Amazon Stock Loses $130 Billion In Market Value After $885 Million Fine And Disappointing Earnings Report

Shares of Amazon fell as much as 8% Friday after the e-commerce juggernaut disclosed a massive fine from European regulators for allegedly breaking regional privacy laws and posted second-quarter earnings results that failed to meet Wall Street expectations, putting the longtime market leader on track for its worst day in more than a year.

Key Facts

As of 11:15 a.m. EDT, Amazon stock has plunged 7% Friday to about $3,349.50, pushing the firm’s market capitalization down below $1.7 trillion and wiping out nearly $130 billion from a closing level above $1.8 trillion Thursday.

Ushering in the massive losses, Amazon posted second-quarter revenue after Thursday’s market close of $113.1 billion—up 27% year over year, but falling short of average analyst expectations totaling $115 billion.

Despite soaring more than 48%, net income of more than $7.7 billion also fell slightly short of estimates, which called for about $7.8 billion.

The stark decline also comes after Amazon disclosed a $885 million (746 million euros) fine, levied on July 16, by the Luxembourg National Commission for Data Protection, which claims Amazon’s processing of personal data did not comply with European regulations.

In the filing, Amazon, which in a statement asserts no data breach has occurred, said it believes the watchdog’s decision is “without merit” and that it intends to appeal the ruling and defend itself “vigorously” in the matter.

Amazon’s Friday plunge puts it on track for its worst one-day decline since the height of pandemic uncertainty tanked the broader market in March 2020.

Crucial Quote

“Consumers’ online shopping levels are returning to more normal levels as they shift some spending to other entertainment sources and offline shopping,” Morningstar analyst Dan Romanoff said in a Friday note. “Meanwhile, the company continues to add capacity [and costs] at a breakneck pace in order to meet customer demand and one day delivery,” Romanoff added, pointing out Amazon has already nearly doubled its footprint during the last 18 months.

Surprising Fact

Shares of Amazon are now down more than 10% from a record closing high of $3,719 earlier this month.

Tangent

Amazon far underperformed the broader market Friday. The Dow Jones Industrial Average, which doesn’t include Amazon, ticked down just 0.2%, while the S&P 500, which counts the retail giant as its third-largest component, fell 0.4%.

Chief Critic

“Maintaining the security of our customers’ information and their trust are top priorities. There has been no data breach, and no customer data has been exposed to any third party. These facts are undisputed,” Amazon said in a statement Friday. “The decision relating to how we show customers relevant advertising relies on subjective and untested interpretations of European privacy law, and the proposed fine is entirely out of proportion with even that interpretation.”

Further Reading

Amazon hit with $886m fine for alleged data breach (BBC)

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I’m a reporter at Forbes focusing on markets and finance. I graduated from the University of North Carolina at Chapel Hill, where I double-majored in business journalism and economics while working for UNC’s Kenan-Flagler Business School as a marketing and communications assistant. Before Forbes, I spent a summer reporting on the L.A. private sector for Los Angeles Business Journal and wrote about publicly traded North Carolina companies for NC Business News Wire. Reach out at jponciano@forbes.com. And follow me on Twitter @Jon_Ponciano

Source: Amazon Stock Loses $130 Billion In Market Value After $885 Million Fine And Disappointing Earnings Report

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Critics:

With technology stocks garnering renewed scrutiny, it’s helpful to take a look back at one company that has weathered some of the most severe market downturns and serious doubts from Wall Street: Amazon. Betting on the online bookstore wasn’t always a sure thing. Amazon’s journey from tiny garage start-up to one of the most valuable companies in the world has paid off for investors, but shareholders needed a strong stomach.“Earth’s Biggest Bookstore”

In the early 1990s, Jeff Bezos walked away from a Wall Street career with an outlandish idea to sell books on the World Wide Web. In 1994, he launched Amazon.com. “I found this fact on a website that the web was growing at 2,300 percent per year,” Bezos told CNBC in a 2001 interview about his early foray into book selling. “The idea that sort of entranced me was this idea of building a bookstore online.”

The site experienced growth quickly, going public three years later with $16 million in revenue and 180,000 customers spanning more than 100 countries (according to its SEC filing). But even as the site began growing, many investors had their doubts about Amazon, instead favoring brick-and-mortar book-selling giant Barnes & Noble.

At an early meeting between Barnes & Noble Chairman Leonard Riggio and Bezos, Riggio reportedly told Bezos he would “crush” Amazon. Barnes & Noble dwarfed the young start-up. The traditional bookseller had hundreds of stores and more than $2 billion in revenue. It was also tapping into major Silicon Valley talent to built its own sleek new website.

On top of that, it was suing Amazon over the start-up’s claim to be “Earth’s Biggest Bookstore.” But for those who took a chance and bought Amazon stock at the initial public offering, their investment has returned a compound annual growth rate of 38 percent since the IPO – outperforming the S&P 500 which had a total return of 10 percent annually over the same period.

Tech stocks have been under renewed pressure in recent weeks as the markets have experienced volatility. From September to November, Amazon stock lost a quarter of its value as the wider tech sector took major hits. Some analysts say it’s a good time to buy in. Others say Amazon’s growth rate has hit a ceiling as the company enters maturity.

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How To Squeeze Yields Up To 6.9% From Blue-Chip Stocks

Closeup of blue poker chip on red felt card table surface with spot light on chip

Preferred stocks are the little-known answer to the dividend question: How do I juice meaningful 5% to 6% yields from my favorite blue-chip stocks? “Common” blue chips stocks usually don’t pay 5% to 6%. Heck, the S&P 500’s current yield, at just 1.3%, is its lowest in decades.

But we can consider the exact same 505 companies in the popular index—names like JPMorgan Chase (JPM), Broadcom (AVGO) and NextEra Energy (NEE)—and find yields from 4.2% to 6.9%. If we’re talking about a million dollar retirement portfolio, this is the difference between $13,000 in annual dividend income and $42,000. Or, better yet, $69,000 per year with my top recommendation.

Most investors don’t know about this easy-to-find “dividend loophole” because most only buy “common” stock. Type AVGO into your brokerage account, and the quote that your machine spits back will be the common variety.

But many companies have another class of shares. This “preferred payout tier” delivers dividends that are far more generous.

Companies sometimes issue preferred stock rather than issuing bonds to raise cash. And these preferred dividends have a few benefits:

  • They receive priority over dividends paid on common shares.
  • Sometimes, preferred dividends are “cumulative”—if any dividends are missed, those dividends still have to be paid out before dividends can be paid to any other shareholders.
  • They’re typically far juicier than the modest dividends paid out on common stock. A company whose commons yield 1% or 2% might still distribute 5% to 7% to preferred shareholders.

But it’s not all gravy.

You’ll sometimes hear investors call preferreds “hybrid” securities. That’s because they act like a part-stock, part-bond holding. The way they resemble bonds is how they trade around a par value over time, so while preferreds can deliver price upside, they don’t tend to deliver much.

No, the point of preferreds is income and safety.

Now, we could go out and buy individual preferreds, but there’s precious little research out there allowing us to make a truly informed decision about any one company’s preferreds. Instead, we’re usually going to be better off buying preferred funds.

But which preferred funds make the cut? Let’s look at some of the most popular options, delivering anywhere between 4.2% to 6.9% at the moment.

Wall Street’s Two Largest Preferred ETFs

I want to start with the iShares Preferred and Income Securities (PFF, 4.2% yield) and Invesco Preferred ETF (PGX, 4.5%). These are the two largest preferred-stock ETFs on the market, collectively accounting for some $27 billion in funds under management.

On the surface, they’re pretty similar in nature. Both invest in a few hundred preferred stocks. Both have a majority of their holdings in the financial sector (PFF 60%, PGX 67%). Both offer affordable fees given their specialty (PFF 0.46%, PGX 0.52%).

