Investors See Hope in Big Corporate Profits

Running the numbers

We are almost at the halfway point for earnings season, and jittery investors are looking to corporate financial reports for direction after inflation, geopolitics and other worries dragged down markets last month. It’s been a different story in the past few days, though, as robust earnings reports steadied nerves.

Futures suggest that stocks will rise for the fourth day in a row, as the headlines from big companies opening their books for investors were mostly positive:

Alphabet said its fourth-quarter profits jumped 36 percent, to $20.6 billion. Its shares are up 10 percent in premarket trading, a move worth nearly $200 billion in market cap.

• What’s news: Google’s parent company also announced a 20-for-1 stock split, prompting speculation that it could join the Dow Jones industrial average.

Exxon Mobil earned $8.9 billion in the fourth quarter, a sharp reversal from its $20 billion loss a year ago, propelled by higher energy prices. Its shares gained 6 percent yesterday after the report.

• What’s news: The company said it would resume its stock buyback program, spending $10 billion over the next two years.

G.M. reported a sharp drop in fourth-quarter profit, but a 55 percent jump in annual earnings for 2021, to a record $10 billion. Its shares are up 2 percent in premarket trading.

• What’s news: The automaker said it expects to ramp up production this year, with factories running at a normal clip by the second half as supply-chain shortages ease.

Starbucks said quarterly profit jumped 31 percent at the end of last year, to $816 million. Its shares are down nearly 3 percent in premarket trading, as warnings about supply-chain pressures weigh on the company.

• What’s news: The coffee chain said that it would keep raising prices, and that a series of price increases on menu items in recent months had not had “any meaningful impact to customer demand.”

UPS reported $3.1 billion in fourth-quarter profit, surpassing analyst expectations, and recorded operating margins bigger than it has achieved in years. Its shares soared 14 percent yesterday after the report, to a record high.

• What’s news: The shipping giant raised its dividend by nearly 50 percent, its biggest increase since going public, and said it would hit revenue and margin targets a year earlier than expected.

Earnings for S&P 500 companies are on track for a fourth consecutive quarter of growth above 20 percent, according to FactSet. This is expected to slow to single-digit percentages in the quarters ahead, but analysts also expect companies to gradually expand their margins, squeezing more profit from each dollar generated in revenue.

Ever the optimists, analysts tracked by FactSet expect the S&P 500 index to rise about 17 percent from its current level by the end of the year. Noteworthy companies reporting earnings next include Meta later today and Amazon tomorrow. Both of their stocks are trading higher premarket.

HERE’S WHAT’S HAPPENING

Job openings climb despite the Omicron surge. Employers posted 10.9 million open jobs in December, near July’s record. That equaled about 1.7 job openings for every unemployed worker, the highest level since the U.S. began keeping track.

Americans brace for chaos from a major winter storm. Freezing temperatures and snow were set to hit the central U.S., as states readied emergency plans and airlines canceled hundreds of flights. Another worry for Texas residents: the possibility of more power outages, a year after they suffered rolling blackouts during another cold snap.

The fallout over Spotify’s content policy widens. More artists pulled their music from the streaming service to protest its handling of coronavirus misinformation on Joe Rogan’s podcast. But Spotify’s shares have risen since it said it would add “content advisory” warnings to some podcasts, suggesting investors think the worst is over. Spotify reports earnings today.

Tesla recalls cars over rolling stops. The electric carmaker is recalling 54,000 vehicles with its Full Self-Driving software to disable a feature that in some instances leads to a failure to stop at intersections. Separately, a former factory worker sued Tesla, accusing the company of failing to act on racial and homophobic harassment in the workplace.

Tom Brady turns from football to NFTs and fashion. The star N.F.L. quarterback officially announced his retirement, after 22 seasons and seven Super Bowl rings. In his announcement, Brady named ventures that he now intends to focus on, including Autograph, a platform for nonfungible tokens; TB12, his health and wellness company; and Brady Brand, his fashion line.

The ‘Rooney Rule’ goes on defense

Brian Flores, the former head coach of the Miami Dolphins, has sued the N.F.L. and its 32 teams alleging discrimination against him and other Black coaches in hiring decisions. In the suit, Flores charges that the N.F.L.’s use of the “Rooney Rule,” which requires teams to interview a diverse list of candidates for top positions, has enabled the league to sidestep meaningful efforts to hire more coaches and executives of color.

With variations of the rule now adopted in parts of corporate America, Flores’s lawsuit raises broader questions about the effectiveness of corporate diversity policies.

What is the Rooney Rule? Initially adopted by the N.F.L. in 2003, the rule, named for the former Pittsburgh Steelers owner Dan Rooney, requires every team with a head coaching vacancy to interview at least one ethnic minority candidate. (It was later expanded to other positions, and a minimum of two minority candidates.) Big companies, including Amazon and major banks like JPMorgan Chase and Bank of America, followed suit.

Does it work? A 2016 Harvard Business School study found that if there is only one woman or minority candidate in the running for a top job, the odds of them being hired are nearly zero. (Flores called his recent interview with the New York Giants a “sham,” citing text messages that suggested the head coaching job had already been decided.)

In the N.F.L., according to an Arizona State University study last year, of the 115 head coaching jobs that opened up since the Rooney Rule was enacted, 92 were filled by white men. A separate study by Indiana University said that the pipeline of candidates was a factor, since many minority coaches aren’t given opportunities to take the positions most likely to feed into head coaching jobs. This pipeline problem is prevalent in corporate America too, though it is often a result of narrowly conceived job requirements, experts say.

