Business

When Bears Attack

The room where it happens.Credit…Hiroko Masuike/The New York Times

What the market drop may mean

The stock market fell 3.9 percent yesterday as measured by the S&P 500, closing the day nearly 22 percent below its Jan. 3 peak and firmly entering the second bear market since the pandemic began.

What happens next? Bear markets — when stocks decline at least 20 percent from their recent peak — are relatively rare, but they frequently precede a recession, report The Times’s William P. Davis and Karl Russell along with DealBook’s Stephen Gandel.

  • The pandemic’s first bear market was a short one: It took just six months for the S&P 500 to recover, aided by pandemic stimulus and emergency actions by the Federal Reserve.

  • This one could be worse: Investors are worried that rising prices could trigger the biggest interest rate increase by the Fed since 1994. Last week, the World Bank issued a dire warning that global growth may be choked, especially as the war in Ukraine drags on.

  • Retirees are more exposed to stock market downturns than ever before: “There has been a growing complacency of people keeping most of their nest eggs in stocks,” said Monique Morrissey, who specializes in retirement at the Economic Policy Institute, a left-leaning think tank.

Premarket trading suggests U.S. stock markets could rebound slightly today. There is still some hope the Fed can strike the right balance between curbing rampant inflation and applying the brakes too aggressively on the U.S. economy. And it would be unusual for a recession to start at a time when unemployment is near its all-time low and demand keeps pushing prices higher.

But right now, many are predicting a Fed overshoot, and eventually recession. The Fed is likely to discuss a big interest rate increase at its meeting this week, reports The Times’s Jeanna Smialek. Regaining some control over prices looks like an increasingly hairy challenge as wage growth remains strong, consumers continue to spend at a rapid clip and families begin to think that price increases might last. “Only way they can end this inflation is for the Fed to push demand off a cliff,” Rob Arnott, the head of Research Affiliates and one of the top strategists on Wall Street, tells DealBook. “Is the Fed going to destroy the economy in order to save it?”

Further reading:

  • Everything you need to know about inverted yield curves. (Bloomberg)

  • Morgan Stanley’s James Gorman sees a 50-50 chance of recession. (CNBC)

  • “Bull Market’s Winners Dragged the S&P 500 into a Bear Market.” (WSJ)

HERE’S WHAT’S HAPPENING

Charles Schwab agrees to pay $187 million to settle S.E.C. charges. The agency said Schwab’s robo-adviser, an automated service that creates and manages investor portfolios, made misleading statements. The firm did not charge an advisory fee for the service — and advertised it as such — but the robo-adviser’s recommendation to keep large sums of money in cash reduced investor returns by about the same amount as a fee would have.

Lawmakers want to require companies to disclose new investments in China. A proposed bipartisanmeasure would also authorize a new panel to review and block investments on national security grounds, The Wall Street Journal reported. It is part of a broader effort to strengthen U.S. competitiveness.

Ukrainian forces are on the defensive in eastern Ukraine. The last bridge leading to Sievierodonetsk, a key city that has been ravaged by Russian attacks, is now destroyed, making it impossible to evacuate civilians. President Volodymyr Zelensky says the fight in Donbas region will go down in history as one of the most brutal battles in Europe.

The State of Jobs in the United States

Job gains continue to maintain their impressive run, even as government policymakers took steps to cool the economy and ease inflation.

  • May Jobs Report: U.S. employers added 390,000 jobs and the unemployment rate remained steady at 3.6 percent ​​in the fifth month of 2022.
  • Downsides of a Hot Market: Students are forgoing degrees in favor of the attractive positions offered by employers desperate to hire. That could come back to haunt them.
  • Slowing Down: Economists and policymakers are beginning to argue that what the economy needs right now is less hiring and less wage growth. Here’s why.
  • Opportunities for Teenagers: Jobs for high school and college students are expected to be plentiful this summer, and a large market means better pay.

Elon Musk will take questions from Twitter employees. On Thursday, the Tesla C.E.O. will join a town-hall meeting at Twitter for the first time since he announced his $44 billion bid to buy the company.

Exclusive: Jonathan Nelson and Don Cornwell’s next sports bet

Jonathan Nelson, founder of Providence Equity Partners, and Don Cornwell, a partner at the investment bank PJT Partners, are starting a new investment firm called Dynasty, DealBook is first to report. The firm, which aims to raise more than $1 billion, will invest in professional sports teams around the globe. Nelson will remain executive chairman of Providence, and Cornwall will remain affiliated with PJT.

The firm is trying to profit from a new asset class:minority investments in professional sports.Sports leagues have been increasingly adjusting their bylaws to allow for private equity investment, in part in response to the pressure the pandemic put on the industry. Historically, though, investing in teams was limited to wealthy families and individuals, who were often mostly interested in perks like courtside seats. Pension funds, meanwhile, have rarely had access. Nelson is the most prominent executive in private equity to lead a fund exclusively focused on minority stakes in teams. (Dyal has a fund that invests exclusively in NBA teams, while other investors like Arctos Sports have emerged too.) And Dynasty says Cornwell is the first Black co-owner of a fund of this kind. The firm has hired about 10 employees from companies including Blackstone and Silver Lake.

Both Nelson and Cornwell have long histories with professional sports teams. At Providence, Nelsonmade the original investment in Y.E.S., the Yankees’ pay television network, which was copied throughout baseball. He also helped create Hulu, which ultimately brought together Disney, Fox and Comcast as partners. Cornwell, who will become C.E.O. of the new firm, has been a sports banker for decades, working on deals that included the recapitalization of the Tennessee Titans and the sale of the Buffalo Bills.