There are a few notable differences, however. PGX has a better credit profile, with 54% of its preferreds in BBB-rated (investment-grade debt) and another 38% in BB, the highest level of “junk.” PFF has just 48% in BBB-graded preferreds and 22% in BBs; nearly a quarter of its portfolio isn’t rated.

Also, the Invesco fund spreads around its non-financial allocation to more sectors: utilities, real estate, communication services, consumer discretionary, energy, industrials and materials. Meanwhile, iShares’ PFF only boasts industrial and utility preferreds in addition to its massive financial-sector base.

PGX might have the edge on PFF, but both funds are limited by their plain-vanilla, indexed nature. That’s why, when it comes to preferreds, I typically look to closed-end funds.

Closed-End Preferred Funds

CEFs offer a few perks that allow us to make the most out of this asset class.

For one, most preferred ETFs are indexed, but all preferred CEFs are actively managed. That’s a big advantage in preferred stocks, where skilled pickers can take advantage of deep values and quick changes in the preferred markets, while index funds must simply wait until their next rebalancing to jump in.

Closed-end funds also allow for the use of debt to amplify their investments, both in yield and performance. Should the manager want, CEFs can also use options or other tools to further juice returns.

And they often pay out their fatter dividends every month!

Take John Hancock Preferred Income Fund II (HPF, 6.9% yield), for example. It’s a tighter portfolio than PFF or PGX, at just under 120 holdings from the likes of CenterPoint Energy (CNP), U.S. Cellular (USM) and Wells Fargo (WFC).

Manager discretion means a lot here. That is, HPF doesn’t just invest in preferreds, which are 70% of assets. It also has 22% invested in corporate bonds, another 4% or so in common stock, and trace holdings of foreign stock, U.S. government agency debt and cash. And it has a whopping 32% debt leverage ratio that really helps prop up the yield and provide better returns (though at the cost of a bumpier ride).

You have a similar situation with Flaherty & Crumrine Preferred and Income Securities Fund (FFC, 6.7%).

Here, you’re wading deep into the financial sector at nearly 80% exposure, with decent-sized holdings in utilities (7%) and energy (7%). Credit quality is roughly in between PFF and PGX, with 44% BBB, 37% BB and 19% unrated.

Nonetheless, smart management selection (and a healthy 31% in debt leverage) has led to far better, albeit noisier, returns than its indexed competitors. The Cohen & Steers Select Preferred and Income Fund (PSF, 6.0%) is about as pure a play as you could want in preferreds.

And it’s also a pure performer.

PSF is 100% invested in preferred stock (well, more like 128% if you count debt leverage), and actually breaks out its preferreds into institutionals that trade over-the-counter (83%), retail preferreds that trade on an exchange (16%) and floating-rate preferreds that trade OTC or on exchanges (1%).

Like any other preferred fund, you’re heavily invested in the financial sector at nearly 73%. But you do get geographic diversification, as only a little more than half of PSF’s assets are invested in the U.S. Other well-represented countries include the U.K. (13%), Canada (7%) and France (6%).

What’s not to love?

Brett Owens is chief investment strategist for Contrarian Outlook. For more great income ideas, get your free copy his latest special report: Your Early Retirement Portfolio: 7% Dividends Every Month Forever.

I graduated from Cornell University and soon thereafter left Corporate America permanently at age 26 to co-found two successful SaaS (Software as a Service) companies. Today they serve more than 26,000 business users combined. I took my software profits and started investing in dividend-paying stocks. Today, it’s almost impossible to find good stocks that pay a quality yield. So I employ a contrarian approach to locate high payouts that are available thanks to some sort of broader misjudgment. Renowned billionaire investor Howard Marks called this “second-level thinking.” It’s looking past the consensus belief about an investment to map out a range of probabilities to locate value. It is possible to find secure yields of 6% or more in today’s market – it just requires a second-level mindset.

Source: How To Squeeze Yields Up To 6.9% From Blue-Chip Stocks

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Critics:

A blue chip is stock in a stock corporation (contrasted with non-stock one) with a national reputation for quality, reliability, and the ability to operate profitably in good and bad times. As befits the sometimes high-risk nature of stock picking, the term “blue chip” derives from poker. The simplest sets of poker chips include white, red, and blue chips, with tradition dictating that the blues are highest in value. If a white chip is worth $1, a red is usually worth $5, and a blue $25.

In 19th-century United States, there was enough of a tradition of using blue chips for higher values that “blue chip” in noun and adjective senses signaling high-value chips and high-value property are attested since 1873 and 1894, respectively. This established connotation was first extended to the sense of a blue-chip stock in the 1920s. According to Dow Jones company folklore, this sense extension was coined by Oliver Gingold (an early employee of the company that would become Dow Jones) sometime in the 1920s, when Gingold was standing by the stock ticker at the brokerage firm that later became Merrill Lynch.

Noticing several trades at $200 or $250 a share or more, he said to Lucien Hooper of stock brokerage W.E. Hutton & Co. that he intended to return to the office to “write about these blue-chip stocks”. It has been in use ever since, originally in reference to high-priced stocks, more commonly used today to refer to high-quality stocks.

References:

Do You Get Your Money’s Worth From Buying An Annuity?

Coin Stacks And Chart Graphs On A Chessboard

Once upon a time, in the (somewhat mythical) past of traditional defined benefit pensions, your employer protected you from the risk of outliving your money in retirement, by acting, more or less, as an insurance company providing an annuity. With that benefit receding into the past, many experts have been hoping that Americans with 401(k) plans would avail themselves of annuities on their own, to give themselves the same sort of protection, and, indeed, the SECURE Act of 2019 made it easier for those plans to offer their participants an annuity choice, and, when surveyed, 73% of those participants said they would “consider” an annuity at retirement.

At the same time, though, Americans distrust annuities — in part because traditional deferred annuities had high fees and expenses and only made sense in an era predating IRAs and 401(k)s, when they were attractive solely due to the limited tax-advantaged options for retirement savings. But that’s not the only reason — annuities, quite frankly, aren’t cheap.

How do you quantify the value of an annuity? In one respect, it’s subjective and personal: do you judge yourself to be in good health, or does family history and your list of medications say that you’ll be one of those with the early deaths that longer-lived annuity-purchasers are counting on? Do you want to be sure you can maintain your standard of living throughout your retirement, or do you figure that you won’t really care one way or another if you have to cut down expenses once you’re among the “old-old”?

But measuring the value of annuities, generally speaking, does tell us whether consumers are getting a fair deal from their purchases, and here, a recent working paper by two economists, James Poterba and Adam Solomon, “Discount Rates, Mortality Projections, and Money’s Worth Calculations for US Individual Annuities,” lends some insight.

Here’s some good news: using the costs of actual annuities available for consumers to purchase in June 2020, and comparing them to bond rates which were similar to the investment portfolios those insurance companies hold, the authors calculated “money’s worth ratios” that show that, for annuities purchased immediately at retirement, the value of the annuities was between 92% – 94% (give-or-take, depending on type) of its cost. That means that the value of the insurance protection is a comparatively modest 6 – 8% of the total investment.

But there’s a catch — or, rather, two of them.

In the first place, the authors calculate their ratios based on a standard mortality table for annuity purchasers — which makes sense if the goal is to judge the “fairness” of an annuity for the healthy retirees most likely to purchase one. But this doesn’t tell us whether an annuity is a smart purchase for someone who thinks of themselves as being in comparatively poorer health, or with a spottier family health history, and folks in these categories would benefit considerably from analysis that’s targeted at them, that evaluates, realistically, whether annuities are the right call and whether their prediction of their life expectancy is likely to be right or wrong.

In the second place, the 92% – 94% money’s worth calculation is based on the typical investment portfolio of insurance companies, approximated by the returns of BBB-rated bonds. This measures whether the annuity is “fair” or not, in that “moral” sense of whether the perception that the company is “cheating” is customers is real (it’s not).

