shares fell 14% premarket after the cloud security firm issued guidance below expectations for the current quarter and lowered its annual outlook as supply-chain issues crimp its ability to meet demand.
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%.
“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.”
“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.”
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.
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.
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
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
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.
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
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
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%.
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)
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.
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.”
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.
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.
shares ran out of gas premarket, dropping 9.6%. The electric-vehicle startup plans to start construction next year on a second U.S. manufacturing facility in Georgia, placing a hefty bet on its ability to steadily increase sales in the coming years.
added 3.7% premarket, but that’s not much after the prior day’s 34% loss for the crypto stock. The shares have been subject to large swings since the company went public in October, including more than tripling Oct. 25 on news of a
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,
, 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
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
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
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
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
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.
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
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.
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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.”
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:
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.
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.
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.
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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.”
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
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%.
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.
, 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
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.
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
, 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
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.
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.
—Joe Wallace contributed to this article.
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said losses narrowed in the second quarter as revenue recovered from last year’s more restrictive measures to limit the spread of Covid-19, but market players are still taking their bets off the table. Its shares were down 2.5%.