New data from China is adding to worries over high inflation, rising interest rates and supply chain disruptions.
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June 3
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Source: FactSet
By: Ella Koeze
Wall Street’s relentless decline stretched into a sixth week on Monday, fueled by new data from China that added to concerns about a global economy that’s being battered by high inflation, rising interest rates and a malfunctioning supply chain.
The S&P 500 fell 3.2 percent, adding to a downdraft that has knocked 16.3 percent off the index this year, including a five-week stretch of selling that is the market’s longest such decline in more than a decade.
The drop has stocks approaching a bear market, Wall Street’s term for a decline of 20 percent or more from recent highs, a retreat that serves as a marker of a severe shift in sentiment.
The focus of attention on Monday was China’s economy, after customs data showed that growth in the country’s exports slowed significantly in April and Li Keqiang, the Chinese premier, warned this weekend that the current state of the nation’s jobs market was “complicated and grave.”
The trade slowdown was a product of China’s efforts to contain a Covid-19 outbreak with lockdowns that have idled millions of workers, as well as weaker demand for Chinese-made products from the United States and Europe, economists said, and the news ricocheted through global markets: Oil prices slid more than 6 percent, dragging shares of oil producers lower, while stocks in Europe and Asia also plunged. The Euro Stoxx 600 fell 2.9 percent, and the Hang Seng Index in Hong Kong dropped 3.8 percent.
Investors have a long list of reasons to back away from stocks right now. Rising prices and higher interest rates are sure to hurt consumption in the United States, while the war in Ukraine and the lockdowns in China are hampering supplies of everything from food to energy, exacerbating the inflation problem.
The Federal Reserve’s effort to cool the economy also means that a crutch for investors over the past two years, cheap borrowing costs and easy access to capital that helped fuel a staggering rally in stocks, is starting to fade.
There’s no sign that any of Wall Street’s major concerns will be resolved soon. The Fed, which raised its benchmark interest rate half a percentage point last week, is expected to keep raising rates until it is confident that consumer prices are finally under control — something investors fear will result in an economic slump in the United States.
On Monday, Raphael Bostic, the president of the Federal Reserve Bank of Atlanta, said during an interview that, if the economy doesn’t respond to the Fed’s interest rate increases, it might have to ramp up its efforts to cool growth. That could include raising interest rates by three quarters of a percentage point in one go, though he doesn’t think that is necessary right now.
“If the economy doesn’t respond, to me, a 75-basis-point move could be appropriate — but we won’t know that for some time,” he said, later adding, “If we really started to see inflation moving strongly away from our 2 percent target, further away, that would be a real concern.”
Conversely, any sign that inflation is easing, allowing the Fed to consider slowing its campaign to raise interest rates, would help allay concerns, analysts said.
Annual inflation reached 8.5 percent in March, its fastest pace in over 40 years, with fuel and food driving prices higher, and economists expect that price gains will have slowed slightly when the data on the Consumer Price Index for April is released later in the week. One month of better data probably won’t be enough to calm markets, analysts say, but it could be a start.
“The bottom line is that markets don’t like uncertainty and the current macro environment is tenuous at best,” said Brian Price, head of investment management at Commonwealth Financial Network. “Any positive developments on the geopolitical front, or softer-than-expected inflationary readings, could help to abate the recent selling pressure.”
No matter when it ends, there’s no question that the recent stretch of volatility has stood out in a market that for years was remarkably placid.
In 2021, there was seemingly no bad news that could stop the U.S. stock market, with the S&P 500 gaining 26.9 percent, and the index had daily gain or loss of more than 2.5 percent just once, on Jan. 27, as meme stocks like GameStop and AMC Entertainment spiked in a speculative frenzy and the Federal Reserve said a resurgent coronavirus was weighing on the economic recovery.
That started to change when the Fed moved away from describing inflation as “transitory,” or something that might end as pandemic lockdowns eased, and instead adopted a more aggressive tone toward cooling down rapid prices. Through Monday, there have already been eight days this year with gains or losses of at least 2.5 percent — about one in every nine trading days. All those big daily changes have been in March, April and May.