But these interest rates are very low. The authors, in addition to their calculations of “money’s worth,” back into the implied discount rate from the annuity costs themselves. For men aged 65, that interest rate is 2.16%; for women aged 65, 2.18%.

Now, imagine that you compare this annuity to an alternative plan of investing your money in the stock market, earning 7% annual returns, and believing you can predict your death date (or not really caring if you fall short or end up with leftover money for heirs).

The cost of the protection offered by the annuity, the guarantee that you will never run out of money, and that you will not suffer from a market crash, is very expensive indeed — when you compare apples to oranges in this manner, the money’s worth ratio is, according to my very rough estimates, more like 60%, meaning that about 40% of your cash is spent to purchase the “insurance protection” of the annuity.

And, again, that’s not because insurance companies are cheating anyone; that’s solely because of the wide gap between corporate bond rates and expected returns when investing in the stock market— a gap which was particularly wide in the summer of 2020 when this study was competed, but remains nearly as wide now.

As it stands, Moody’s Baa rates are in the 3% range; in the 2000s, they were in the 6% range, and in the 1990s, from 7% – 9%. Although this drop in bond rates is good news for American homebuyers because this marches in tandem with mortgage rates, it makes it far harder for retirees to manage their finances in ways that protect them from the risks that they face in their retirement.

Perhaps interest rates in general, and bond rates specifically, will increase as we leave our current economic challenges, but there’s no certainty, and as long as this gap between bond rates and expected stock market returns remains so substantial, retirees will be challenged to find any sort of safe investment that makes sense for them. Which means that what seems like a great benefit for Americans looking to borrow money — for mortgages, car loans, credit cards — can pit the elderly against the young in a generational “us vs. them” contest.

As always, you’re invited to comment at JaneTheActuary.com!

Follow me on Twitter. Check out my website.

Yes, I’m a nerd, and an actuary to boot. Armed with an M.A. in medieval history and the F.S.A. actuarial credential, with 20 years of experience at a major benefits consulting firm, and having blogged as “Jane the Actuary” since 2013, I enjoy reading and writing about retirement issues, including retirement income adequacy, reform proposals and international comparisons.

Source: Do You Get Your Money’s Worth From Buying An Annuity?

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Critics:

An annuity is a series of payments made at equal intervals.[1] Examples of annuities are regular deposits to a savings account, monthly home mortgage payments, monthly insurance payments and pension payments. Annuities can be classified by the frequency of payment dates. The payments (deposits) may be made weekly, monthly, quarterly, yearly, or at any other regular interval of time. Annuities may be calculated by mathematical functions known as “annuity functions”.

An annuity which provides for payments for the remainder of a person’s lifetime is a life annuity.

Variability of payments

  • Fixed annuities – These are annuities with fixed payments. If provided by an insurance company, the company guarantees a fixed return on the initial investment. Fixed annuities are not regulated by the Securities and Exchange Commission.
  • Variable annuities – Registered products that are regulated by the SEC in the United States of America. They allow direct investment into various funds that are specially created for Variable annuities. Typically, the insurance company guarantees a certain death benefit or lifetime withdrawal benefits.
  • Equity-indexed annuities – Annuities with payments linked to an index. Typically, the minimum payment will be 0% and the maximum will be predetermined. The performance of an index determines whether the minimum, the maximum or something in between is credited to the customer.

See also

References

  • Kellison, Stephen G. (1970). The Theory of Interest. Homewood, Illinois: Richard D. Irwin, Inc. p. 45
  • Lasher, William (2008). Practical financial management. Mason, Ohio: Thomson South-Western. p. 230. ISBN 0-324-42262-8..
  1. Jordan, Bradford D.; Ross, Stephen David; Westerfield, Randolph (2000). Fundamentals of corporate finance. Boston: Irwin/McGraw-Hill. p. 175. ISBN 0-07-231289-0.
  • Samuel A. Broverman (2010). Mathematics of Investment and Credit, 5th Edition. ACTEX Academic Series. ACTEX Publications. ISBN 978-1-56698-767-7.
  • Stephen Kellison (2008). Theory of Interest, 3rd Edition. McGraw-Hill/Irwin. ISBN 978-0-07-338244-9.

Why Is China Cracking Down on Ride-Hailing Giant Didi?

Just days after Didi Global Inc., China’s version of Uber, pulled off a $4.4 billion initial public offering in New York, the Chinese cyberspace regulator effectively ordered it removed from app stores in its home market, citing security risks. The ruling doesn’t stop the company from operating -– its half-billion or so existing users will still be able to order rides for now. But it adds to the uncertainty surrounding all Chinese internet companies as regulators increasingly assert control over Big Tech.

1. What’s Didi?

It’s China’s biggest ride-hailing company. Didi squeezed Uber out of China five years ago, buying out the American company’s operations after an expensive price war. Its blockbuster IPO on June 30 was the second-biggest in the U.S. by a company based in China, after Alibaba Group Holding Ltd, giving Didi a market value of about $68 billion.

Accounting for stock options and restricted stock units, the company’s diluted value exceeds $71 billion — well below estimates of up to $100 billion as recently as a few months ago. The relatively modest showing reflects both investors’ increasing caution over pricey growth stocks, and China’s recent crackdown on its biggest tech players.

2. What is this investigation about?

The specifics are still very unclear. Two days after the IPO, the Cyberspace Administration of China said it’s starting a cybersecurity review of the company to prevent data security risks, safeguard national security and protect the public interest. Two days after that it said Didi had committed serious violations in the collection and usage of personal information and ordered the app pulled. There are no details on what precisely the investigation centers on, when or where the alleged violations occurred or whether there will be more penalties to come.

3. Are there any hints?

The Global Times, a Communist Party-backed newspaper, wrote in an editorial that Didi undoubtedly has the most detailed travel information on individuals among large internet firms and appears to have the ability to conduct “big data analysis” of individual behaviors and habits. To protect personal data as well as national security, China must be even stricter in its oversight of Didi’s data security, given that it’s listed in the U.S. and its two largest shareholders are foreign companies, it added.

4. Is it just Didi?

No. The Chinese internet regulator has widened its probe to two more U.S.-listed companies, targeting Full Truck Alliance Co. and Kanzhun Ltd. soon after launching the review into Didi.

5. Was this out of the blue?

No. In May, China’s antitrust regulator ordered Didi and nine other leaders in on-demand transport to overhaul practices from arbitrary price hikes to unfair treatment of drivers. More broadly, Beijing is in the process of a sweeping crackdown on the nation’s Big Tech firms designed to curb their growing influence.

In November 2020 the authorities derailed the planned IPO of fintech giant Ant Group Co. and in April hit Alibaba with a record $2.8 billion fine after an antitrust probe found it had abused its market dominance. Didi, however, said on Monday it was unaware of China’s decision to halt registrations and remove the app from app stores before its listing.

6. Why does Didi matter?

You can’t really overstate just how dominant Didi is in ride hailing in China, accounting for 88% of total trips in the fourth quarter of 2020. When Didi bought Uber’s Chinese operations in 2016, Uber took a stake in the company that currently stands at 12%. Didi’s U.S. IPO was shepherded by a who’s who of Wall Street banks. Its largest shareholder is Japan’s SoftBank Group Corp. with more than 20%, and others include Chinese social networking colossus Tencent Holdings Ltd. However, due to Didi’s ownership structure, Chief Executive Officer Cheng Wei and President Jean Liu control more than 50% of the voting power.

7. How’s the company doing?

While Didi had a net loss of $1.6 billion on revenue of $21.6 billion last year, according to its filings with the U.S. Securities and Exchange Commission, its diversity cushioned it against the worst of the pandemic downturn. The company reported net income of $837 million in the first quarter of 2021. With growth in its core market beginning to slow, it has expanded rapidly into fields from car repairs to grocery delivery and has pumped hundreds of millions into researching autonomous driving technology. It’s also said to be planning to expand services into Western Europe.

