Tesla, Microsoft, Boeing, Texas | Stock Market News Today


Stock futures are rising, with technology shares on track to lead gains ahead of a policy decision from the Federal Reserve. Here’s what we’re watching in Wednesday’s trading:

A Texas Instruments office in San Diego, Calif., April 24, 2018.



Photo:

mike blake/Reuters

Chart of the Day
  • A mania in clean-energy stocks holds lessons for ESG investors, writes James Mackintosh. This is the third in a series of Streetwise columns taking a critical look at sustainable investing.

Write to James Willhite at [email protected]

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Oil, Global Stocks Fall as Investors Cut | Stock Market News Today


Global stocks, oil and cryptocurrencies fell, as investors grappled with the prospect of higher interest rates and disappointing results from popular consumer tech stocks.

Futures tied to the S&P 500 fell 0.4%, pointing to an extension of Thursday’s drop, when the index closed down 1.1%. Nasdaq-100 futures declined 0.7%, suggesting more losses for technology stocks. Dow Jones Industrial Average futures ticked down 0.1%. 

Shares in Asia-Pacific and Europe broadly retreated. The pan-continental Stoxx Europe 600 fell 1.2%, while China’s Shanghai Composite Index and Japan’s Nikkei 225 declined 0.9%. 

Japan’s Nikkei 225 index shed 0.9% Friday.



Photo:

behrouz mehri/Agence France-Presse/Getty Images

In off-hours trading,

Netflix

shares plunged over 20% after the company said it expected a slowdown in subscriber growth. Peloton rose 7.5%, recouping some losses after the stock tumbled nearly 24% Thursday on reports that the connected-fitness company was halting production. Its chief executive refuted these claims in a statement. 

“As we return to a more normal world, names like Peloton and Netflix being weaker or disappointing isn’t a surprise,” said Arun Sai, a multiasset strategist at Pictet Asset Management. “I think when the dust settles, we’ll have a reasonable set of numbers in Q4 earnings. Peloton and Netflix are more of a distraction than anything else.”

Investors’ increasing conviction that the Federal Reserve will have to raise interest rates several times this year to combat inflation has pressured stocks. Last week, Fed Chairman Jerome Powell called rapid inflation a “severe threat” to a full economy recovery, and data showed consumer prices soaring 7% on the year in December

This has hit growth stocks and put the Nasdaq in correction territory, as investors are dumping shares of unprofitable companies. Tensions between Russia and NATO are also weighing on market sentiment, investors said. The S&P 500 is down 3.9% this week, on track for the worst performance since Oct. 2020. 

“Geopolitical risk plays a role, repricing of [central bank] policy plays a role and the inflation mix in the sense of cost pressures. You put all those together and there is actually quite a change,” said Georgina Taylor, a multiasset fund manager at Invesco. “Risk premium for equities needs to go up.”

President Biden said on Wednesday that the U.S. is ready to unleash sanctions against Russia if President Vladimir Putin makes a move against Ukraine. Biden also laid out a possible diplomatic resolution. Photo: Susan Walsh/Associated Press

Investors’ bets on faster rate rises have driven up inflation-linked bond yields, seen as a benchmark for financing costs. The yield on the 10-year Treasury inflation-protected security rose as high as minus 0.526% Friday, the highest level since June 2020, before easing slightly to minus 0.536%. The yield on the benchmark 10-year Treasury note edged down to 1.792% from 1.833% Thursday.   

Cryptocurrencies tumbled, with bitcoin losing nearly 6.5% compared with its level at 5 p.m. ET Thursday. It traded below $38,300, the lowest level since August, before rising slightly to around $38,700. Ether fell 6.8%. 

Oil prices also declined. Global benchmark Brent crude fell 1.5%, trading at $87.03 a barrel, weighed down by a surprise increase in U.S. crude stockpiles, according to analysts at RBC Capital Markets. 

Data provider

IHS Markit,

oil services company

Schlumberger

and financial firms

Huntington Bancshares

and

Ally Financial

are set to report earnings Friday. 

Overseas, wind-power company

Siemens Gamesa Renewable Energy

fell 10% after it posted an operating loss and lowered its guidance, citing supply-chain constraints. Shares of some Chinese drugmakers surged after they were selected to help make cheaper versions of Merck’s Covid-19 pill.

BrightGene Bio-Medical Technology

rose 20% and Viva Biotech advanced 14%. 