Strings of big gains and losses are more typical of recessions and the periods that follow them. Before the pandemic wreaked havoc on the stock market in 2020, the last string of big changes was in 2007-11, during the financial crisis and the recovery from it. Before that, the dot-com boom and bust, and the Sept. 11, 2001, attacks, brought volatility.
Bear markets are similarly uncommon, with the last two having occurred in early 2020 and in the financial crisis before. The 20 percent trigger for a bear market — like the 10 percent trigger for what investors call a “correction” — are somewhat arbitrary thresholds, but they serve as mile markers to show that investors have turned pointedly more pessimistic about the world.
The reasons for that pessimism abound right now, and will “drag the S&P 500 into a bear market,” said Victoria Greene, chief investment officer at G Squared Private Wealth, an advisory firm.
“We still have some structural problems — a hawkish Fed, Ukraine, commodity price pressure, Covid shutdowns in China, inflation — that are pressuring growth expectations,” she said. “The pressures from the macro world are too much for stocks to overcome at this point.”
Reporting was contributed by Claire Fu Jeanna Smialek Melina Delkic and William P. Davis.
Number of days per year the S&P 500 closed up or down 2.5 percent or more.
Note: Data for 2022 shows trading days through May 9.
Source: New York Times analysis
By The New York Times
In 2021, there was seemingly no bad news that could stop the U.S. stock market, with the S&P 500 gaining 26.9 percent. What’s more, trading was remarkably placid given the uncertainty around the coronavirus.
But the volatility and losses that have gone hand in hand with recessions are back.
In 2021, the index had a daily gain or loss of more than 2.5 percent just once, on Jan. 27, as meme stocks like GameStop and AMC Entertainment spiked in a speculative frenzy and the Federal Reserve said a resurgent coronavirus was weighing on the economic recovery.
Through Monday, there have already been eight days this year with gains or losses of at least 2.5 percent — about one in every nine trading days. All of those big daily changes have been in March, April and May.
Strings of big gains and losses are more typical of recessions and the periods that follow them. Before the pandemic wreaked havoc on the stock market in 2020, the last string of big changes was in 2007-11, during the financial crisis and the recovery from it. Before that, the dot-com boom and bust, and the Sept. 11 attacks, brought volatility.
Outside such major events, it’s more common to have just a few big changes each year. There have even been many years with no such big moves: 10 in the past 30 years.
The recent slide in stocks has pushed the S&P 500 perilously close to a bear market, Wall Street’s label for a sustained downturn in the markets that reflects serious pessimism about the outlook for the economy.
A stock or an index enters a bear market, at least by most conventional definitions, when it has dropped 20 percent from its last peak. After spending much of Friday below that threshold, the S&P 500 recovered and closed 18.7 percent down from its Jan. 3 high.
The Nasdaq composite, a benchmark that’s heavily weighted toward technology stocks, has been in bear market territory since early March.
The declines have come as investors grapple with the combination of the Russian invasion of Ukraine, which resulted in sanctions that severely limited gas supplies; global supply chain problems as the coronavirus pandemic grinds on; and an inflation problem that is prompting the Federal Reserve and other central banks to raise interest rates quickly.
The 20 percent trigger for a bear market — like the 10 percent trigger for what investors call a “correction” — is a somewhat arbitrary threshold. But it serves as a mile marker to show that investors have turned pointedly more pessimistic about the market.
There is skepticism about the use of the terms correction and bear market, whose precise definitions have been in use only since the 1980s. Corrections are not uncommon, with the last one having started in January of this year, one of nearly a dozen since 2000.
Some corrections don’t last very long, like one in 2018, which lasted less than two weeks. In some instances, stocks regained their previous peaks in a few months.
After April proved to be one of Wall Street’s worst months in recent years, May has not provided a much more optimistic view on how investors are looking at the economy.
The Federal Reserve raised interest rates half a percentage point on Wednesday and markets initially rallied, with a gain of 3 percent. Stocks then plunged the next day. There are some bright spots, however.