8. What happens now?

On Didi specifically the critical question is what the review regarding user data finds. But analysts are already looking at the likely wider impact. Key issues are whether the action is likely to discourage other Chinese tech firms from embarking on an overseas listing, and whether the action marks a new direction for the regulatory crackdown. Didi itself said in a statement in would fully cooperate with the review. It warned though that the removal of the app for new users may have an adverse affect on revenue.

Based on the laws cited by the regulators, Didi is probably being investigated over its purchase of certain products and services from other suppliers, which may threaten national data security, according to analysts from Shenzhen-based Ping An Securities. “Didi will inevitably have to check its core network equipment, high-performance computers and servers, large-capacity storage equipment, large databases and application software, network security equipment, and cloud computing services, sort them out and make necessary rectifications to meet regulatory requirements,” the analysts wrote in a note on Monday.

Yang Sirui, chief analyst for the computer industry at Bank of China International, said that Didi went for its public listing in the US hastily, probably due to investor pressure. “Listing Didi as soon as possible meets the demands of the capital,” he said. “But if [Didi] had arbitrarily collected user privacy data, abused it, or monetized it illicitly, it will inevitably be punished by Chinese regulators.” Since its founding in 2012, Didi has undergone a number of private fundraising rounds, raising tens of billions of dollars from venture capital or major tech firms. According to its IPO prospectus, SoftBank Vision Fund is currently the largest shareholder of Didi, with a 21.5% stake. Uber (UBER) and Tencent (TCEHY) followed with a 12.8% and 6.8% stake respectively.

The Reference Shelf

— With assistance by Coco Liu, Molly Schuetz, Abhishek Vishnoi, and Colum Murphy

By:

Source: Why China is Citing Security Risks in Crack Down on $UBER rival $DIDI – Bloomberg

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Critics:

Didi is a Chinese vehicle for hire company headquartered in Beijing with over 550 million users and tens of millions of drivers. The company provides app-based transportation services, including taxi hailing, private car hailing, social ride-sharing, and bike sharing; on-demand delivery services; and automobile services, including sales, leasing, financing, maintenance, fleet operation, electric vehicle charging, and co-development of vehicles with automakers.

In March 2017, the Wall Street Journal reported that SoftBank Group Corporation approached DiDi with an offer to invest $6 billion in the company to fund the ride-hailing firm’s expansion in self-driving car technologies, with a significant portion of the money to come from SoftBank’s then-planned $100 billion Vision Fund.

DiDi claims that it provides over tens of millions of flexible job opportunities for people, including a considerable number of women, laid-off workers and veteran soldiers. Based on a survey released by DiDi in March 2019, women rideshare drivers in Brazil, China and Mexico account for 16.7%, 7.4% and 5.6% of total rideshare drivers on its platforms, respectively. DiDi supports more than 4,000 innovative SMEs, which provides more than 20,000 jobs additionally.

40% of DiDi’s employees are women. In 2017, DiDi launched a female career development plan and established the “DiDi Women’s Network”. It is reportedly the first female-oriented career development plan in a major Chinese Internet company.

References

Stocks, U.S. Futures Dip on Delta Strain Concerns: Markets Wrap

Asian stocks dipped Tuesday amid concerns a more infectious Covid-19 strain will derail an economic recovery. Treasuries and the dollar were steady after gains.

An MSCI index of Asia-Pacific shares was on track for its first decline in six days as countries in the region are struggling to contain the highly transmissible Delta variant of the virus. U.S. futures dipped after technology stocks led U.S. benchmarks to fresh records Monday. New limits on travel from Britain, which is seeing a spike in cases, dragged on cruise operators and airlines.

The Treasury yield curve flattened amid month-end index rebalancing and the break in auctions until July 12, reducing supply. Oil extended a decline with the market expecting OPEC+ producers to increase supply at an upcoming meeting. Bitcoin was steady around mid-$34,000.

Global stocks are poised to close out their fifth quarterly advance amid a worldwide vaccine rollout that powered an economic recovery and sparked concerns about increasing prices pressures and the withdrawal of stimulus measures. The recovery also drove the reflation trade as more economies reopened, though that is being hampered as some countries, especially in Asia, are falling behind in their vaccine strategies.

The U.S. is now the best place to be during the pandemic due to its fast and expansive vaccine rollout stemming what was once the world’s worst outbreak. Meanwhile, parts of the Asia-Pacific region that performed well in the ranking until now — like Singapore, Hong Kong and Australia — dropped as strict border curbs remain in place.

“The Delta variant has also emerged in our client conversations as a potential threat to reflation/inflation,” JPMorgan Chase & Co. strategists led by Marko Kolanovic said. “The economic consequences are likely to be limited given progress on vaccinations across developed market economies. It could, however, pose some risk of a delay in the recovery in countries where vaccination rates remain lower.”

Read: Asean Equities May Have Priced In Virus Setback: Taking Stock

For more market commentary, follow the MLIV blog.

Here are some events to watch in the markets this week:

  • OECD meets in Paris to finalize a proposal to overhaul global minimum corporate taxation Wednesday
  • China’s President Xi Jinping will deliver a speech as the nation marks the 100th anniversary of the founding of the Chinese Communist Party Thursday
  • OPEC+ ministerial meeting Thursday
  • ECB President Christine Lagarde speaks Friday
  • The U.S. jobs report is due Friday

These are some of the main moves in markets:

Stocks

  • S&P 500 futures dipped 0.1% as of 1:26 p.m. in Tokyo. The S&P 500 rose 0.2%
  • Nasdaq 100 futures fell 0.2%. The Nasdaq 100 rose 1.3%
  • Topix index fell 1%
  • Australia’s S&P/ASX 200 Index dropped 0.4%
  • Kospi index lost 0.6%
  • Hang Seng Index retreated 0.8%
  • Shanghai Composite Index was down 1%
  • Euro Stoxx 50 futures were little changed

Currencies

  • The yen traded at 110.56 per dollar
  • The offshore yuan was at 6.4638 per dollar
  • The Bloomberg Dollar Spot Index edged up
  • The euro traded at $1.1913

Bonds

  • The yield on 10-year Treasuries held at 1.48%
  • Australia’s 10-year bond yield dropped five basis points to 1.53%

Commodities

  • West Texas Intermediate crude was at $72.56 a barrel, down 0.5%
  • Gold was at $1,774.24, down 0.2%

— With assistance by Rita Nazareth, Vildana Hajric, and Nancy Moran

By:

Source: Stock Market Today: Dow, S&P Live Updates for Jun. 29, 2021 – Bloomberg

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Critics:

Beginning on 13 May 2019, the yield curve on U.S. Treasury securities inverted, and remained so until 11 October 2019, when it reverted to normal. Through 2019, while some economists (including Campbell Harvey and former New York Federal Reserve economist Arturo Estrella) argued that a recession in the following year was likely,other economists (including the managing director of Wells Fargo Securities Michael Schumacher and San Francisco Federal Reserve President Mary C. Daly) argued that inverted yield curves may no longer be a reliable recession predictor.

The yield curve on U.S. Treasuries would not invert again until 30 January 2020 when the World Health Organization declared the COVID-19 outbreak to be a Public Health Emergency of International Concern, four weeks after local health commission officials in Wuhan, China announced the first 27 COVID-19 cases as a viral pneumonia strain outbreak on 1 January.

The curve did not return to normal until 3 March when the Federal Open Market Committee (FOMC) lowered the federal funds rate target by 50 basis points. In noting decisions by the FOMC to cut the federal funds rate by 25 basis points three times between 31 July and 30 October 2019, on 25 February 2020, former U.S. Under Secretary of the Treasury for International Affairs Nathan Sheets suggested that the attention of the Federal Reserve to the inversion of the yield curve in the U.S. Treasuries market when setting monetary policy may be having the perverse effect of making inverted yield curves less predictive of recessions.