Write to Dave Sebastian at [email protected] and Anna Hirtenstein at [email protected]

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Dow Closes Lower as Bank Stocks Fall | Stock Market News Today


The stock market’s winter selloff deepened this week, pushing all three major indexes further into the red for 2022.

The S&P 500 and Dow Jones Industrial Average both fell a second straight week, while the Nasdaq Composite has been down the last three. Investors continued to sell bonds, pushing the yield on the benchmark 10-year U.S. Treasury note up for a fourth straight week, notching its biggest rise over that stretch since mid-March.

Investors were still assessing the outlook for interest rates and how fast the Federal Reserve will move to tame inflation, roiling the stock and bond markets. At the same time, a rise in Covid-19 cases has weighed on sentiment, although there are signs that infections may be nearing a peak.

The week started on shaky footing, with stocks broadly falling and the Nasdaq nearing a correction before closing slightly higher. On Tuesday, Fed Chairman

Jerome Powell

reaffirmed the central bank’s view that inflation will likely peak by the middle of the year, while also suggesting interest rates will remain low. That helped halt a streak of declines for the S&P 500 and Dow industrials. 

Stocks, especially hard-hit sectors such as tech, appeared to regain some ground. But new pricing data released Wednesday and Thursday showed inflation remained hot last month, complicating the outlook. Stocks dropped Thursday, led by a 2.5% slide in the Nasdaq.

Lackluster earnings from some big U.S. banks, along with weak retail sales and manufacturing data, sent most of the market lower again on Friday until a late-session buying rush pushed the S&P 500 and Nasdaq back into positive territory. The S&P 500 added 3.82 points, or less than 0.1%, to 4662.85, and the Nasdaq gained 86.94 points, or 0.6%, to 14893.75. The Dow fell 201.81 points, or 0.6%, to 35911.81.

“We expect a more volatile environment, with big up days and big down days. Perception of inflation will be a driving force in the direction of the market,” said

David Donabedian,

chief investment officer of CIBC Private Wealth US. “It will be a bumpy ride.”

The late Friday turnaround wasn’t enough to avert another down week. The S&P 500 and Nasdaq ended up falling 0.3% over the last five trading days, while the Dow shed 0.9%. Markets are closed Monday for Martin Luther King Jr. Day, shortening next week’s trading schedule.

The U.S. dollar last year saw its largest increase in value since 2015. That is good for many American consumers, but it could also put a dent in stocks and the U.S. economy. WSJ’s Dion Rabouin explains. Photo illustration: Sebastian Vega/WSJ

On Friday, the first dose of fourth-quarter corporate earnings reports gave investors a sobering outlook on corporate growth this year. Quarterly profits fell by double-digit percentages at

JPMorgan Chase

and

Citigroup,

ending a hot streak of big gains for most of 2021.

Shares of

JPMorgan Chase

slid $10.34, or 6.1%, to $157.89, and

Citigroup

dropped 85 cents, or 1.3%, to $66.93.

Wells Fargo

bucked the trend, adding $2.06, or 3.7%, to $58.06, after the bank reported that profit soared 86% in the final three months of 2021.

BlackRock

posted higher quarterly profit, and market gains lifted the investment firm’s assets under management above $10 trillion. Despite that, its shares declined $18.98, or 2.2%, to $848.60.

Still, analysts remain upbeat on corporate profits, predicting growth across the S&P 500.

Mark Haefele,

chief investment officer at UBS Global Wealth Management, said he expects another positive quarter, with earnings growth of 30% over the prior year.

Manufacturers, material firms and consumer discretionary stocks were also down following the economic data. Besides that,

Sherwin-Williams

declined $8.93, or 2.8%, to $308.46 after the paint maker lowered its guidance, citing a shortage of raw materials amid supply-chain and labor constraints.

Rising yields have motivated investors to rotate out of technology stocks.



Photo:

Courtney Crow/Associated Press

Some buying of large-cap growth stocks gave the market, and the Nasdaq, some support, as investors returned to a trade that tends to work well during periods of economic uncertainty.

Facebook

parent

Meta Platforms,

Microsoft,

Tesla

and

Netflix

all gained more than 1%.

Energy stocks jumped 2.4%, getting a boost from a climb in oil prices.

Casino stocks including

Las Vegas Sands

and

Wynn Resorts

jumped after Macau released a draft law that would cut the tenure for new casino licenses in half, but wouldn’t reduce the number of licenses. Las Vegas Sands added $5.33, or 14%, to $42.99, and Wynn Resorts gained $7.24, or 8.6%, to $91.47. 