The new firm is the latest example of money flooding into sports. There were more than $1 trillion worth of deals last year, according to PitchBook, $2 billion of which was spent by private equity. Last year, Arctos Sports took a 13 percent stake in the Golden State Warriors that reportedly valued the team at roughly $5.5 billion. Earlier this month, Rob Walton and members of the Walton and Penner families paid $4.65 billion to buy the Denver Broncos — more than twice the price of the previous record for an N.F.L. franchise.


Crypto’s loudest influencers go silent

The sudden suspension of withdrawals by the lending platform Celsius started a crypto market meltdown yesterday. Celsius works by lending out its customers’ Ethereum deposits to invest in decentralized finance projects and offering extreme yields, as high as 18 percent. But its high yields required another cryptocurrency, stETH, to maintain its close peg to Ethereum. The two became unglued. Late on Sunday, Celsius announced it was freezing withdrawals, prompting a sell-off that exacerbated the recent downward spiral of crypto prices in general.

More unsettling announcements soon followed. A Celsius competitor, BlockFi, said it was laying off 20 percent of its employees amid economic difficulties. The exchange Crypto.com said it would let go of about 260 employees for similar reasons. This morning, Coinbase C.E.O. Brian Armstrong announced that the crypto exchange would lay off 18 percent of its employees, or about 1,100 people. It has all left a strange hush over the usually lively crypto Twitter community and the celebrities who have promoted digital assets — including Matt Damon, who likenedinvesting to space travel in an ad for Crypto.com last year and said “fortune favors the brave.”

“I refuse to believe Matt Damon was wrong about investing advice,” Aaron Levie, C.E.O. of the cloud computing company Box, mused on Twitter yesterday. But the brave were muted.

Who isn’t talking for a change?

  • The Tesla chief Elon Musk, an avid tweeter and crypto influencer, kept uncharacteristically mum on Monday. What was once $1.5 billion worth of Bitcoin in the company’s coffers has over time dwindled in value to about $965 million.

  • Michael Saylor, C.E.O. of the software company MicroStrategy, reiterated his faith in Bitcoin with an updated “laser eyes” profile picture, signifying steadfastness as he faced a double hit. Nearly $4 billion worth of Bitcoin in MicroStrategy’s treasury has fallen in value to below $3 billion, and the stock price has slumped ahead of a potential margin call should Bitcoin fall to $21,000.

  • Block’s C.E.O., Jack Dorsey, considered Bitcoin’s spiritual leader by many, faced his company’s Bitcoin investment losses of more than $40 million with contemplative silence.

  • As for all the other celebrities who have promoted crypto — LeBron James, Tom Brady, Kim Kardashian, Reese Witherspoon, Gwyneth Paltrow and Giselle Bunchen, to name just a few — they have been “mad silent,” as one Twitter user put it.


“Even when adjusting for inflation, gas prices are at levels rarely seen in the last 50 years.”

—The Times’s Ella Koeze and Clifford Krauss explain why gas prices are so high.


China turns to mass testing

In major cities across China, even where there are no reported coronavirus cases, residents are being required to present a negative P.C.R. test to go shopping, ride the subway or bus, or participate in public activities, writes The Times’s Alexandra Stevenson.

China is the last country in the world that is trying to eliminate Covid, but the spread of the highly contagious Omicron variant is challenging its strategy of mass lockdowns and quarantines. The country already uses apps to surveil its citizens and track infections, and it imposes stringent lockdowns and centralized quarantines for confirmed cases and close contacts.

Mass testing can be expensive, time-consuming and may hamper efforts to revive the economy. Workers say the time required to get tested is cutting into their pay. Local governments are taking money from poverty alleviation projects to pay for testing. Businesses are concerned that the requirement will hurt productivity, and economists worry people will stay home to avoid the bother.

China’s top leader, Xi Jinping, has ordered the country to “unswervingly” stick to the zero-Covid strategy. Dozens of officials have been fired for mishandling outbreaks, making any effort to loosen restrictions politically risky.

The approach has fed public anger in some places. Last night, frustrated residents in Shanghai’s northeastern district of Yangpu banged on pots and shouted “End the lockdown!” after their compound was locked down over the weekend, said Jaap Grolleman, a Dutch teacher who lives in the neighborhood. “People are worried about taking the subway or going to the shopping mall,” said Grolleman.

THE SPEED READ

Deals

  • The warehouse giant Prologis will buy Duke Realty in a $26 billion deal. (WSJ)

  • TotalEnergies will buy a 25 percent stake in Adani New Industries, as part of a plan to invest $5 billion to produce green hydrogen in India. (Bloomberg)

Policy

  • On Russia, Europe weighs a harder fight or a push for peace. (NYT)

  • A Republican senator asked whether HSBC was pressured to suspend an executive who downplayed the risks of climate change. (FT)

  • Hong Kong is requiring negative Covid tests to visit bars and clubs. (Bloomberg)

Best of the rest

  • The flexibility of remote work has meant that some employees are logging in from their sick beds. (NYT)

  • New textbooks for secondary school students in China say that Hong Kong was never a British colony. (South China Morning Post)

  • “Forget remote work, Hamptonites are partying into the wee hours of Monday” (NY Post)

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