See also

 

Netflix And Boeing Among Today’s Trending Stocks

According to a report from the Washington Post dropped June 12, 1-year inflation is up 5%, while 2-year inflation sits around 5.6%. This has impacted everything from raw materials like lumber and glass to manufactured products. Used cars are up 29.7% in the last year, while gas has shot up over 56%, and washing machines and dryers sit up around 26.5%.

This comes as the global microchip shortage compounds retailers’ problems as they struggle to automate their supply chains. And while the economy (and the stock market) is certainly rebounding from covid-era recession pressures, consumers are stuck footing high-priced bills as both demand and the cost of materials continue to rise. Still, the Fed maintains that prices should stabilize soon – though “soon” may mean anywhere from 18-24 months, according to consulting firm Kearney.

Until then, investors will have to weigh their worries about inflation on the equities and bonds markets against the growing economy to decide which investments have potential – and which will see their returns gouged by rising prices across the board. To that end, we present you with Q.ai’s top trending picks heading into the new week.

Q.ai runs daily factor models to get the most up-to-date reading on stocks and ETFs. Our deep-learning algorithms use Artificial Intelligence (AI) technology to provide an in-depth, intelligence-based look at a company – so you don’t have to do the digging yourself.

Netflix, Inc (NFLX)

First up on our trending list is Netflix, Inc, which closed at $488.77 per share Friday. This represented an increase of 0.31% for the day, though it brought the streaming giant to down 9.6% for the year. The company has experienced continual losses for the past few weeks, with Friday ending below the 22-day price average of $494 and change. Currently, Netflix is trading at 47.1x forward earnings.

Netflix, Inc. trended in the latter half of last week as the company opened a new e-commerce site for branded merchandise. Currently, the store’s offerings are limited to a few popular Netflix tv shows, but the company hopes to increase its branded merchandise branded to shows such as Lupin, Yasuke, Stranger Things, and more in the coming months. With this latest move, the company hopes to expand its revenue channels and compete more directly with competitors such as Disney+.

In the last fiscal year, Netflix saw revenue growth of 5.6% to $25 billion compared to $15.8 billion three years ago. At the same time, operating income jumped 21.8% to $4.585 billion from $1.6 billion three years ago. And per-share earnings jumped almost 36% to $6.08 compared to $2.68 in the 36-month-ago period, while ROE rose to 29.6%.

Currently, Netflix is expected to see 12-month revenue around 3.33%. Our AI rates the streaming behemoth A in Growth, B in Quality Value and Low Volatility Momentum, and D in Technicals.

The Boeing Company (BA)

The Boeing Company closed down 0.43% Friday to $247.28, trending at 9.93 million trades on the day. Boeing has fallen somewhat from its 10-day price average of $250.67, though it’s up over the 22-day average of $240 and change. Currently, Boeing is up 15.5% YTD and is trading at 180.1x forward earnings.

The Boeing Company has trended frequently in recent weeks as the airplane manufacturer continues to take new orders for its jets, including the oft-beleaguered 737 MAX. United Airlines is reportedly in talks to buy “hundreds” of Boeing jets in the next few months, while Southwest Airlines is seeking up to 500 new aircraft as it expands its U.S. service. Alaskan Airlines, Dubai Aerospace Enterprise, and Ryanair have also placed orders for more Boeing jets heading into summer.

Over the last three fiscal years, Boeing’s revenue has plummeted from $101 billion to $58.2 billion, while operating income has been slashed from $11.8 billion to $8.66 billion. At the same time, per-share earnings have actually grown from $17.85 to $20.88.

Boeing is expected to see 12-month revenue growth around 7.5%. Our AI rates the airline manufacturer B in Technicals, C in Growth, and F in Low Volatility Momentum and Quality Value.

Nvidia Corporation (NVDA)

Nvidia Corporation jumped up 2.3% Friday to $713 per share, trending with 10.4 million trades on the books. Despite its sky-high stock price, Nividia has risen considerably from the 22-day price average of $631.79 – up 36.5% for the year. Currently, Nvidia is trading at 44.44x forward earnings.

Nvidia is trending this week thanks to surging GPU sales amidst the global chip shortage, as well as its planned 4-for-1 stock split at the end of June – but that’s not all. The company also announced Thursday that it also plans to buy DeepMap, an autonomous-vehicle mapping startup, for an as-yet undisclosed price. With this new acquisition, Nvidia will improve the mapping and localization functions of its software-defined self-driving operations system, NVIDIA DRIVE.

In the last fiscal year, Nvidia saw revenue growth of 15.5% to $16.7 billion compared to $11.7 billion three years ago. Operating income jumped 20.8% in the same period to $4.7 billion against $3.8 billion in the three-year ago period, and per-share earnings expanded 22.6% to $6.90. However, ROE was slashed from 49.3% to 29.8% in the same time frame.

Currently, Nvidia is expected to see 12-month revenue growth around 2%. Our AI rates Nvidia A in Growth, B in Low Volatility Momentum, C in Quality Value, and F in Technicals.

Nike, Inc (NKE)

Nike, Inc closed up 0.73% Friday to $131.94 per share, closing out the day at 5.4 million shares. The stock is down 6.7% YTD, though it’s still trading at 36.8x forward earnings.

Nike stock has slipped in recent weeks as the athleticwear retailer suffers supply chain challenges in North America. And despite recent revenue growth in its Asian markets, it also continues to deal with Chinese backlash to its March criticism of the Chinese government’s forced labor of persecuted Uyghurs.

In the last fiscal year, Nike saw revenue grow almost 3% to $37.4 billion, up 5.8% in the last three years from $36.4 billion. Operating income jumped 40.9% in the last year alone to $3.1 billion – though this is down from $4.45 billion three years ago. In the same periods, per-share earnings grew 33.7% and 82.8%, respectively, from $1.17 to $1.60. And return on equity nearly doubled from 17% to 30%.

Currently, Nike is expected to see 12-month revenue growth around 10.3%. Our AI rates Nike average across the board, with C’s in Technicals, Growth, Low Volatility Momentum, and Quality Value.

Mastercard, Inc (MA)

Mastercard, Inc ticked up 0.33% Friday to $365.50, trading at a volume of 2.7 million shares on the day. The stock is up marginally over the 22-day price average of $363.86 and 2.4% for the year. Currently, Mastercard is trading at 43.64x forward earnings.

Mastercard has faltered behind the S&P 500 index for much of the year – not to mention competitors like American Express. While there’s no one story to tie the credit card company’s relatively modest stock prices to, it may be due to a combination of investor uneasiness, already-high share prices, and increased digital payments. But with travel recently on the rise, it’s possible that Mastercard will be making a comeback.

In the last three fiscal years, Mastercard’s revenue has risen 3.3% to $15.3 billion compared to $14.95 billion. In the same period, operating income has fallen from $8.4 billion to $8.2 billion, whereas per-share earnings have grown from $5.60 to $6.37 for total growth of 16.4%. Return on equity slipped from 106% to 102.5% at the same time.

Currently, Mastercard’s forward 12-month revenue is expected to grow around 4.7%. Our deep-learning algorithms rate Mastercard, Inc. B in Low Volatility Momentum and Quality Value, C in Growth, and D in Technicals.

Q.ai, a Forbes Company, formerly known as Quantalytics and Quantamize, uses advanced forms of quantitative techniques and artificial intelligence to generate investment

Source: Netflix And Boeing Among Today’s Trending Stocks

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Critics:
The S&P 500 stock market index, maintained by S&P Dow Jones Indices, comprises 505 common stocks issued by 500 large-cap companies and traded on American stock exchanges (including the 30 companies that compose the Dow Jones Industrial Average), and covers about 80 percent of the American equity market by capitalization.
The index is weighted by free-float market capitalization, so more valuable companies account for relatively more of the index. The index constituents and the constituent weights are updated regularly using rules published by S&P Dow Jones Indices. Although called the S&P 500, the index contains 505 stocks because it includes two share classes of stock from 5 of its component companies.