Meanwhile, bond yields resumed their climb. Expectations for an interest-rate rise as soon as March have caused some investors to sell government bonds, pushing up yields. The yield on the benchmark 10-year Treasury note ticked up to 1.771% Friday, from 1.708% Thursday.

“Equity markets will continue to take their cues from the bond market,” said

Hugh Gimber,

a strategist at J.P. Morgan Asset Management. “What’s becoming clear is the Fed is realizing that inflationary pressures are larger and more broad-based than they previously expected.”

Cryptocurrency dogecoin jumped 12% from its 5 p.m. ET level Thursday after Elon Musk said Tesla was accepting payment for some merchandise with the currency, which was originally started as a joke. Bitcoin was recently down less than 1%.

Overseas, the pan-continental Stoxx Europe 600 fell 1%.

South Korea’s central bank raised interest rates to pre-pandemic levels to fight inflation, and signaled that more increases could come this year. The country’s benchmark Kospi index declined 1.4%. Other major Asian stock indexes also closed lower. China’s Shanghai Composite fell 1%, and Japan’s Nikkei 225 shed 1.3%.

Write to Caitlin Ostroff at [email protected] and Michael Wursthorn at [email protected]

Corrections & Amplifications
For the week, the Dow Jones Industrial Average fell 0.9%, and the Nasdaq Composite fell 0.3%. An earlier version of this article incorrectly said it was the Dow that fell 0.3% and the Nasdaq that declined 0.9%. (Corrected on Jan. 14)

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China Evergrande Says Construction Has | Stock Market News Today


Troubled property developer

China Evergrande Group


EGRNF -10.55%

said construction work has resumed at more than 90% of its stalled residential projects, adding that it has picked up the pace of delivering apartments promised to home buyers across the country.

Evergrande,


EGRNF -10.55%

in a statement Sunday night, said more than 80% of its suppliers of materials and decorative services have “resumed cooperation,” and that it has signed thousands of new contracts with various suppliers. At the end of August, the developer disclosed that construction had been suspended at some projects after it fell behind on payments. And by October, hundreds of Evergrande’s unfinished developments were affected by work stoppages.

With just a few days to go before the end of 2021, Evergrande said it intends to deliver 39,000 homes in 115 projects to buyers across China in December. It compared that to its completion of fewer than 10,000 units in each of the preceding three months.

The world’s most indebted real-estate firm Evergrande has embarked on a social media campaign to show construction has resumed and says it’s doing whatever it takes to deliver homes. WSJ compares these posts with ones from upset buyers. Photo Composite: Emily Siu

In a post on social media Monday, Evergrande said apartment projects have been handed over in batches in 18 provinces and it released photos of completed buildings adorned with bright red decorations and people signing papers to take ownership of their homes.

Despite this, Evergrande still has many more commitments to fulfill and its debt crisis remains unresolved. The 25-year-old developer used to be one of the country’s largest by contracted sales and is on the hook to deliver units to more than one million people. Many buyers made large down payments on unfinished flats, expecting to take ownership of them in a few years.

Hui Ka Yan,

Evergrande’s founder and chairman, said that “under the care and guidance of governments at all levels,” as well as support from partners, financial institutions and other constituents, the developer has made progress in its commitments to homeowners.

He added that Evergrande would do whatever it takes to resume work and deliver homes and predicted that the firm will eventually be able to “resume sales, resume operations, and pay off debts.”

Hui Ka Yan, China Evergrande’s chairman, in Hong Kong in 2019.



Photo:

Paul Yeung/Bloomberg News

The company’s statement followed comments over the weekend from two Chinese regulators which said they would safeguard the rights of homeowners and keep the property sector stable. Beijing has been trying to prevent Evergrande’s debt crisis from hurting the many small businesses and ordinary citizens that the developer owes money and apartments to.

Wang Menghui,

head of China’s Ministry of Housing and Urban-Rural Development, said in an interview with the state-run Xinhua News Agency that the regulator will address the risks of some leading developers that fail to deliver projects on time, with the goal of “guaranteeing home deliveries, protecting people’s livelihoods and maintaining social stability.”

The People’s Bank of China separately said—as part of a wide-ranging statement on the economy—that it would protect the rights and interests of homeowners and promote the healthy development of the country’s real-estate market.

