Recent data have become too much for markets to ignore.
The bond market priced in further rate hikes following the blowout January jobs report, hotter-than-expected inflation figures, and strong retail sales.
But the stock market had been shrugging off strong economic data.
It seems reality is now hitting home for stocks. It’s hard to know what the final straw was, but a 0.7% monthly jump in producer prices and some hawkish Fed comments seem to have done the trick.
Cleveland Fed President Loretta Mester said she saw a compelling case for a 50-basis-points increase at the central bank’s January meeting, adding that the Fed needs to do more to get inflation back to 2%. St. Louis Fed President James Bullard said he joined Mester in pushing for a larger increase last time around and didn’t rule out a 50-basis-points increase at the March meeting.
Neither Mester nor Bullard are voting members—and the quarter-point hike was unanimous—but it does signal that more aggressive rate hikes are at least part of the conversation.
Since the January meeting, economic data have arguably strengthened that case as well. Another change for the March meeting will be the absence of Lael Brainard, one of the more dovish members of the Fed, and an influential one, who is off to advise President Biden.
The belief that a Fed pause, or even pivot, isn’t far off has driven the market’s run so far in 2023. That belief may now be slipping away, along with some of this year’s gains.
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SEC Sues Terraform Labs, Founder Over Terra USD Token
Terraform Labs and its co-founder and CEO Do Kwon face Securities and Exchange Commission accusations they defrauded investors in a multibillion-dollar scheme centered around an “algorithmic” stablecoin called Terra USD. The coin’s collapse set off a cascade of failures in the crypto industry.
- The SEC, suing in a New York federal court, said Kwon and his Singapore-based company raised money from investors by selling unregistered securities including Terra USD. The SEC said the company also sold tokens designed to mirror the returns of U.S. stocks. Terraform Labs didn’t immediately respond to Barron’s request for comment.
- Terra USD was as large as $18 billion. It aimed to keep its peg to the dollar using an algorithm and trading in a related token called Luna. The stablecoin’s crash in May directly or indirectly led to the bankruptcies of Three Arrows Capital, Voyager Digital and FTX, Bloomberg reported.
- The Treasury Department and other agencies have warned about stablecoins, saying they could pose risks to the financial system. In 2021, a report called for token issuers to be regulated like banks. Lawmakers have been working on rules that would set some boundaries.
- Kwon appears to be in hiding, The Wall Street Journal reported. Prosecutors in South Korea got an arrest warrant for Kwon, the report said, adding that police agencies worldwide are on the lookout for him.
What’s Next: The SEC’s lawsuit said the scheme resulted in the loss of $40 billion in market value for U.S. retail and institutional investors. The lawsuit asserts fraud and unregistered securities sales and is seeking unquantified civil monetary penalties.
—Liz Moyer and Joe Light
Biden Says Latest Downed Objects Were Likely Privately Owned
President Joe Biden refused to apologize for ordering the military to shoot down three unidentified aerial objects detected over North American airspace last weekend, but said they were likely privately owned and don’t appear to be related to a foreign surveillance program.
- “We don’t yet know exactly what these objects were,” Biden said, but they were shot down because they potentially threatened aviation. Intelligence officials currently believe they were “most likely balloons tied to private companies, recreation or research institutions studying weather, or conducting other scientific research,” he said.
- Lawmakers criticized the administration after it detected a Chinese spy balloon in early February, but didn’t destroy it until after it crossed the continental U.S. days later. Biden said the military advised against shooting it down over land because of its “sheer size.”
- Biden said the U.S. will better track, identify, and address future objects in the sky, but added that “If any object poses a threat to the safety and security of the American people, I will take it down.”
- Biden said he spoke on Saturday with Canadian Prime Minister Justin Trudeau before an object was shot down over Canada. Two other objects were shot down over remote Alaskan waters and over Lake Huron, and the Defense Department plans to retrieve and analyze the debris.
What’s Next: Biden said he expects to speak with China’s President Xi Jinping, but didn’t say when. Secretary of State Antony Blinken is scheduled to attend the Munich Security Conference this weekend, which top Chinese diplomat Wang Yi is also expected to attend, raising the possibility they could meet.
—Janet H. Cho
YouTube CEO Susan Wojcicki Steps Down After Nine Years
Susan Wojcicki is stepping down from her role as chief executive of YouTube and plans to leave Google after spending a quarter-century with the company.
- Over the years, Wojcicki held many roles at Google, a unit of Alphabet, working on products such as AdSense, image search, and video and book search. She has been YouTube CEO for nine years.
- YouTube’s business has been bruised in recent quarters from the downturn in the advertising market. In the December quarter YouTube posted ad revenue of $7.96 billion, down 7.7% from the year-earlier quarter. For all of 2022, YouTube reported ad revenue of $29.2 billion, up 1.4%.