See also:

References:

Not Just AMC: These Are The Meme Stocks Reddit Traders Are Pumping Again As Experts Urge ‘Extreme Caution’

In this photo illustration, a Reddit logo seen displayed on...

After crashing earlier this year, a slew of so-called meme stocks skyrocketed again Wednesday as individual investors remounted an effort to pump up the prices of Wall Street’s most heavily shorted companies—prompting experts to warn that the saga pinning institutional investors against Reddit traders could end badly.

Key Facts

Headlining the recent resurgence among so-called meme stocks, shares of AMC spiked more than 100% Wednesday and have surged a staggering 570% over the past month, as heightened options activity and increasing short interest in the stock help retail traders squeeze institutional investors betting on a decline out of their risky bets.

Meanwhile, struggling brick-and-mortar retailer Bed Bath & Beyond is soaring nearly 51% Wednesday as traders on Reddit’s r/WallStreetBets discussion board tout that the stock’s short interest has climbed to nearly twice the level of fellow meme-stock GameStop, which led the January rally and is up about 60% in the past month.

In similar fashion, shares of former phone-maker BlackBerry surged as much as 15% Wednesday and have skyrocketed nearly 55% in the past month as retail hype picks up now that short interest has hit a nearly four-year high.

Other resurgent meme stocks embroiled in the latest frenzy include Beyond Meat and Koss Corporation, which have soared nearly 40% apiece in recent weeks.

Crucial Quote

“Right now, the majority of Wall Street is on standby until Friday’s employment report, so meme-stock mania and cryptocurrency trading could have little resistance,” Edward Moya, a senior market analyst at Oanda, wrote in a Wednesday email, pointing to “joke” token dogecoin’s meteoric same-day rise as a sign of further unabated market mayhem. “The retail force behind this movement is still strong, so it is anyone’s guess how much larger this bubble can grow.”

Chief Critic

“Although we have seen some exiting of positions throughout the year, the majority of short sellers have been happy to sit on significant paper losses in the hope that retail investors will blink first and the losses won’t be realised,” Ortex analysts wrote in a Wednesday note. “This now looks like a flawed strategy.”

Key Background

The recent meme stock rise follows a similar surge in January, when activist investors perched on Reddit’s r/WallStreetBets board pumped struggling firms like GameStop and BlackBerry in a bid to hurt short-sellers. “There’s a certain vigilante mindset amongst those traders being drawn into this social-media frenzy to pump certain stocks,” Nigel Green, the CEO of $12 billion advisory Devere Group, said in a Friday email, adding that “extreme caution should be exercised before joining stock frenzies of such nature.” Meme stocks have been incredibly volatile this year, with most crashing in late January once institutional investors piled out of their short bets after weeks of meteoric gains. Thus far, only AMC, which has also benefitted from businesses reopening, has recouped those losses.

What To Watch For

It’s unclear how long it may be before short interest once again wanes, but some analysts have said the market could sour again once the Federal Reserve indicates it will ease up on its accommodative policy, which has effectively facilitated high asset valuations by injecting unprecedented amounts of cash into the economy. That could happen as soon as June, when Fed officials meet again to discuss policy changes.

Tangent

In another sign of frenzied investing, shares of Mudrick Capital Acquisition Corporation II plunged 15% Tuesday after a slew of Reddit traders started placing bearish short bets on the stock following a Bloomberg report its namesake sponsor cashed out of its AMC stake because shares were “overvalued.”

I’m a reporter at Forbes focusing on markets and finance. I graduated from the University of North Carolina at Chapel Hill, where I double-majored in business journalism and economics while working for UNC’s Kenan-Flagler Business School as a marketing and communications assistant. Before Forbes, I spent a summer reporting on the L.A. private sector for Los Angeles Business Journal and wrote about publicly traded North Carolina companies for NC Business News Wire. Reach out at jponciano@forbes.com

Further Reading

AMC Skyrockets After Announcing New Perks For ‘Extraordinary’ Reddit Traders And Retail Investors (Forbes)

Here Are The Meme Stocks WallStreetBets Traders Are Pumping Up During This ‘Extremely Erratic’ Reddit Rally (Forbes)

Source: Not Just AMC: These Are The Meme Stocks Reddit Traders Are Pumping Again As Experts Urge ‘Extreme Caution’

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r/wallstreetbets, also known as WallStreetBets or WSB, is a subreddit where participants discuss stock and option trading. It has become notable for its colorful and profane jargon, aggressive trading strategies, and for playing a major role in the GameStop short squeeze that caused losses for some U.S. firms and short sellers in a few days in early 2021.

The subreddit, describing itself through the tagline “Like 4chan found a Bloomberg terminal,” is known for its aggressive trading strategies, which primarily revolve around highly speculative, leveraged options trading. Members of the subreddit are often young retail traders and investors who ignore fundamental investment practices and risk management techniques.

The growing popularity of no-commission brokers and mobile online trading has potentially contributed to the growth of such trading trends. Members of the communities often see high-risk day trading as an opportunity to quickly improve their financial conditions and obtain additional income. Some of the members tend to use borrowed capital, like student loans, to bet on certain “meme stocks” that show popularity within the community.

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References

If You’re In Your 50s or 60s, Consider These Moves To Avoid Higher Taxes In Retirement

If you are working with an eye toward retirement or even semi-retirement, you are probably (hopefully) saving more than you could in the past in your retirement accounts. You may have paid off the mortgage and paid for college and other heavy expenses of raising children. That all sounds like you are on your way, except for one big problem I call the “ticking tax time bomb.”

I’m referring to the tax debt building up in your individual retirement account, 401(k) or other retirement savings plans. And, as I wrote in my newest book, “The New Retirement Savings Time Bomb,” it can quickly deplete the very savings you were relying on for your retirement years. But there are a few ways you can avoid this problem.

While you may be watching your savings balances grow from your continuing contributions and the rising stock market, a good chunk of that growth will go to Uncle Sam. That’s because most, if not all, of those retirement savings are tax-deferred, not tax-free.

The funds in most IRAs are pretax funds, meaning they have not yet been taxed. But they will be, when you reach in to spend them in retirement. That’s when you quickly realize how much of your savings you get to keep and how much will go to the government.

The amount going to the Internal Revenue Service will be based on what future tax rates are. And given our national debt and deficit levels, those tax rates could skyrocket, leaving you with less than you had planned on, just when you’ll need the money most.

So, that’s the dire warning. But you can change this potential outcome with proper planning and making changes in the way you save for retirement going forward.

You can begin by taking steps to pay down that tax debt at today’s low tax rates and begin building your retirement savings in tax-free vehicles like Roth IRAs or even permanent life insurance which can include cash value that builds and can be withdrawn tax-free in retirement.

In addition, if you are still working, you can change the way you are saving in your retirement plans. If you have a 401(k) at work, you could make contributions in a Roth 401(k) if the plan offers that. A Roth 401(k) lets your retirement savings grow 100% tax-free for the rest of your life and even pass to your beneficiaries tax-free too.

Learn more: All about the Roth IRA

What the News Means for You and Your Money

Understand how today’s business practices, market dynamics, tax policies and more impact you with real-time news and analysis from MarketWatch.

For 2021, you can contribute up to $26,000 (the standard $19,500 contribution limit plus a $6,500 catch-up contribution for people 50 and older). With some Roth 401(k) workplace plans, you might be able to put in even more.

Then, see if you can convert some of your existing 401(k) funds either to your Roth 401(k) or to a Roth IRA. Once you do this, you will owe taxes on the amount you convert. The conversion is permanent, so make sure you only convert what you can afford to pay tax on.