Evergrande, the world’s most indebted developer, has been struggling under the weight of roughly $300 billion in liabilities, including around $20 billion in international bonds. The developer has missed payment deadlines on some of its dollar bonds, setting the stage for a massive and complex restructuring. Major credit raters have declared it to be in default.

Earlier this month, the conglomerate sought help from the government of its home province, Guangdong. It has since set up a risk-management committee that includes representatives from several state-backed entities.

Evergrande recently said the committee is working to help contain its risks and will engage with its creditors. Some international bondholders, however, have said there has been little communication from the company so far, the Journal reported last week.

The company’s Hong Kong-listed shares have plunged in value this year to historic lows and its dollar bonds are trading at deeply distressed levels. Markets in Hong Kong were closed Monday for a public holiday.

Write to Anniek Bao at [email protected]

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Rivian, FedEx, Cerner, Oracle: What to | Stock Market News Today


Stock futures are down at the end of a week that saw major central banks chart divergent courses as they confront inflation. Here’s what we’re watching in Friday’s action:

Cerner’s stock got a premarket boost after it was reported that Oracle was in talks to acquire the company.



Photo:

Kris Tripplaar/Sipa USA/Associated Press

Chart of the Day
  • Investors say Chinese authorities are likely to ease up somewhat on the embattled real-estate sector and to loosen monetary policy, helping support Chinese corporate borrowers more broadly.

Write to James Willhite at [email protected]

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ETF Inflows Top $1 Trillion for First | Stock Market News Today


A historic surge of cash has swept into exchange-traded funds, spurring asset managers to launch new trading strategies that could be undone by a market downturn. 

This year’s inflows into ETFs world-wide crossed the $1 trillion mark for the first time at the end of November, surpassing last year’s total of $735.7 billion, according to Morningstar Inc. data. That wave of money, along with rising markets, pushed global ETF assets to nearly $9.5 trillion, more than double where the industry stood at the end of 2018.

Most of that money has gone into low-cost U.S. funds that track indexes run by Vanguard Group,

BlackRock Inc.


BLK 0.66%

and

State Street Corp.


STT -0.50%

, which together control more than three-quarters of all U.S. ETF assets. Analysts said rising stock markets, including a 25% lift for the S&P 500 this year, and a lack of high-yielding alternatives have boosted interest in such funds.  

“You have this historical precedent where you have tumultuous equity markets, and more and more investors have made their way to index products,” said

Rich Powers,

head of ETF and index product management at Vanguard.

Asset managers are looking to actively managed funds, some with narrow themes, in search of an unfilled niche not already dominated by the industry’s juggernauts, analysts and executives said. VanEck, for example, earlier this month rolled out an active ETF targeting the food industry. In March, Tuttle Capital Management launched its

FOMO ETF,

which is bullish on stocks popular with individual investors. 

Firms including Dimensional Fund Advisors have converted mutual funds into active ETFs. Meanwhile, bigger firms have rolled out ETFs that mimic popular mutual funds, including Fidelity Investments’ Magellan and Blue Chip Growth funds.

“We should have a broad offering of ETFs that stand alongside a broad offering of mutual funds,” said

Gerard O’Reilly,

Dimensional’s co-chief executive, of his company. “Choose your own adventure.” 

As ETFs, baskets of securities that trade as easily as stocks, have boomed this year, investors poured a record $84 billion into ones that pick combinations of securities in search of outperformance rather than tracking swaths of the stock market. That represents about 10% of all inflows into U.S. ETFs, up from nearly 8% last year, according to Morningstar. 

Asset managers long known for running mutual funds are rushing to take advantage of investors’ interest in active ETFs. More than half of the record 380 ETFs launched in the U.S. this year are actively managed, according to FactSet. Fidelity, Putnam and

T. Rowe Price

are among the firms that have rolled out actively managed ETFs in 2021. Firms new to ETFs have also entered the fray. 

The top 20 fastest-growing ETFs, largely run by Vanguard and BlackRock, this year pulled in nearly 40% of all flows, charged an average fee of less than 0.10 percentage point and tracked benchmarks of some sort. 

Many active ETFs remain comparatively small and charge fees higher than passive funds, putting a swath of new products at risk of closing over the next several years. ETFs usually need between $50 million and $100 million in assets within five years of launching to become profitable, analysts and executives say; funds below those levels have tended to close. 