And while the limitations of the Rooney Rule may be clearer in organizations with a “historical lack of diversity” — like the N.F.L. — “diversifying the recruitment pool can make a difference,” Renetta Garrison Tull, the vice chancellor of diversity, equity and inclusion at U.C. Davis, told DealBook.

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“It is almost evaporating before your eyes, if you are even lucky enough to know about it.”

— Robert Thornburgh, the head of the Society of Industrial and Office Realtors, on the lack of warehouse space. As retailers and logistics companies stockpile goods to hedge against persistent supply chain problems, they are finding little to no space to stash the merchandise.

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The U.S. national debt topped $30 trillion for the first time, a new government report showed. The milestone arrived years earlier than projected, as a result of federal pandemic aid. While many economists viewed those emergency measures as necessary, the country’s ballooning borrowing has also helped stall passage of President Biden’s $2 trillion social and climate spending bill.

A Guide to Cryptocurrency

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A glossary. Cryptocurrencies have gone from a curiosity to a viable investment, making them almost impossible to ignore. If you are struggling with the terminology, let us help:

Bitcoin. A Bitcoin is a digital token that can be sent electronically from one user to another, anywhere in the world. Bitcoin is also the name of the payment network on which this form of digital currency is stored and moved.

Blockchain. A blockchain is a database maintained communally, that reliably stores digital information. The original blockchain was the database on which all Bitcoin transactions were stored, but non-currency-based companies and governments are also trying to use blockchain technology to store their data.

Cryptocurrencies. Since Bitcoin was first conceived in 2008, thousands of other virtual currencies, known as cryptocurrencies, have been developed. Among them are Ether, Dogecoin and Tether.

Coinbase. The first major cryptocurrency company to list its shares on a U.S. stock exchange, Coinbase is a platform that allows people and companies to buy and sell various digital currencies, including Bitcoin, for a transaction fee.

Crypto finance. The development of cryptocurrencies spawned a parallel universe of alternative financial services, known as Decentralized Finance, or DeFi, allowing crypto businesses to move into traditional banking territory, including lending and borrowing.

NFTs. A “nonfungible token,” or NFT, is an asset verified using blockchain technology, in which a network of computers records transactions and gives buyers proof of authenticity and ownership. NFTs make digital artworks unique, and therefore sellable.

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The end of Facebook’s crypto experiment

With great fanfare, Facebook announced a plan in 2019 to create an alternative financial system based on a cryptocurrency it had been developing in secret. Libra, as the cryptocurrency was then called, quickly drew regulatory scrutiny, struggled to gain traction and was rebranded as Diem. Ultimately, Facebook (now Meta) gave up on the project. Last week, the intellectual property and technology behind Diem was sold for $180 million to Silvergate Capital.

Alan Lane, Silvergate’s C.E.O., spoke with DealBook about what it sees in the project.

The writings of financial regulators inspired the deal. Last fall, Lane read the President’s Working Group report on stablecoins — cryptocurrencies like Diem that are pegged to a stable asset like the dollar — and concluded, “It’s clear that regulators want this to be run by banks and not technology companies.” He added: “We believe this means we can and should be an issuer.”

Silvergate is already in crypto. It runs the Silvergate Exchange Network, and crypto exchanges like Coinbase and Gemini are clients, along with stablecoin issuers like Circle and Paxos. Silvergate has also been part of the Diem Association, a consortium created to manage the project after pushback on Facebook’s role in it. Silvergate was going to be the association’s stablecoin issuer — but now it’s taking over the project entirely and hopes to put a token out this year.

What are its plans for Diem? Stablecoins have exploded in popularity, becoming one of the fastest growing sectors in crypto and underpinning much trading activity. Silvergate is playing catch-up with other issuers and — unlike Meta — doesn’t have a giant built-in distribution platform to rely on. Stablecoin issuers believe that the tokens will find much wider use beyond trading, for example by making payments cheaper and faster. Lane argues that Silvergate can achieve this, making stablecoins part of everyday transactions, because it already operates as a regulated bank. The Fed noted in a new report on stablecoins that the crypto tokens “may play a key role” in some banking activities.

More inspiration could be on the way: The report that sold Silvergate on buying Diem will get airtime in Congress this month, at hearings called by committees in the House and Senate as lawmakers consider stablecoin legislation. Lane will be watching closely.

In other crypto news:

• Crypto start-ups are raising tons of money despite the recent slump in prices.

• The legal fight between Ripple and the S.E.C. could set the course for crypto regulation.

• After buying another batch of Bitcoins, the software company MicroStrategy has now spent nearly $4 billion on crypto.

THE SPEED READ

Deals

• Blackstone and the Carlyle Group are said to be weighing a joint bid for Novartis’s generic drugs business, which may fetch around $25 billion at auction. (Bloomberg)

• SeaWorld has reportedly bid $3.4 billion for another amusement park company, Cedar Fair. (Bloomberg)

• Nelson Peltz and Ed Garden of the activist investment firm Trian won board seats at the asset manager Janus Henderson. (FT)

Policy

• Hundreds of Native American tribes reached a tentative $590 million settlement with Johnson & Johnson and three drug distributors over the opioid crisis. (NYT)

• Political action committees for Comcast and Goldman Sachs have resumed donating to lawmakers who objected to certifying President Biden’s election. (WSJ)

• U.S. municipalities have hired Washington lobbyists to secure a piece of the trillions in new federal infrastructure funds. (WaPo)

Best of the rest

• The biggest U.S. brokerages earned nearly $4 billion by selling their customers’ trades to market makers last year, marking a huge jump in the oft-criticized practice. (WSJ)

• Suits and ties have become passé. Are collared shirts next? (FT)

• “The new hire who showed up is not the same person we interviewed” (Ask a Manager)

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