Also read: We have $1.6 million but most is locked in our 401(k) plans — how can we retire early without paying so much in taxes?

Don’t let the upfront tax bill deter you from moving your retirement funds from accounts that are forever taxed to accounts that are never taxed.

Similarly, you can convert your existing IRAs to Roth IRAs, lowering the tax debt on those funds as well. The point is to not be shortsighted and avoid doing this because you don’t want to pay the taxes now. That tax will have to be paid at some point, and likely at much higher future tax rates and on a larger account balance.

It’s best to get this process going now, maybe even with a plan to convert your 401(k) or IRA funds to Roth accounts over several years, converting small amounts each year to manage the tax bill.

If you have been contributing to a traditional IRA, stop making those contributions and instead start contributing to a Roth IRA. Anyone 50 or over can put in up to $7,000 a year ($6,000 plus a $1,000 catch-up contribution) and you can do so for a spouse even if that spouse is not working.

If one of you has enough earnings from a job or self-employment (and you don’t exceed the Roth IRA contribution income limits), each of you can contribute $7,000, totaling $14,000 in Roth IRA contributions each year. That will not only add up quickly, it will add up all in your favor because now you are accumulating retirement savings tax-free.

Related: Should you convert your IRA to a Roth if Biden’s infrastructure plan passes?

Once the funds are in a Roth IRA or other tax-free vehicles (like life insurance), those funds compound tax-free for you.

The secret is to pay taxes now. It’s so simple, but also so counterintuitive that most people don’t take advantage of this and end up paying heavy taxes in retirement that could have all been avoided.

Ed Slott is a Certified Public Accountant, an individual retirement account (IRA) distribution expert and author of “The New Retirement Savings Tax Bomb.” He is president and founder of Ed Slott and Company, providing advice and analysis about IRAs.

This article is reprinted by permission from NextAvenue.org, © 2021 Twin Cities Public Television, Inc. All rights reserved.

Source: If you’re in your 50s or 60s, consider these moves to avoid higher taxes in retirement – MarketWatch

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401(k) Early Withdrawals Have Become Easier: Be Careful!

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Your 401(k) fees could cost you half a million dollars in retirement

Why Stocks Soared While America Struggled

You would never know how terrible the past year has been for many Americans by looking at Wall Street, which has been going gangbusters since the early days of the pandemic.

“On the streets, there are chants of ‘Stop killing Black people!’ and ‘No justice, no peace!’ Meanwhile, behind a computer, one of the millions of new day traders buys a stock because the chart is quickly moving higher,” wrote Chris Brown, the founder and managing member of the Ohio-based hedge fund Aristides Capital in a letter to investors in June 2020. “The cognitive dissonance is overwhelming at times.”

The market was temporarily shaken in March 2020, as stocks plunged for about a month at the outset of the Covid-19 outbreak, but then something strange happened. Even as hundreds of thousands of lives were lost, millions of people were laid off and businesses shuttered, protests against police violence erupted across the nation in the wake of George Floyd’s murder, and the outgoing president refused to accept the outcome of the 2020 election — supposedly the market’s nightmare scenario — for weeks, the stock market soared. After the jobs report from April 2021 revealed a much shakier labor recovery might be on the horizon, major indexes hit new highs.

The disconnect between Wall Street and Main Street, between corporate CEOs and the working class, has perhaps never felt so stark. How can it be that food banks are overwhelmed while the Dow Jones Industrial Average hits an all-time high? For a year that’s been so bad, it’s been hard not to wonder how the stock market could be so good.

To the extent that there can ever be an explanation for what’s going on with the stock market, there are some straightforward financial answers here. The Federal Reserve took extraordinary measures to support financial markets and reassure investors it wouldn’t let major corporations fall apart.

Congress did its part as well, pumping trillions of dollars into the economy across multiple relief bills. Turns out giving people money is good for markets, too. Tech stocks, which make up a significant portion of the S&P 500, soared. And with bond yields so low, investors didn’t really have a more lucrative place to put their money.

To put it plainly, the stock market is not representative of the whole economy, much less American society. And what it is representative of did fine.“No matter how many times we keep on saying the stock market is not the economy, people won’t believe it, but it isn’t,” said Paul Krugman, a Nobel Prize-winning economist and New York Times columnist. “The stock market is about one piece of the economy — corporate profits — and it’s not even about the current or near-future level of corporate profits, it’s about corporate profits over a somewhat longish horizon.”

Still, those explanations, to many people, don’t feel fair. Investors seem to have remained inconceivably optimistic throughout real turmoil and uncertainty. If the answer to why the stock market was fine is basically that’s how the system works, the follow-up question is: Should it?

“Talking about the prosperous nature of the stock market in the face of people still dying from Covid-19, still trying to get health care, struggling to get food, stay employed, it’s an affront to people’s actual lived experience,” said Solana Rice, the co-founder and co-executive director of Liberation in a Generation, which pushes for economic policies that reduce racial disparities. “The stock market is not representative of the makeup of this country.”

Inequality is not a new theme in the American economy. But the pandemic exposed and reinforced the way the wealthy and powerful experience what’s happening so much differently than those with less power and fewer means — and force the question of how the prosperity of those at the top could be better shared with those at the bottom. There are certainly ideas out there, though Wall Street might not like them.

How the stock market boomed when American life soured

Many on Wall Street, like many people in America, were in denial about the realities of Covid-19 when it first began to take hold internationally in early 2020. In an interview with Vox last April, CNBC host Jim Cramer recalled wondering whether “another shoe will drop on this coronavirus outbreak” in early February, only to see stocks keep rising steadily. “But nothing happened. The market kept quiet,” Cramer told Vox. Indeed, stocks continued to reach record highs.

While stocks often rise slowly, they also fall fast. And once Wall Street caught on to the realities Covid-19 might bring, the market tumbled, wiping off some 30 percent of its value from mid-February to mid-March. “No one had any idea of what the future was going to be, how deep this is, how long it would be, how wide it would be,” said Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.

The S&P 500 bottomed out on March 23, just a week into New York’s shutdown, and after that, it made a remarkably strong recovery, month after month.

Most analysts and experts point to the Fed as the most important factor in supporting market confidence. The central bank announced a series of big measures to help support the economy and markets in March 2020, including saying that it would buy both investment-grade and high-yield corporate bonds (basically, debt that is risky and debt that is not).

“Not dissimilar to the global financial crisis, the Fed stepped in, and that was really a catalyst for a stock market recovery,” said Kristina Hooper, chief global market strategist at Invesco. “The Fed can be very, very powerful, almost omnipotent, when it comes to the stock market.”

Throughout the crisis, the Fed and Chair Jay Powell have made clear they will support markets and use every tool in their toolkit to do it. Powell has taken an extremely dovish tone and repeatedly said the Fed won’t raise interest rates — which would presumably slow down the economy and markets — preemptively. Basically, the markets let the Fed take the wheel.

Even if it didn’t buy bonds itself, the knowledge that it would if necessary reinforced the markets — private investors swept in to take up corporate bond offerings from companies such as Boeing and Nike. Continued confidence in a dovish Fed has only reinforced market bullishness; while a bad jobs report may be bad for businesses and workers, to investors, it’s also more reassurance that low interest rates aren’t going anywhere.

The issue is, the Fed is a much more powerful force on Wall Street than it is Main Street. Its programs to help small and midsize businesses and states and cities have been far less effective than those set up to help corporations and asset prices.

“It now feels like policy, be it the Fed or something else, that the stock market should really never go down,” said Dan Egan, vice president of behavioral finance and investing at Betterment.

To be sure, the Fed’s role is monetary policy, and it would have been bad if markets were allowed to crash or a litany of major corporations went bankrupt. And luckily for many struggling people and businesses, Congress stepped in with fiscal policy that could be more effective in helping the broader economy — a move that, no doubt, also helped markets. It’s good for corporations that people have money to spend.