Of the nearly 600 active ETFs in the U.S., three-fifths have less than $100 million in assets, according to FactSet data. More than half are below $50 million. 

“You’re going to see a lot of those firms take a hard look at their future,” said

Elisabeth Kashner,

FactSet’s director of ETF research.

The stock market’s bull run has helped buoy many ETF providers, Ms. Kashner said, adding that firms have in 2021 closed the fewest number of funds in eight years. But a market pullback, which most stock-market strategists anticipate, could flush out weaker players, she said. 

Vanguard has been a beneficiary of high inflows to funds that track indexes. A statue of founder John C. Bogle.



Photo:

Ryan Collerd for The Wall Street Journal

ETF closures generally climbed over the past decade, and firms closed a record 277 ETFs last year as the coronavirus pulled markets down. Many held few assets. About a third of all active ETFs are marked as having a medium or high risk of closure, according to FactSet data that take into account assets, flows and fund closure history. 

Factors that have helped stoke active launches, analysts and executives said, include rules streamlined by regulators in late 2019 that made ETFs easier to launch. The approval of the first semitransparent active ETFs, which shield some holdings from the public’s eye, followed.

Analysts also said the success of ARK Investment Management Chief Executive

Cathie Wood

in 2020 showed how active ETFs can score big returns and pull in substantial sums of money. Several of ARK’s funds doubled last year, and its assets approached $60 billion earlier this year, though many of its bets have slumped in 2021. 

SHARE YOUR THOUGHTS

How long do you think the boom in exchange-traded funds will last? Join the conversation below.

Most other active managers aren’t doing much better. Two-thirds of large-cap managers of mutual funds have fallen short of benchmarks this year, while roughly 10% of the 371 U.S. active ETFs with full-year performance data are beating the S&P 500. More than a third are flat or negative for 2021. 

“Active management is a zero-sum game,” said FactSet’s Ms. Kashner. “Beating the benchmark quarter after quarter, year after year, is a very difficult task at which active managers have traditionally struggled. The ETF wrapper doesn’t change that calculus.” 

Write to Michael Wursthorn at [email protected]

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As Hedge Funds Endure Rocky Year, | Stock Market News Today


Investments in private companies are saving the year for stock-picking hedge funds.

Prominent managers that invest in both public and private companies in the same funds have seen their portfolio of public investments flail, weighed down by losses from January’s meme-stock rally and a retreat by fast-growing technology stocks. But soaring valuations of private companies and a hot U.S. IPO market have boosted their private wagers. That has helped mask their poor performance in public markets and driven up their overall returns.

Dan Sundheim’s $25 billion D1 Capital Partners, for example, is down 4% in its public bets for the year through September—but up 71% before fees in its private investments, said people familiar with the firm. The S&P 500 had a total return of 15.9% for the period.

D1 clients opt into share classes that offer varying levels of exposure to private investments. Clients in the share class that can invest up to 15% in private companies have seen gains of about 4.5%, after fees, for the period. The gains stand at 14% and 21% for clients in share classes that can invest up to 35% and 50% in private companies.

Meanwhile, Boston-based Whale Rock Capital Management was down 11.2% for its public investments in a hedge fund that can invest up to a quarter of its clients’ money in private companies, said people familiar with the fund. The performance of the fund’s private wagers shrank the fund’s losses to 3.3% for the year through September.

Hedge funds without private companies in their portfolios have had a rougher time. Palo Alto, Calif.-based Light Street Capital Management, which manages late-stage growth and other funds along with a hedge fund that only invests in public companies, is down 18.6% for the year through September in its hedge fund, said people familiar with the firm. That has brought the fund’s size down to about $1.7 billion. Its growth funds have fared much better, the people said, with Light Street’s first such fund, whose investments include the restaurant-software provider

Toast Inc.

and the software-development company

GitLab Inc.,

expected to have an internal rate of return of more than 100%.

The rush into private investing by public-market investors has helped fuel surging valuations for private companies. And as hedge funds, along with mutual funds and sovereign-wealth funds, deploy billions of dollars, they often crowd out venture and growth funds.

Hedge funds made up 27% of the money raised in private rounds this year through June, despite participating in just 4% of the deals, according to a recent report by Goldman Sachs Group Inc.

“These tech companies are growing exponentially, and managers want to capture that huge exponential growth for their clients,” said Susan Webb, founder and investment chief at the New York-based outsourced-investment firm Appomattox Advisory.

