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U.S. stock futures fluctuated on Friday, and indicated the S&P 500 index would open lower even as a sell-off in the bond market eased up.
Bond prices rose and the yield on 10-year Treasury notes dropped 5 basis points, or 0.05 percentage point, to 1.47 percent. On Thursday, the yield jumped 14 basis points, setting off a slump in U.S. stocks as traders worried that higher inflation would force the Federal Reserve to pull back on their easy-money policies sooner than expected.
Wall Street had its worst day in a month on Thursday as the S&P 500 fell nearly 2.5 percent. Traders in Asia took their cue, and stock indexes throughout the region fell sharply on Friday, led by a 4 percent drop in stocks in Japan. The performance in Asia was its worst since March, by one measure, though it followed months of significant gains as investors bet on the prospect of global economic recovery from the coronavirus outbreak.
Major European markets opened sharply lower on Friday, but had recovered some of their losses by midday. The Stoxx Europe 600 was down 1.1 percent, but had earlier fallen as much as 1.7 percent.
Markets have recently been rattled by the sharp rise in bond yields. This month, 10-year yields have risen 41 basis points, the most since late 2016, as inflation expectations have climbed to multiyear highs.
There has been a debate about how much central banks will be able to tolerate higher levels of inflation before they begin easing their efforts to support economies hit by the pandemic. Policymakers have tried to reassure investors that they will look past a short-term rise in inflation and are only focused on whether there will be a sustained increase in prices.
But traders have been testing this message, pushing bond yields higher.
“Central banks are watching,” Holger Schmieding, an economist at Berenberg Bank wrote in a note. “But financial markets are not their prime concern.” Yet, if market moves led to the kind of tightening of financing costs or excess volatility that could derail the economic recovery, “they would try to do something about it,” he added.
Later on Friday, the latest data on personal consumption expenditures and indexes which track the changes in prices on goods and services brought by consumers, the Fed’s preferred measure of inflation, will be published.
A tumultuous day in financial markets left onlookers questioning whether the Federal Reserve had showed too little concern as longer-term interest rates crept higher — and spurred speculation that the central bank’s leadership may need to speak out against the rise.
Yields on all but very short-term government debt moved sharply higher on Thursday, driven in part by expectations that economic growth will snap back after the pandemic. Fed officials had been sanguine as rates moved up in recent weeks, pointing to the increase as a sign of growing economic confidence and playing down the risk of a sudden increase in borrowing costs.
Still, the sudden jump Thursday rippled through financial markets, and analysts at Evercore ISI said the Fed’s message might change as a result. The jump in yields could make borrowing by the government, consumers and businesses more expensive, slowing progress toward the Fed’s economic goals.
“The Fed leadership holds some responsibility for this, as the absence of any indication of concern or — more appropriately in our view — central bankerly carefulness” in recent days “has been read in markets as a green light to ramp real yields higher,” Krishna Guha and Ernie Tedeschi wrote in a reaction note, capturing a narrative fast developing among financial analysts.
On Thursday, yields on the 10-year Treasury note surged as high as 1.6 percent. That rate was below 1 percent for much of 2020 and had been steadily increasing this year in part as investors expect that a flood of new government spending and the rollout of the coronavirus vaccine would lead to fast economic growth later this year.
Despite several public appearances in recent days, central bank officials including the Fed chair, Jerome H. Powell, and John C. Williams, the New York Fed chief, have not voiced concerns over the shift in yields. Raphael Bostic, the Atlanta Fed president, said Thursday afternoon that he did not yet see the increases as cause for concern.
“The Fed has thus far not been willing to soothe markets” and that has helped fuel the move in yields, analysts at TD Securities wrote on Thursday.
Some economists are speculating that the Fed might shift the size or style of its bond buying to focus on holding down longer-term interest rates.
“A change of tone at least seems warranted in our view and possibly more,” Mr. Guha and Mr. Tedeschi wrote. “This could well come in the next 24 hours.”
AT&T is selling part of its TV business, which consists of the DirecTV, AT&T TV and U-verse brands, to the private equity firm TPG in a spinoff deal as it looks to shed assets to deal with a burdensome debt load and focus on its mobile telephone and streaming businesses.
The deal, which will give TPG a minority stake, values the TV business at $16.25 billion — about a third of the $48.5 billion AT&T paid just for DirecTV in 2015.
AT&T carries $157 billion of debt, as of December, the result of megadeals including its purchases of DirecTV and Time Warner, which it paid $85.4 billion for in 2018. The entertainment industry has been disrupted by Netflix and an array of competitors fighting for viewers’ attention, complicating plans for DirecTV, which lost more than 3.2 million subscribers in 2020, and for HBO, considered the crown jewel of Time Warner’s business.
Investors have worried that AT&T will not be able to become profitable enough to manage the debt load. The company made about $53.8 billion in pretax profit last year, meaning it carries a little more than $3 of total debt for every dollar of pretax profit. Traditionally, AT&T prefers that ratio to be closer to 2.5 to 1.