Our investing and markets columnist Jeff Sommer can help you through a confusing time. Here are some points to consider.
The Federal Reserve’s intentions in cooling inflation are clear: The Fed is willing to increase unemployment in the United States if that is what’s required to get the job done. That may be hard for financial markets to digest, after years of extraordinarily loose monetary policy.
It has been a wonderful stretch for the dollar. The U.S. Dollar Index, which tracks the dollar against six other important currencies, is hovering at levels it hadn’t reached in 20 years. Global demand has risen for relatively safe and increasingly higher-yielding assets like Treasurys.
Though the market has been shaken by the pandemic, supply chain struggles, the war in Ukraine and more, there is a case for cautious optimism. As strange as it sounds, it may help to embrace misery: Further declines will surely come, but it will take new, unexpected shocks to unmoor stocks, bonds and commodities in a fundamental way.
The bond market declines are “really, truly, historically bad,” our columnist writes. It may be painful to hold bonds now, but there are good reasons to do so, especially Treasurys. Here’s what else to know about bonds.
Do you have any questions that our columnist hasn’t yet answered? Ask them here.
The S&P 500 has now registered five consecutive weekly declines, its longest streak of losses since June 2011. Stocks rallied earlier last week, before suffering their largest single-day drop since the start of the pandemic on Thursday. Futures point to another drop in U.S. stocks Monday morning.
The financial markets are coming to grips with a stunning policy change by the Federal Reserve, writes The Times columnist Jeff Sommer. Markets have become so accustomed to the Fed’s loose monetary policy of the past two decades that investors don’t know how to react now that the central bank is pulling back and trying to slow the economy. “This is a very big change, and the markets are having trouble processing it,” said Robert Dent, senior U.S. economist for Nomura Securities.
Adding to the uncertainty are continued lockdowns in China, surging inflation, supply constraints and a spike in oil prices. That has complicated the outlook for the global economy, though some Wall Street forecasters remain optimistic. In a research note published yesterday, Goldman Sachs said that it forecast a recovery in major equity indexes. “The tightening in U.S. financial conditions has somewhat rebalanced the risks to the Fed’s mandate and potentially set the stage for a stabilization in the financial market environment,” the note said.
Tech stocks and crypto prices are falling again. Bitcoin this morning hit its lowest level since July 2021. Tech companies, both global powerhouses and start-ups, are also feeling the pain. Share prices for Netflix, Meta and Peloton are all down substantially this year. Some strategists are saying prices could continue to fall until they land back where they were before the pandemic. For tech stocks, that would be a further 25 percent drop. For crypto, it could be a plunge of more than 60 percent.
With some tech companies freezing hiring or laying off employees, investors are split. Some see a temporary slowdown, while others say it is a sign of a deeper slump to come, The Wall Street Journal reports. Elon Musk, on the other hand, has told investors that Twitter could quintuple its revenue by 2028.
Match Group, which owns dating services like Tinder and OkCupid, sued Google on Monday, claiming that it broke antitrust laws with the rules it set for its smartphone app store.
Google leveraged monopoly power over app distribution for its Android smartphone software to restrict the ability of apps to charge consumers for in-app products using their own payment systems, Match Group said in its lawsuit. Instead, Google is forcing developers to use its system if they want access to the Google Play app store, which takes a cut of in-app purchases, the suit said.
Some of Match Group’s apps currently offer an alternative to Google’s payment systems, but the company says Google will soon require it to use its system.
In a statement, a Google spokesman, Peter Schottenfels, said that like “any business, we charge for our services.” He said Match Group’s apps were eligible to pay a 15 percent commission on in-app purchases and called the rate “the lowest rate among major app platforms.”
“This is just a continuation of Match Group’s self-interested campaign to avoid paying for the significant value they receive from the mobile platforms they’ve built their business on,” Mr. Schottenfels said.
The lawsuit, filed in U.S. District Court for the Northern District of California, is the latest salvo in a long-running fight with app developers on one side and Google and Apple on the other. The tech giants largely run the stores through which developers reach smartphone users and have been able to get revenue from purchases inside the apps.