The higher-return potential is stark. Private-equity and venture strategies gained an average 14.2% a year in the decade ended in 2020, Goldman said, while hedge funds overall averaged half those annual returns over the period—and were subject to the stresses of regular redemption cycles.

Toast, a restaurant-software provider that went public last month, is an investment of a Light Street Capital Management growth fund.



Photo:

Richard Drew/Associated Press

Hybrid funds can offer distinct benefits, said Udi Grofman, global co-head of the private-funds group at Paul, Weiss, Rifkind, Wharton & Garrison LLP. “The beauty of the structure is that it allows the capital of the investors, in between being invested in private investments, to be exposed to public markets,” Mr. Grofman said. Clients typically sit on cash to fund capital calls by venture and private-equity funds.

Stock-picking hedge funds had a banner year in 2020, buoyed by markets that set new highs after bottoming that March.

Their fortunes in public markets have changed this year. The meme-stock rally in January, which sent the price of companies including GameStop Corp. and

AMC Entertainment Holdings Inc.

to extraordinary heights, dealt losses to myriad hedge funds. Whale Rock gained 71% last year, while the D1 share class investing up to 15% of clients’ money in private companies climbed 60%; in January they lost about 11% and 30%, respectively, in just their public investments.

While D1 has almost recouped those losses, Whale Rock and other growth-oriented stock pickers have struggled. Fund managers say sector rotations that have alternately favored growth or value have made it difficult to navigate markets. Long out-of-favor sectors such as energy and financials have been on a tear.

Meanwhile, private markets have continued to be supportive. The U.S. IPO market is flourishing, and companies are continuing to raise more money in private markets than in the past. Hedge funds are contributing to the brisk pace of fundraising. D1 and Tiger Global Management, which manages a series of private-equity funds in addition to a hybrid hedge fund, have participated in private funding rounds this year through September at a pace of more than a deal a week for D1 and more than two deals every three days for Tiger, according to PitchBook Data Inc.

The 44-year-old Mr. Sundheim, who started D1 after several years as chief investment officer at Viking Global Investors, said at a recent capital-introduction conference that he hadn’t expected to get as big in private companies as he has. D1 is invested in 90 private companies, he said.

He said judgment was the only competitive advantage in public markets as private markets offered the additional benefit of firms’ reputations playing a role in gaining access to deals. He said D1 in its earliest investments acted as a resource to management teams so they would be strong references for D1. Mr. Sundheim also said he was confident in his portfolio of public investments over the next three to five years.

Write to Juliet Chung at [email protected]

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Should You Be Buying What Robinhood Is Selling? | Sidnaz Blog


In rare cases, such pitches have paid off big time. More often, you’d have done yourself a favor by taking roughly half your money and lighting it on fire instead.

Just as Robinhood isn’t the first brokerage to offer commission-free trading, it isn’t the first to seek to “democratize” investing or to sell a piece of itself to its own customers.

On June 23, 1971, Merrill Lynch, Pierce, Fenner & Smith Inc. became the first New York Stock Exchange firm catering to individual investors to offer its shares to the public.

Thirsty for fresh capital in a struggling stock market, Merrill flogged its shares to its own customers, tapping the firm’s “awesome recognition among that vast segment of the population,” reported The Wall Street Journal the next day. “Primarily small investors, the type long championed by Merrill Lynch, quickly purchased the entire amount.”

Nearly 400 insiders at the firm unloaded a total of 2 million shares in the offering. From its initial $28 per share, the stock shot to about $42—a 50% pop—then closed around $39. That valued Merrill at 30.5 times its prior-year earnings, much higher than the overall stock market’s price/earnings ratio of 18.7.

Less than three weeks later, Merrill announced that its net earnings had fallen nearly 50% from the prior quarter.

For the rest of 1971, Merrill’s stock lost 9.4%; the S&P 500 gained 4%, counting dividends.

In 1972, when the S&P 500 rose nearly 19%, Merrill sank 7.7%. And in 1973-74, when the S&P 500 lost 37%, Merrill’s stock slumped by 61%. In its first three full years, Merrill’s stock lost three-quarters of its value; the S&P 500 fell only 5%.

Here in 2021, Robinhood’s offering is one of several trading and investing IPOs:

Coinbase Global Inc.,

the cryptocurrency exchange, went public in April, and

Acorns Grow Inc.,

which helps users invest in tiny increments, said in May that it expects to go public later in the year. Since its Apr. 14 debut, Coinbase is down about 27%. Robinhood fell 8% on its first day of trading Thursday.