Under the terms of the deal with TPG, AT&T will own 70 percent of the new stand-alone company, which will go by DirecTV, and TPG will own 30 percent. The board of the new entity will include two representatives from each company and the chief executive of AT&T’s video unit, Bill Morrow.
The companies hope to fix challenges facing DirecTV — namely a subscriber base that has been bleeding customers faster than most pay-TV services. Annual sales at the DirecTV group fell 11 percent last year to $28.6 billion, and operating profit decreased 16.2 percent to $1.7 billion. The company is also counting on growth of AT&T TV, the company’s new service that streams TV over the internet to a set-top box.
“We certainly didn’t expect this outcome when we closed the DirecTV transaction in 2015, but it’s the right decision to move the business forward,” said John Stankey, AT&T’s chief executive, who as an executive at WarnerMedia led both the DirecTV and Time Warner deals.
TPG has ample experience with corporate partnerships, including taking a joint stake in Intel’s McAfee computer security unit and teaming up with Humana in its deal for the hospice provider Kindred. It has owned parts of Spotify, Creative Artists Agency, the cable provider Astound Broadband, and Entertainment Partners, which provides software to the entertainment and video industry.
AT&T has not ruled out more divestitures.
In its first earnings report as a public company, DoorDash showed how it has benefited from the pandemic even as it hinted that difficulties might lie ahead.
The delivery company on Thursday posted revenue of $970 million for the fourth quarter, up 226 percent from a year earlier, as total orders jumped 233 percent. The company’s fortunes have been buoyed by the pandemic, as people have stayed home to keep safe from the coronavirus and have used DoorDash to order in food and other items.
Yet it also reported a loss of $312 million, compared with a loss of $134 million a year earlier. The company, which went public in December, said it had increased spending on advertising, customer recruitment, research and development, and other expenses. DoorDash said it had also lost money because of costs associated with stock-based compensation related to its initial public offering.
More important, DoorDash warned that its boost from the pandemic might fade. The widespread availability of vaccines in the coming months, the company said, is likely to create “headwinds” to growth.
“We expect declines in consumer engagement and average order values, though the precise amount remains unclear,” the company said.
The cautionary notes sent DoorDash’s stock tumbling nearly 13 percent in after-hours trading.
Beyond the short-term effect of the pandemic, DoorDash faces other challenges. Restaurant owners have complained that its fees, often 30 percent of orders, are too high to allow them to cover their costs. Some cities, including Cleveland, Denver and Chicago, have passed temporary measures to curb the fees that delivery apps charge restaurants during the pandemic. DoorDash has responded by charging customers extra fees in those cities.
In an earnings call, DoorDash executives said they were focusing on long-term success and growth. Tony Xu, the chief executive, said that even when restaurants reopened, people were likely to continue to rely on DoorDash’s deliveries because they had become “habituated to a convenience economy.”
“This business is even more critical as we come out of the pandemic,” he said.
Airbnb, which has faced sky-high expectations since its blockbuster initial public offering in December, posted declining revenue and a whopping $3.9 billion loss on Thursday in its first earnings report as a publicly traded company.
The company brought in $859 million in revenue in the last three months of the year, down 22 percent from a year earlier. Its loss was driven by $2.8 billion in costs associated with stock-based compensation related to its I.P.O., as well as an $827 million accounting adjustment for an emergency loan it took out last year to weather the pandemic.
Airbnb’s loss approaches the $5.2 billion lost by Uber in its first full quarter as a public company and renewed questions about whether unprofitable tech start-ups can turn a profit. Although most money-losing tech companies say that they are spending money to fuel fast growth, Airbnb’s shrinking revenue makes that argument a harder sell.
Airbnb presented its declining revenue as a show of resilience in a year when travel came to a standstill because of the pandemic. Last spring, the company lost $1 billion in bookings, laid off staff and raised emergency funding in response to lockdowns and other restrictions. By the summer, bookings had bounced back, though not enough to make up for the hole in revenue.
In December, the company went public and raised $3.5 billion, valuing it at more than $100 billion. Since then, its valuation has risen as high as $120 billion on investor expectations that a fast vaccine rollout would spur a new boom in travel.
Ron Josey, an analyst with JMP Securities, said Airbnb’s revenue was higher than anticipated. That showed the company was ready to take advantage when people begin traveling again.
“Nobody knows how quickly demand comes back,” he said, but when it does, “Airbnb is a share gainer.”
Airbnb’s stock rose 2 percent in after-hours trading.
Yet even if travel bounces back this year, Airbnb faces challenges. Its hosts, who provide its inventory in the form of property listings, have become increasingly frustrated with the company and are seeking to list their rentals independently. Its problems with “party houses” worsened in the pandemic and the company has rushed out new rules. And regulators around the world continue to scrutinize the “Airbnb effect” of turning housing stock in residential areas into hotels.
In a call with analysts, Brian Chesky, Airbnb’s chief executive, said the company’s priority was to prepare for a rebound in travel with efforts including marketing, recruiting hosts and improving its customer service.
“Travel is coming back,” he said. “We believe people are yearning for what’s been taken away from them.”
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