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HomeMarketRetailers Prepare for Another Reveal on Inflation. It’s Key Intelligence for the...

Retailers Prepare for Another Reveal on Inflation. It’s Key Intelligence for the Fed.

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As the nation’s biggest retailers line up to report quarterly results this week, whatever bigger picture emerges could be very interesting for the Federal Reserve.

Walmart
and
Home Depot
take the stage Tuesday, with Target, Lowe’s, and
Macy’s
following close behind. It hasn’t been a good year so far. The fastest inflation in four decades and the biggest interest rate hikes in a generation have made things difficult—particularly as they came on the back of the Covid-19 pandemic, which kept shoppers at home.

Perhaps the trickiest elements to untangle will be how much of the headwind is coming from having too much inventory and how much is linked to weaker demand. Households haven’t experienced a period of inflation like this for a long time, and their reaction might not be as predictable as many expect.

Demand is certainly an issue though—money doesn’t go as far as it used to, so choices must be made. Perversely, it’s not just cheaper stores that benefit. Luxury retailers often also do well when crocodile skin belts get tightened.

And those that are able to sell things cheaply can still suffer.
Amazon,
which has done a bit better than bricks-and-mortar stores so far, is reportedly set to announce 10,000 layoffs as it tries to adjust to the new environment. Part of that might be a result of becoming a little overconfident about long-term prospects when everyone was ordering online under Covid-19 lockdowns.

There is some relief on the horizon. Inflation appears to have peaked and Fed Vice Chairwoman Lael Brainard said Monday she would now support slowing the pace of interest rate increases.

Those two early signs of change might be enough to make retailers optimistic going into Black Friday next week and the holiday shopping season ahead.

Brian Swint

*** Join Barron’s associate editor for technology Eric Savitz and Dan Morgan, vice president & senior portfolio manager at Synovus Trust, today at noon when they discuss the outlook for big cap tech stocks. Sign up here.

***

Amazon.
com Reportedly Planning to Cut About 10,000 Workers

Amazon.com
is preparing to cut about 10,000 workers as part of CEO Andy Jassy’s broader cost-cutting review of the tech and e-commerce giant, according to multiple press reports. Layoffs could begin as soon as this week, just as the holiday shopping season gets into high gear.

  • Layoffs are expected to focus on corporate staff and could primarily affect
    Amazon’s
    devices business, including its Alexa products, along with human resources and retail, The Wall Street Journal reported. Amazon has also started laying off contractors working in recruiting.

  • Amazon could not immediately be reached for comment. The company’s stock has lost more than $1 trillion in market value since July 2021 and hit a new 52-week low last week.

  • Amazon’s head count nearly doubled during the Covid-19 pandemic, when people stuck at home drove a surge in online ordering. Staffing rose to 1.6 million at the end of March. Cutting 10,000 workers would account for less than 1% of its global workforce of more than 1.5 million people as of Sept. 30.

  • The company joins other big tech firms making cuts. Facebook parent
    Meta Platforms
    is cutting more than 11,000 workers, or 13% of its staff.
    Salesforce
    is cutting “hundreds” of jobs, and
    Lyft,

    Microsoft,
    and Twitter are also laying off staff.

What’s Next: Amazon.com founder Jeff Bezos told CNN he plans to give most of his estimated $124 billion fortune to charity, including $100 million to the charities of singer Dolly Parton, and to efforts to fight climate change and promote political unity. Bezos’ ex-wife, MacKenzie Scott, has donated $14.43 billion since 2019.

Janet H. Cho

***

Warren Buffett’s Berkshire Hathaway Buys Shares of Taiwan Semiconductor

Warren Buffett’s
Berkshire Hathaway
bought
Taiwan Semiconductor
stock and sold some of its holdings of
U.S. Bancorp
and
Bank of New York
during the third quarter, according to a regulatory filing late Monday. It also bought shares of
Chevron
and
Occidental Petroleum,
as previously disclosed.

  • The Taiwan Semiconductor shares are valued at $4.4 billion as of Monday’s closing price. They are trading for half their January peak of $145. The regulatory filing, called a 13F, is required to be made within 45 days after the quarter’s close for managers of $100 million or more.

  • It isn’t known if CEO Buffett, who oversees Berkshire’s $306 billion equity portfolio but tends to be less comfortable with technology stocks, selected the chip maker or whether it was one of his investment lieutenants, Todd Combs and Ted Weschler.

  • Berkshire has trimmed its holding in U.S. Bancorp to 52.5 million shares, valued at about $2.3 billion; its Bank of New York holding to 62.2 million shares, now valued at $2.7 billion; and its
    Activision Blizzard
    holding to 60.1 million shares, or about $4.4 billion.

  • Berkshire didn’t change its big holdings in
    Apple
    and
    Bank of America
    in the period. It owns about 895 million shares of Apple, or $132 billion—its largest equity holding by far and about 40% of the entire stock portfolio. Berkshire also has about one billion shares of Bank of America, or about $38 billion.

