Recession fears are receding — but not everyone's convinced
Posted November 6, 2019 7:21 a.m. EST
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The Dow and Nasdaq hit new records yet again on Tuesday, as hopes over a pause for the trade war boosted investor sentiment.
The fresh stock highs are breathing new life into the "bull case" for continued US economic growth, Michael Darda, chief economist and market strategist at MKM Partners, observed in a note to clients.
The argument, as Darda sees it: "With a tight labor market, recovered household savings rate and high confidence levels, consumers will continue to support growth. Thus, if manufacturing [and] business investment simply bottom out, growth will continue, if not accelerate."
He's not convinced of a so-called "soft landing," though — pointing to a drop-off in business loan demand in a recent report from the Federal Reserve that looks "similar to what was seen just prior to the last two downturns."
The key indicator he's watching now is first-time jobless claims. "If claims can hold at low levels through at least next summer, there will be a more persuasive case that the US indeed dodged the recession bullet," Darda said.
The argument: This metric is somewhere between a long-term warning sign — like a sustained yield curve inversion, when yields on short-term Treasuries jump above the yields on longer-dated notes — and a real-time warning sign such as the unemployment rate, per Darda.
Investor insight: Should US stocks keep pushing higher, expect to hear a lot more talk about how the recession fears that set in over the summer were overblown. But plenty of investors — and companies — remain on high alert.
Masayoshi Son built a reputation as the unicorn hunter. Now the Japanese magnate's biggest tech bets are leading to multibillion dollar losses.
The scene: SoftBank on Wednesday reported an operating loss for the most recent quarter of $8.9 billion on its mega tech funds including the Vision Fund, which holds investments in Uber, WeWork, Slack and other major startups, my CNN Business colleague Sherisse Pham reports from Hong Kong.
Those losses wiped out what would have otherwise been a profitable quarter for SoftBank. The group reported losses of $6.5 billion for the three months that ended in September. That's far worse than the $442 million that analysts had expected.
Investor insight: Shares of the company are up 18% this year in Tokyo. The tech-heavy Nasdaq, meanwhile, has jumped 27%.
SoftBank's portfolio: Uber shares fell 37% between July and September, as did Slack's stock. Cancer medicine company Guardant Health, another Vision Fund investment, dropped 31%.
Then there's WeWork. SoftBank rescued the struggling startup last month, taking majority control of the company with an injection of nearly $10 billion. That bailout was announced after the most recent financial quarter ended — but the fiasco certainly clouds the outlook. It's another knock to Son's reputation, too.
From Sherisse: "The bailout raised concerns about how much faith — and money — Son places in charismatic founders like WeWork's Adam Neumann. Neumann stepped down from the company's board and left his role as CEO, after investors balked at WeWork's lofty valuation and criticized the company's governance."
The unicorn hunter will end 2019 much humbler.
Match Group isn't finding love
Excuse the obvious joke, but I have to say it: Investors are swiping left on Match Group.
Shares of the online dating juggernaut — which owns Tinder, OkCupid, Hinge, Match and Plenty of Fish — are down 13% in premarket trading after the company estimated Wednesday that revenue for the fourth quarter would come in between $545 million and $555 million. That's lower than the $560 million analysts had expected.
What gives: Match Group pointed to "discretionary long-term investments and incremental legal costs." That means investments are needed to match increasing competition (remember, Facebook has launched a dating service) — and it doesn't help that former Tinder executives are locked in a messy legal battle.
The US Federal Trade Commission also sued Match Group in September for allegedly tricking customers into buying paid subscriptions for Match.com.
More earnings. Adidas, BMW, Coty, CVS Health, New York Times, Papa John's and Wendy's release results before US markets open. Baidu, Expedia Group, Fitbit, Hostess Brands, Qualcomm, Roku, Square and Wynn Resorts will follow after the close.
The US Energy Information Administration releases a report on crude oil inventories at 10:30 a.m. ET.
Coming tomorrow: The Bank of England issues its latest interest rate decision as the UK election heats up.