hang Seng fell 1.7%. Japan’s Nikkei 225 lost 0.9% while China’s Shanghai Composite declined 2.4%.

Write to Caitlin McCabe at caitlin.mccabe@wsj.com

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Business

Warren Buffett Says Markets Have Become a ‘Gambling Parlor’

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OMAHA, Neb.—As recently as February,

Warren Buffett

lamented he wasn’t finding much out there that was worth buying. 

That is no longer the case.

After a yearslong deal drought, Mr. Buffett’s

Berkshire Hathaway Inc.

BRK.B -2.55%

is opening up the spending spigot again. It forged an $11.6 billion deal to buy insurer

Alleghany Corp.

Y -0.62%

, poised to be Berkshire’s biggest acquisition in six years. It bought millions of shares of

HP Inc.

HPQ -2.53%

and

Occidental Petroleum Corp.

OXY -3.40%

And it dramatically ramped up its stake in

Chevron Corp.

CVX -3.16%

, making the energy company one of Berkshire’s top four stock investments.

The big question: Why?

“It’s a gambling parlor,” Mr. Buffett said Saturday of the markets over the past few years. He added that he blamed the financial industry for motivating risky behavior among investors. While he finds speculative bets “obscene,” the pickup in volatility across the markets has had one good effect, he said: It has allowed Berkshire to find undervalued businesses to invest in again following a period of relative quiet. 

“We depend on mispriced businesses through a mechanism where we’re not responsible for the mispricing,” Mr. Buffett said.

Mr. Buffett, 91 years old, shared his thoughts on the state of the markets, Berkshire’s insurance business and recent investments at the company’s annual shareholder meeting in downtown Omaha.

Berkshire also held votes on shareholder proposals, with investors ultimately striking down measures that asked Berkshire to make its board chairman independent and called for the company to disclose climate risk across its businesses. 

Shareholders eager to score prime seats lined up for hours before the doors opened in the arena where Mr. Buffett; right-hand-man

Charlie Munger,

98; and Vice Chairmen

Greg Abel,

59, and

Ajit Jain,

70, took the stage. As Mr. Buffett entered, a lone audience member took the opportunity to send a message. “We love you,” the person shouted. 

Mr. Buffett appeared equally enthused to see the thousands of shareholders sitting before him. 

It was a lot better being able to be with everyone in person, he said.

Up until recently, Berkshire had largely been sitting on its cash pile. Its business thrived; a recovering economy and roaring stock market helped push net earnings to a record in 2021. But it didn’t announce any major deals, something that led many analysts and investors to wonder about its next moves. Berkshire ended the year with a near record amount of cash on hand. (After Berkshire’s buying spree, the size of the company’s war chest shrank to $106.26 billion at the end of the first quarter, from $146.72 billion three months earlier.)

Mr. Buffett’s feeling that there were no appealing investment opportunities for Berkshire quickly gave way to excitement in late February, he said Saturday, when he got a copy of Alleghany Chief Executive

Joseph Brandon’s

annual report.

The report piqued his interest. He decided to follow up with Mr. Brandon, flying to New York City to talk about a potential deal over dinner. 

Warren Buffett headed in to speak to shareholders at Berkshire Hathaway’s annual meeting in Omaha, Neb., on Saturday.



Photo:

SCOTT MORGAN/REUTERS

If the chief executive hadn’t reached out, “it wouldn’t have occurred to me to write to him and say, ‘Let’s get together,’” Mr. Buffett said.

Berkshire’s decision to build up a 14% stake in Occidental also came about with a report. Mr. Buffett said he had read an analyst note on the company, whose stock is still trading below its 2011 high, and decided the casino-like market conditions made it a good time to buy the stock.

Over the course of just two weeks, Berkshire scooped up millions of shares of the company. 

“I don’t think we ever had anything quite like we have now in terms of the volumes of pure gambling activity going on daily,” Mr. Munger said. “It’s not pretty.” 

But the amount of speculation in the markets has given Berkshire a chance to spot undervalued businesses, Mr. Munger said, allowing the company to put its $106 billion cash reserve to work.

“I think we’ve made more because of the crazy gambling,” Mr. Munger said.

Another business that caught Berkshire’s eye? Chevron. Berkshire’s stake in the company was worth $25.9 billion as of March 31, up from $4.5 billion at the end of 2021, according to the company’s filing. That makes Chevron one of Berkshire’s four biggest stockholdings, alongside

Apple,

American Express Co. and Bank of America Corp.

Neither Mr. Buffett nor Mr. Munger specifically addressed Berkshire’s decision to increase its Chevron stake.

But the two men offered a defense of the oil industry. It is a good thing for the U.S. to be producing more of its own oil, Mr. Buffett said. Mr. Munger went further, saying he could hardly think of a more useful industry. 

At the meeting, Mr. Buffett also revealed that Berkshire has increased its stake in

Activision Blizzard Inc.

The company now holds a 9.5% position in Activision, a merger-arbitrage bet from which Berkshire stands to profit if

Microsoft Corp.’s

proposal to acquire the videogame maker goes through.

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At the end of the day, Berkshire doesn’t try to make its investments based on what it believes the stock market will do when it opens each Monday, Mr. Buffett said.

“I can’t predict what [a] stock will do…We don’t know what the economy will do,” he said.

What Berkshire focuses on is doing what it can to keep generating returns for its shareholders, Mr. Buffett said. Berkshire produced 20% compounded annualized gains between 1965 and 2020, compared with the S&P 500, which returned 10% including dividends over the same period.

“The idea of losing permanently other people’s money…that’s just a future I don’t want to have,” Mr. Buffett said.

Write to Akane Otani at akane.otani@wsj.com

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