That frustrates the developers, which say Google and Apple are essentially imposing a tax on their sales. The developers have turned to governments around the world to ask that they regulate the practice. Some, including South Korea, have already done so; Congress is considering proposals to do the same.
Both Google and Apple have shifted their practices in recent months to address some of the concerns, including proposing lower commissions on in-app purchases. But developers have said those changes don’t go far enough.
Ryan Mac and
Clearview AI, the facial recognition software maker, on Monday settled a lawsuit brought by the American Civil Liberties Union and agreed to limit its face database in the United States primarily to government agencies and not allow most American companies to have access to it.
Under the settlement, which was filed with an Illinois state court, Clearview will not sell its database of what it said were more than 20 billion facial photos to most private individuals and businesses in the country. But the company can largely still sell that database to federal and state agencies.
The agreement is the latest blow to the New York-based start-up, which built its facial recognition software by scraping photos from the web and popular sites, such as Facebook, LinkedIn and Instagram. Clearview then sold its software to local police departments and government agencies, including the F.B.I. and Immigration and Customs Enforcement.
But its technology has been deemed illegal in Canada, Australia and parts of Europe for violating privacy laws. Clearview also faces a provisional $22.6 million fine in Britain, as well as a 20 million-euro fine from Italy’s data protection agency.
“Clearview can no longer treat people’s unique biometric identifiers as an unrestricted source of profits,” Nathan Freed Wessler, a deputy director with the A.C.L.U.’s Speech, Privacy and Technology Project, said in a statement about the settlement. “Other companies would be wise to take note, and other states should follow Illinois’s lead in enacting strong biometric privacy laws.”
Floyd Abrams, a First Amendment expert hired by Clearview to defend the company’s right to gather publicly available information and make it searchable, said the company was “pleased to put this litigation behind it.”
“To avoid a protracted, costly and distracting legal dispute with the A.C.L.U. and others, Clearview AI has agreed to continue to not provide its services to law enforcement agencies in Illinois for a period of time,” he said.
The A.C.L.U. filed its lawsuit in May 2020 on behalf of groups representing victims of domestic violence, undocumented immigrants and sex workers. The group accused Clearview of violating Illinois’s Biometric Information Privacy Act, a state law that prohibits private entities from using citizens’ bodily identifiers, including algorithmic maps of their faces, without consent.
“This is a huge win for the most vulnerable people in Illinois,” said Linda Xóchitl Tortolero, a plaintiff in the case and the head of Mujeres Latinas en Acción, an advocacy group for survivors of sexual assault and domestic violence. “For a lot of Latinas, many who are undocumented and have low levels of IT or social media literacy, not understanding how technology can be used against you is a huge challenge.”
One of Clearview’s sales methods was to offer free trials to potential customers, including private businesses, government employees and police officers. Under the settlement, the company will have a more formal process around trial accounts, ensuring that individual police officers have permission from their employers to use the facial recognition app.
Clearview is also prohibited from selling to any Illinois-based entity, private or public, for five years as part of the agreement. After that, it can resume doing business with local or state law enforcement agencies in the state, Mr. Wessler said.
In a key exception, Clearview will still be able to provide its database to U.S. banks and financial institutions under a carve-out in the Illinois law. Hoan Ton-That, chief executive of Clearview AI, said the company did “not have plans” to provide the database “to entities besides government agencies at this time.”
The settlement does not mean that Clearview cannot sell any product to corporations. It will still be able to sell its facial recognition algorithm, without the database of 20 billion images, to companies. Its algorithm helps match people’s faces to any database that a customer provides.
“There are a number of other consent-based uses for Clearview’s technology that the company has the ability to market more broadly,” Mr. Ton-That said.
As part of the settlement, Clearview did not admit any liability and agreed to pay $250,000 in attorneys’ fees to the plaintiffs. The settlement is subject to approval by an Illinois state judge.
Emma Bubola and
Leaders of the Group of 7 nations pledged during a virtual meeting on Sunday with President Volodymyr Zelensky to ban or phase out Russian oil, aiming to still further erode Russia’s economic standing as it pursues its invasion of Ukraine.