- “I’ve decided to step back from my role as the head of YouTube and start a new chapter focused on my family, health, and personal projects I’m passionate about,” Wojcicki wrote in a note to staff Thursday. “The time is right for me, and I feel able to do this because we have an incredible leadership team in place at YouTube.”
What’s Next: Wojcicki will be succeeded by Neal Mohan, who has been chief product officer for YouTube since 2015. Mohan joined the company in 2007 as part of Google’s acquisition of the ad technology company DoubleClick. Wojcicki will continue in an advisory role.
DraftKings Scores Record Quarterly Revenue, Raises 2023 Outlook
reported stronger-than-expected fourth-quarter revenue and raised its outlook for 2023. Heading into college basketball’s March Madness tournament, its business is surging as more states legalize sports gambling. Its shares rose 6.4% in after-hours trading and are up 56% this year.
- The gambling company reported fourth-quarter revenue of $855 million, up from $473 million in the fourth quarter of 2021. It posted a fourth-quarter loss of 53 cents a share. Analysts expected a loss of 62 cents a share on $801 million revenue, according to FactSet.
- Average monthly payers in the fourth quarter rose 31%, to 2.6 million, representing player retention and its expansion of Sportsbook and iGaming into new jurisdictions. DraftKings is now live with mobile sports betting in 20 states that represent 42% of the U.S. population.
- For full-year 2022, DraftKings reported a loss of $3.16 per share on revenue of $2.24 billion, also beating expectations. The first quarter features several big sporting events that might drive revenue, such as the Super Bowl and March Madness. DraftKings is slashing its workforce by 3.5% to cut costs.
What’s Next: DraftKings raised its 2023 revenue guidance to a midpoint of $2.95 billion, from $2.9 billion, and expects a smaller loss than it forecast in November. CEO Jason Robins said the company will continue to focus on managing costs.
—Janet H. Cho and Barron’s staff
Tesla’s Vehicle Recall Focuses on Full Self-Driving Software
is recalling 362,758 cars equipped with its highest level self-driving software, according to the National Highway Traffic Safety Administration. Its Full Self-Driving Beta in rare circumstances could have trouble navigating intersections, violate local traffic laws, or increase collision risk if drivers don’t intervene, the safety body said.
- The system could allow the vehicle to “act unsafe around intersections,” such as driving straight through them while in turn-only lanes, or entering intersections without coming to a complete stop or during yellow traffic lights, the NHTSA said. Vehicles could also “respond insufficiently” to speed-limit changes.
- Tesla could not immediately be reached for comment, but CEO Elon Musk tweeted that the word ‘recall’ is wrong. It’s actually a software update that doesn’t require taking the vehicle to a mechanic. An NHTSA spokesperson told Barron’s that recalls include any required repairs, including software updates.
- The recall includes certain 2016-2023 Model S and Model X vehicles, 2017-2023 Model 3 sedans, and 2020-2023 Model Y SUVs. Tesla will issue an over-the-air software update in the coming weeks to improve how the technology negotiates certain driving moves, The Wall Street Journal reported.
- “Full-Self Driving,” like other driver-assistance systems, still requires drivers to pay attention to the road full-time. FSD Beta users help Tesla improve the product by reporting issues. Their driving data are sent back to Tesla. Setbacks to the program will delay Musk’s vision for self-driving cars.
What’s Next: NHTSA began investigating Tesla’s driver-assistance systems in 2021 after several Tesla vehicles using Autopilot hit first-responder vehicles stopped for roadway emergencies. The recall doesn’t address the full scope of the investigation, which remains open and active, the Journal reported.
—Al Root and Janet H. Cho
Do you remember this week’s news? Take our quiz below to test your knowledge. Tell us how you did in an email to email@example.com.
1. With which company did Uber Technologies sign a seven-year deal to modernize its cloud infrastructure and move some applications and data from its on-premise data centers to the cloud?
a. Amazon Web Services (Amazon.com)
b. Google Cloud (Alphabet)
c. Azure (Microsoft)
d. IBM Cloud (IBM)
2. The January consumer price index, a closely watched measure of inflation, rose at a slower pace for the seventh straight month since peaking at 9.1% in June to:
3. Super Bowl LVII was one of the most watched television shows of all time as the Kansas City Chiefs edged the Philadelphia Eagles in a very close game. Where did the football game rank among most-watched TV shows?
4. Berkshire Hathaway’s most recent regulatory filing showed Warren Buffett‘s company sold more shares than it bought in the final quarter of 2022. The sells included shares in:
c. Paramount Global
d. Taiwan Semiconductor Manufacturing
5. Which airline ordered 470 jets from Boeing and Airbus in the largest commercial plane deal in history as airlines scramble for jets to meet heightened demand for air travel?
a. Air India
b. Cathay Pacific Airways
d. Singapore Airlines
Answers: 1(b); 2(a); 3(c); 4(d); 5(a)
—Newsletter edited by Liz Moyer,Patrick O’Donnell, Rupert Steiner