One of Wall Street’s oldest and frankest sayings is “When the ducks quack, feed ‘em”—meaning that whenever investors are eager to buy something, brokers will sell it like mad.

Back in 1971, that was the brokers’ own shares. Roughly half a dozen major firms sold stock to the public soon after Merrill, including Bache & Co. and Dean Witter & Co. By 1974, according to data from the Center for Research in Security Prices LLC, several of them had dealt losses at least as devastating as Merrill’s.

In 1987, Jane and Joe Investor got invited to join in on the fun of Charles Schwab Corp.’s IPO, when roughly three million of the offering’s eight million shares were reserved for employees and customers of the firm.

Unlike Merrill, which was rescued from the brink of failure in 2008 when

Bank of America Corp.

bought the firm, Schwab went on to generate spectacular long-term performance. Over the full sweep of time since its 1987 IPO, Schwab is up more than 26,500%, or 17.9% annualized. The S&P 500 gained less than 3,500%, or an average of 11.3% annually.

However, Schwab went public in late September 1987. Only 18 trading days later, on Oct. 19, the U.S. stock market took its biggest one-day fall in history, plunging more than 20%.

Schwab’s stock got brutalized. In their first year, Schwab’s shares fell 59.1%. After three years, the market as a whole had gained 0.6% annually; Schwab’s stock lost an annualized average of 6.9%, according to CRSP.

How many of the original buyers in 1987 stuck around long enough to reap the giant rewards that came much later? That’s impossible to know, but the likeliest answer has to be: very few.

Every once in a while, outside investors in a brokerage IPO do well.

Goldman Sachs Group Inc.

began trading on May 4, 1999. If you’d bought Goldman stock in the IPO and held it ever since, you’d have earned 9.1% a year, versus 7.6% in the S&P 500, according to FactSet.

Yet Goldman was a giant then, as it is now; it was late to the IPO party because it had held on to its partnership structure for so many years. Most brokerage IPOs, like Robinhood’s, occur when the firms are younger and smaller.

That makes them typical. Companies selling shares to the public for the first time tend to be small, with minimal profits; they also require additional invested capital to sustain their rapid growth.

That’s what Savina Rizova, global head of research at Dimensional Fund Advisors, an asset manager in Austin, Texas, calls “a toxic combination of characteristics that points to low expected returns.”

On average, IPOs have severely underperformed seasoned stocks in the long run. And, history suggests, brokerages doing IPOs are better at timing the market for themselves than for you.

Write to Jason Zweig at [email protected]

More from The Intelligent Investor

The brokerage app Robinhood has transformed retail trading. WSJ explains its rise amid a series of legal investigations and regulatory challenges. Photo illustration: Jacob Reynolds/WSJ

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Pinterest Shares Fall as U.S. Monthly Average Users Decline | Sidnaz Blog


Pinterest reported Thursday second-quarter net income of $69.4 million, compared with a loss of $100.7 million a year earlier.



Photo:

Gabby Jones/Bloomberg News

Shares of

Pinterest Inc.


PINS -6.01%

fell more than 14% in after-hours trading, as the online sharing platform said its monthly average users in the U.S. contracted during the quarter, a trend that accelerated this month.

The company reported 91 million monthly average users in the U.S. in the quarter, down 5% from a year earlier. Pinterest said that “engagement headwinds” continued this month, with monthly average users down 7% as of July 27. Globally, monthly average users increased 9% in the quarter.

“Our second quarter results reflect both the strength of our business and the recent shift in consumer behavior we’ve seen as people spend less time at home,” Chief Executive

Ben Silbermann

said in prepared remarks.

Pinterest saw its user growth soar during the pandemic, as shut-in consumers turned to the website for masks and other products. The company has said the pandemic may have pulled forward some user growth.

The company also reported Thursday second-quarter net income of $69.4 million, compared with a loss of $100.7 million a year earlier.

Adjusted earnings were 25 cents a share. Analysts polled by FactSet were expecting adjusted earnings 13 cents a share.

Revenue totaled $613.2 million, compared with $272.5 million a year earlier. Analysts expected $562 million in revenue.

Pinterest shares closed Thursday at $72.04 apiece, down 6%. So far this year, the stock is up 9.32%.