The group did not provide details but said in a statement that the plans would be enforced in a “timely and orderly fashion, and in ways that provide time for the world to secure alternative supplies.”
Oil bans are a two-edged sword. Oil is a top export for Russia, and Moscow would almost certainly sustain a big economic blow should it be banned, but parts of Europe are heavily dependent on its oil and thus are also vulnerable.
The United States, which imported a relatively small amount of energy resources from Russia, has already banned the import of Russian oil and gas.
The European Union, which gets about a quarter of its crude oil imports from Russia, has also announced plans for phasing out Russian oil, but is still in talks to formalize the decision. The bloc is too dependent on Russian gas to consider banning it in the short term, but has laid out plans to become progressively independent from it.
The G7 also said it would take steps to stop the provision of key services on which Russia depends and to toughen sanctions against the financial elites who support President Vladimir V. Putin, as well as their family members.
The White House also announced new sanctions on Sunday against three Russian state television outlets and said it would prohibit Americans from providing accounting or consulting services to anyone in Russia.
The Group of 7, which includes some of the world’s biggest economies, said that member nations — Canada, France, Germany, Italy, Japan, the United Kingdom and the United States — would also continue to provide billions of dollars in military aid and intelligence to Ukraine, which has helped the country thwart Russian forces.
During the meeting Sunday, Mr. Zelensky pleaded Ukraine’s case with the world leaders, saying his ultimate goal was to force the full withdrawal of Russia’s army.
The G7, in its statement, said member nations had assured Mr. Zelensky of their “continued readiness to undertake further commitments to help Ukraine secure its free and democratic future.”
The call took place on the day the G7 leaders commemorate the end of the Second World War and as Russia prepared for its annual celebration of the Soviet victory over Nazi Germany in 1945.
“We remain united in our resolve that President Putin must not win his war against Ukraine,” the G7 statement said. “We owe it to the memory of all those who fought for freedom in the Second World War.”
The actions of Mr. Putin, it said, “bring shame on Russia and the historic sacrifices of its people.”
Ahead of the call, the United Kingdom said it would offer an additional 1.3 billion pounds (about 1.6 billion dollars) in aid and military support to Ukraine. The new funding almost doubles the existing 1.5 billion pounds in support.
When China tightened its grip over Hong Kong with a national security law in 2020, many feared it would imperil the city’s status as Asia’s financial capital. The stock market initially plunged. A few companies left. The independence of the courts was questioned.
The broader business community kept quiet, worried about losing out on the opportunities to make money in China. But after two years of strict coronavirus policies that have left Hong Kong mostly isolated from the world, international businesses have found their voice.
Business leaders now say they are struggling to hire and keep executives in Hong Kong. Global executives have been unable to visit regional staff members in Hong Kong. (Jamie Dimon, the chief executive of JPMorgan Chase, was the only head of a Wall Street bank to be publicly granted an exemption.) A growing number of firms have relocated, while others have temporarily moved top executives to cities like Singapore.
As global money has flowed out of the city, Chinese money is increasingly filling the void. Some of the city’s most iconic real estate that was once occupied by international companies has been snapped up by Chinese investors.
What began as a steady migration of people out of the city two years ago turned into a larger exodus this year. The prospect of a citywide lockdown, the closing of schools and tough quarantine measures that included separating young children from their parents drove many families to leave.
“This was the city of opportunity; everyone wanted to come here,” said Eugenia Bae, a headhunter for international banks and financial firms. “Now it is no longer a popular city anymore. It’s a tough time.”
Officials this month began to ease social distancing measures, and nonresidents are now allowed to visit the city for the first time in two years. John Lee, set to be Hong Kong’s next chief executive, is largely unknown to the business community but has promised to restore the city’s status as a thriving global hub. He has also said he would prioritize strengthening the city’s financial ties with mainland China.
“We have the hope and the expectation that the next leadership will lead Hong Kong out of the pandemic and back on track,” said Frederik Gollob, chairman of the European Chamber of Commerce.