What’s Next: Berkshire’s position in the energy market, will be closely watched by analysts. It seized narrow windows of opportunity to buy stocks such as Occidental Petroleum when they were trading down from recent highs. This was seen as a way to benefit from inflation. But as inflation cools (and if the path of the Russia-Ukraine war changes and more energy is again available from the region) the group’s strategy will be under the microscope.

Andrew Bary,Janet H. Cho and Patrick O’Donnell

***

Biden-Xi Meeting Adds to Chinese Market Optimism

President Joe Biden’s first face-to-face meeting with China’s Xi Jinping on Monday appeared to move the U.S. and China closer to re-establishing a dialogue, which helped fuel a rally in Chinese stock markets.

  • Biden said in a subsequent press briefing that “there need not be a new Cold War” and the two leaders agreed to future meetings between their administrations, including a visit to China by U.S. Secretary of State Antony Blinken.

  • Taiwan remained a point of contention as Xi said its independence was incompatible with peace and stability in the Taiwan Strait, while Biden raised objections to China’s aggressive actions toward the self-governing island.

  • Chinese stocks rallied on Tuesday, with investors seemingly heartened by the meeting as well as policy shifts in China regarding Covid-19 restrictions and access to funding for property developers.

What’s Next: A sustained rally in Chinese assets depends on both domestic and external elements. Easing Covid-19 restrictions are set to help domestic retail sales and services but external demand for Chinese goods is slowing, which is set to hit exports and related manufacturing activity. The country is poised to miss its official target of around 5.5% gross domestic product growth this year.

Adam Clark

***

Crypto Firms Rush to Calm Fears, Stabilize Industry After FTX

Changpeng Zhao, CEO of the crypto exchange Binance, plans to help bail out struggling digital asset firms, announcing an “industry recovery fund” amid the chaos caused by last week’s sudden collapse of the exchange FTX.

  • The size of Binance’s effort is unknown, as is whether it can prevent cascading failures. Zhao said “four or five” funds had contacted Binance asking if they could participate, potentially increasing the bailout money available. A couple of crypto projects that need help have already reached out.

  • Crypto lender BlockFi, which FTX had helped bail out over the summer, halted withdrawals on Friday and on Monday told customers it has “significant exposure” to FTX and its affiliates. The firm said it has “necessary liquidity to explore all options” and had hired outside advisors.

  • The U.S. attorney’s office in Manhattan is investigating FTX’s collapse, The Wall Street Journal reported. One focus for prosecutors is likely to be reports that FTX lent customer funds to Alameda Research, a crypto-trading firm owned by FTX’s former CEO Sam Bankman-Fried.

  • Kris Marszalek, the CEO of Crypto.com, answered questions during a live session on YouTube Monday, in an attempt to calm customers. It released information showing billions of dollars of crypto in its reserve and committed to releasing fully audited proof of reserves in the coming weeks.

What’s Next: Despite their reassurances, crypto exchanges may continue to face pressure as customers withdraw funds, seeking to store their digital assets offline in “cold storage” or using other off-exchange options. Many investors are likely pulling out of digital currencies altogether.

Liz Moyer, Joe Light, and Jack Denton

***

Roche’s Alzheimer’s Drug Failure Could Open Door for Rivals

Swiss drugmaker
Roche
said a closely watched trial of its Alzheimer’s drug gantenerumab failed, potentially easing the way for similar drugs being developed by
Biogen
and
Eli Lilly.
Investors have been waiting for new Alzheimer’s treatments since Biogen’s aducanumab failed commercially earlier this year.

  • Roche said its drug gantenerumab performed worse than expected in clearing the beta-amyloid brain plaques thought to be linked to Alzheimer’s symptoms. Roche’s experimental Alzheimer’s therapy called crenezumab also failed in a trial this year.

  • Some physicians and neurology researchers remain unconvinced that amyloid-targeting drugs will offer sufficient benefit in Alzheimer’s patients to justify the potentially dangerous side effects. About 12% of patients who took the lecanemab drug by Biogen and
    Eisai
    developed swelling and bleeding in the brain.

  • Biogen and Eisai said lecanemab had slowed cognitive decline in Alzheimer’s patients in a Phase 3 trial, and are hoping to get it to the market quickly. Eisai has requested accelerated approval from the Food and Drug Administration, which has until Jan. 6, 2023, to decide.

  • Moderna’s
    shares rose 4.6% after it reported that updated Covid-19 boosters worked “significantly” better against the BA. 4 and BA. 5 subvariants than its original vaccine. CEO Stéphane Bancel said boosters also neutralized against another emerging variant.

What’s Next: Biogen and Eisai will present the full results of their Phase 3 lecanemab trial on Nov. 29, and Roche will present full results of its gantenerumab trial at the same medical conference on Nov. 30.

Josh Nathan-Kazis and Janet H. Cho

***


Uncredited

Congratulations to the winner of the October virtual stock exchange game! Be sure to join this month’s Barron’s Daily virtual stock exchange challenge and show us your stuff.

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Everyone will start with the same amount and can trade as often or as little as they choose. We’ll track the leaders and at the end of the challenge the winner whose portfolio has the most value will be announced in The Barron’s Daily newsletter.

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***

—Newsletter edited by Liz Moyer, Patrick O’Donnell, Rupert Steiner

Credit: marketwatch.com

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