Write to Robert Barba at [email protected]

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Western Wildfires Are Hitting the Lumber Market | Sidnaz Blog


Lumber prices finally cooled off. Now come the fires.

Forest fires raging in the West are threatening an important swath of the U.S.’s wood supply, pinching output that has been under pressure since the Covid-19 pandemic touched off homebuying and remodeling booms and sent lumber prices soaring.

Canfor Corp.


CFPZF 3.33%

, one of North America’s largest lumber producers, said that starting Monday it would cut back output at its mills in British Columbia because of hundreds of blazes that have broken out in the Canadian province and challenged its ability to shuttle wood to and from its facilities. The company expects to reduce output at its 10 operating mills there by a total of about 115 million board feet during the quarter.

That is only a sliver of North America’s overall supply. Yet analysts said they expected further curtailments because of fires that are scorching logging forests on both sides of the U.S.-Canadian border. In addition, lumber prices have fallen below the cost of sawing boards in the continent’s most expensive place to process timber.

“The wildfires burning in western Canada are significantly impacting the supply chain and our ability to transport product to market,” said

Stephen Mackie,

executive vice president of Canfor’s North American operations.

Traders responded Wednesday by bidding up lumber futures for delivery through January by the daily maximum allowed by exchange rules. September futures rose 7.75% to close at $584 per thousand board feet, a rare up day in the midst of a 66% decline since early May.

Lumber is one of several commodities markets being roiled by extreme weather this summer. The same heat and drought that set the stage for an unusually early and intense fire season in the West have dried up hydroelectric power output and increased air-conditioning demand in the region, which has helped push natural-gas prices to their highest summer levels in seven years.

The lumber market was just getting back into balance when wildfires broke out in British Columbia.



Photo:

JR Adams/Reuters

A lack of rainfall in South American farming regions has left the Paraná River too shallow for fully loaded boats to pass from Argentina’s interior to Atlantic shipping lanes, contributing to high prices for soybeans and corn. Flooding in Germany last week forced the closure of a plant owned by

Aurubis AG

, a major metal producer and recycler, as copper prices hover around all-time highs.

Aurubis said that one of its two facilities in Stolberg, western Germany, was evacuated without injury to employees. The damage is extensive and production isn’t expected to resume until the fourth quarter at the earliest.

“Delivery to customers and acceptance of incoming deliveries are impossible right now,” the firm said.

The lumber market was just getting back into balance when the fires broke out. North America’s sawmills sent workers home at the start of the lockdown and were unprepared for the building boom that ensued. They have struggled to saw logs fast enough to meet demand from home builders, do-it-yourselfers and restaurants that raced to install outdoor seating areas.

Lumber prices topped out in May at more than four times what is typical for two-by-fours, which helped reduce demand, particularly from the more price-sensitive DIY market that buys wood from retailers such as

Lowe’s

Cos. and

Home Depot Inc.

Wood is now piling up at mills.

Mark Wilde, an analyst with BMO Capital Markets, said he expects more mills to announce reduced hours and shifts in the coming weeks

“Pricing windfalls like that of the last 12 months are once in a generation,” he said. “It would be crazy to simply return all that cash to the market by overproducing during a weak market.”

The wood-pricing service Random Lengths said in its midweek report that some Western mills have recently unloaded two-by-fours of spruce, pine and fir for below $400 per thousand board feet. Forest-product executives said that mills operating in British Columbia, where the provincial government metes out log supply, usually need more like $700 to be profitable these days.

Wildfires spawned by extreme heat have devastated parts of British Columbia.



Photo:

Darryl Dyck/Canadian Press/Associated Press

Such a high break-even price, along with the threat of fires, outbreaks of wood-boring beetles and distance to the Sunbelt’s mushrooming housing markets, has relegated what was once the continent’s top lumber-producing region to the status of swing producer. That means that the region’s mills—much like U.S. shale producers in the oil market—are likely to be the first to curtail production when lumber prices fall and are then counted on to increase output when supplies are stretched and prices rebound.

Canfor and its rivals have responded by shifting their focus to the U.S. South, where a glut of pine trees has pushed log prices to their lowest levels in decades despite strong demand for finished lumber. They have been quick to invest profits from the recent price surge into the South, which has overtaken Canada as the continent’s top lumber-producing region.

Share Your Thoughts

What impact has the availability and price of lumber had on your home-construction or renovation project? Join the conversation below.

Write to Ryan Dezember at [email protected]

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