Still, some wonder whether the Fed couldn’t have tried to go further to make sure its programs to support corporations flow to people other than shareholders. “Obviously it was good, the Fed needed to do something,” said Alexis Goldstein, senior policy analyst at Americans for Financial Reform. “But the criticism I would weigh was that there were no real conditions that workers were protected or rehired, that all the gains just didn’t go to the top.”

Goldstein pointed to a September report from the House of Representatives’ Select Subcommittee on the Coronavirus Crisis that found the Fed bought corporate bonds from at least 95 companies that issued dividends to shareholders while also laying off workers. “Surely the Fed is also so powerful that it can say, look, we need you all to prioritize rehiring your workers or we’re not necessarily going to rescue you, we’re going to rescue other companies, and that should be impactful,” Goldstein said.

Companies have been ruled by the mantra of shareholder primacy, where maximizing profits for investors is the end-all, be-all, for decades. Worker pay has severely lagged gains in productivity. Those trends were unlikely to change during a pandemic.

“Shareholder primacy means the job of corporations is to increase their share prices for this very small elite, and that means downward pressure on costs, including workers, where possible,” said Lenore Palladino, an assistant professor of economics and public policy at the University of Massachusetts Amherst. “The fact that the stock market is booming is because of the financialization of our goods- and services-producing companies, not because the real economy is doing so well.”

The market felt better about the pandemic than you probably did

Jack Ablin, the founding partner of Cresset Capital, recalls calling clients in the spring of 2020 and telling them they didn’t know how long the lockdowns and virus would last, but they were “confident” that within a year, it would be done. “Of course, it wasn’t,” he told Vox. But the general attitude remains: The markets figured things would get better, sooner or later. “Part of it was saying, look, this is temporary, we will eventually get back to business. So we were trying to look past the valley to the other side of normality.”

Not everything had to break in Wall Street’s favor for the market rally to continue — as mentioned, between the Fed and the future promise of corporate profits, investors had plenty of reasons to be confident — but it doesn’t hurt that it kind of did. The vaccine, which at the outset of the pandemic some experts warned might be years away, appeared by the end of 2020. Donald Trump did not want to accept the results of the 2020 presidential election, which some investors feared would spark chaos before voting day, but by and large, the US saw a peaceful transfer of power (with the exception of a riot at the Capitol, that, while disturbing, didn’t have anything to do with the Dow).

Investors also seemed confident that Congress would come through with more fiscal support for the economy. This, too, was not a given. The $900 billion package passed in the lame-duck session in December for months seemed highly unlikely. Had Democrats not taken both US Senate seats in Georgia, the $1.9 trillion American Rescue Plan, signed into law in March, would not have happened. While neither provided direct support to the markets, they did support the broader economy that the markets have for months been bullish on. Putting money in people’s pockets means they’ll spend it. It’s good for Wall Street that Main Street America doesn’t fail.

Some people in the industry point to a certain level of faith in America, like the type legendary investor Warren Buffett channeled during the financial crisis and Great Recession when he told people to “buy American.”

“You have to have an existential faith in America in order to be in stocks over the long term,” said Nick Colas, the co-founder of DataTrek Research.

“What has happened in the last 14 months or so is we’re believing in America again, we’re believing in our companies,” said Brian Belski, chief investment strategist at BMO Capital Markets. “From every bear market and every depression, we transition from despair to hope, and the hope was defined by American companies.”

It does look like the US is poised to emerge from the pandemic much before the rest of the world and spend its way to an economic recovery that many other countries could not. Now, it’s the investors who sold out of the market when it was falling last year who have been left out.

“There are two lessons to be learned over the past year. The first is that economic headlines are lagging and not leading indicators of the market; and second, market timing is a losers’ game,” said Saira Malik, chief investment officer of global equities at Nuveen, an asset manager.

Nuveen is currently interested in emerging markets for potential investment possibilities on the horizon — including countries such as Brazil, which continues to be ravaged by the pandemic. “We do feel like in the near term they are going to struggle. But the vaccines are becoming more and more available, and while they’re lagging a bit behind, we do think they’ll catch up, and they’ve tended to have the cheaper valuations to go with that,” Malik said.

At this point, it’s hard to wonder what, if anything, will truly unnerve investors.

There are still plenty of risks to the market, including that in the US, President Joe Biden and Democrats may take steps to raise taxes that would mean a hit for the bottom lines of corporations and investors. When chatter of the president’s capital gains tax proposal kicked up in late April, the markets took a small dip, but it was hardly catastrophic.

“We have an administration that clearly has ambitions and wants to pay for them by taxing capital, taxing corporate profits, now taxing capital gains. The resilience of the market in the face of all that is kind of interesting,” Krugman said. “There may be a little bit of determined resilience; there may be some element of when people are determined to be optimistic, facts don’t matter.”

Hooper, from Invesco, offered up the explanation of the Fed. “I do think on a short-term basis, we could see a sell-off if there is a risk that appears imminent, but we have to recognize that all current risks are being cushioned by this incredibly accommodative Fed, which does have an impact. It’s a powerful upward force on stocks that can counteract the downward forces.”

What the stock market does and doesn’t represent

How the stock market does matters to a lot of people. A little over half of all Americans report owning stocks, including in their retirement or pension plans. And during the pandemic, plenty of people got into day trading, for better and for worse. But some groups have much higher stakes in the market than others. More than 80 percent of stocks are owned by the wealthiest 10 percent of Americans, meaning when markets go up, they’re the ones who reap the most gains. White people are also the overwhelming majority of market beneficiaries — by Palladino’s estimates, 92 percent of corporate equity and mutual fund value is owned by white households, compared to less than 2 percent each by Black and Hispanic households.

“People often forget how concentrated corporate equity holdings are,” Palladino said. “They’re held mainly by wealthy white households.” Those are the people who disproportionately reaped the benefits of the stock market’s pandemic run, while people of color disproportionately suffered the health and economic consequences of the disease.

If the US wants to create a fairer, less extractive economy where corporations and shareholders aren’t living a very different reality than people trying to pay their rent or find a job, there are ways to do it. The federal government could raise corporate taxes and tax income from investments in the same way it does income from labor and seek to rein in CEO pay.

It could also clamp down on shareholder primacy and make sure companies base their decisions not only on making their investors rich but also on the well-being of their workers, customers, communities, and suppliers. In 2019, the Business Roundtable, a major business lobbying group, issued a statement that it would redefine the “purpose of a corporation” as one that fosters “an economy that serves all Americans.” The government and the public could find ways to hold them to it. Palladino, in her work, has outlined a number of proposals that would curb shareholder primacy, including requiring corporate boards to have worker representatives, banning stock buybacks, and boosting unions.

Beyond policy fixes, there’s also just the reality that the market measures very one specific thing — how investors think (rightly or wrongly) corporate profits are going to be in the future. And for many people, that measure is meaningless. “If you can assess that the economy is good when we’re in one of the worst economic moments of American history, then it’s a useless measure,” said Maurice BP-Weeks, co-executive director of the Action Center on Race and the Economy.

The past year has been a truly wild ride in America and for the stock market, though in different directions. Investors are reaching almost exuberant levels, from the GameStop saga to the crypto craze. Stocks are continuing their bull run, with no clear end in sight. There are plenty of warnings that investors are out over their skis, but then again, there always are.

It’s a far cry from a little over a year ago, when billionaire hedge funder Bill Ackman went on TV to warn that “hell is coming” because of Covid-19. Or maybe it did — just not for Wall Street.

Source: Why the stock market went up during the Covid-19 pandemic and high unemployment – Vox

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References

 

Saefong, Myra P.; Watts, William (28 February 2020). “U.S. oil futures suffer largest weekly percentage loss in over a decade”. MarketWatch. Dow Jones & Company. Archived from the original on 1 March 2020. Retrieved 15 March 2020.

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