The tech-wreck is set to continue Tuesday.
Nasdaq Composite futures are down more than 2% as investors continue to digest news about SoftBank and Tesla.
Stock in Japanese tech and investing conglomerate SoftBank fell 7.2% in overseas trading Monday amid reports the company was making big bets on large U.S. tech stocks via options. There aren’t a lot of specifics, just that SoftBank was betting on rising tech stocks with call options, a risky use of its capital.
Tesla, meanwhile, is down 9.6% in premarket trading Tuesday after the S&P Index committee decided that Elon Musk’s company didn’t merit inclusion. The index rebalances later this month and bullish investors hoped Tesla’s addition would generate a flood of buy orders from funds that track the S&P 500.
The weakness has spread even to less speculative companies. Apple stock is down another 3.5% in premarket trading, while Amazon.com is off 3.3%.
How bad can the tech rout get? The Nasdaq, including Tuesday’s premarket move, is down almost 9% from its early September high. A 10% move down—roughly 10,866 in the index—qualifies as a correction.
From there, it’s anyone’s guess.
—Al Root
***
Deal to Fund Government Nears as Stimulus Talks Remain Stalled
A deal between the White House and Congress to fund the federal government through the beginning of December is likely to be struck by the end of the week, Treasury Secretary Steven Mnuchin said over the weekend.
- Congress reconvenes Tuesday after its August recess with funding set to expire on Sept. 20. Republicans and Democrats remain unable to reach a deal on another round of coronavirus relief.
- “I hope by the end of the week we’ll have something firmed up,” Sec. Mnuchin told reporters, referring to a deal to avoid a government shutdown through December.
- Mnuchin also said that House Speaker Nancy Pelosi had also agreed to a deal to extend government funding.
- This deal is separate from negotiations for a new coronavirus stimulus bill, which have been stalled for months. Democrats want at least a $2 trillion relief package that includes aid to cash-strapped city and state governments. Republicans want a smaller, more targeted bill.
What’s Next: Republicans now look set to move ahead this week with a so-called “skinny bill” on coronavirus relief—a tactic Democrats have rejected numerous times—and separate talks on a spending bill to keep the government open through the beginning of December.
—Ben Walsh
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Colleges Struggle to Contain Covid-19 Outbreaks
Universities that have gone ahead with in-person instruction are grappling with how to navigate health concerns on campus. From Northeastern dismissing 11 students without refunding their tuition to Iowa State University canceling plans for 25,000 fans to attend its opening football game Saturday, campus life is anything but normal.
- More than 50,000 cases at 1,000 colleges have been reported to date. While the rest of the country’s infection rate has dropped to about 12 per 100,000, college towns are seeing rates above 20 per 100,000 people, according to New York Times’ data.
- Those increases are causing a tension in cities and towns that rely economically on students, with residents fearing the health impact of opening businesses like bars and restaurants and fearing the economic consequences of shuttering them.
- When the University of Alabama was hit with hundreds of Covid-19 cases, the city of Tuscaloosa responded by closing bars, but that seems to have done little to slow infections, with 846 students testing positive during the week that ended Sept. 3.
- Outbreaks of more than 1,000 cases have been reported at Ohio State University, University of North Carolina at Chapel Hill and the University of South Carolina. More than 500 cases have been confirmed at the University of Kansas, Texas A&M, and the University of Iowa.
- Students at several schools, including the University of New Hampshire, Syracuse University, the University of Miami, and the State University of New York, have also been suspended for attending or holding parties that violate social distancing rules.
What’s Next: Expect more disruption of college routines as schools and students learn to adapt to campus life during a pandemic.
—Ben Walsh
***
Growing Fear that the U.S. Is in for a K-Shaped Recovery
Lockdown restrictions are dealing what may be a lasting blow to the finances of low-wage workers, even as wealthier Americans see their incomes rise.
- “When we talk K, the upper path of the K is clearly financial markets, the lower path is the real economy, and the two are separated,” Joseph Brusuelas, chief economist at RSM told CNBC.
- Even as the stock market reaches new highs, the gross domestic product has fallen and unemployment remains alarmingly high, with one in two workers displaced by the pandemic still jobless.
- The dichotomy extends to businesses, with small mom and pop stores and restaurants under greater financial stress because they tend to have small cash reserves and limited access to credit. By one estimate, 41% of Black-owned businesses have been shuttered due to the pandemic.
- Lower income Americans, who are far less likely to own stocks, can’t expect another stimulus check until lawmakers pass a new relief bill. President Donald Trump authorized extra unemployment payments in August, but those benefits are about half what they were during the spring and early summer.
- President Trump boasted about the recovery in a Labor Day speech, saying, “we’re in the midst of the fastest economic recovery in U.S. history.”
What’s Next: While acknowledging the risk of an uneven recovery, Treasury Secretary Steven Mnuchin projected optimism last week, saying, “we are set for a very strong recovery.”
—Ben Walsh
***
‘Tenet’ Sets the Tone for Movie Theater Industry Rebound
Originally slated for release in mid-July, Christopher Nolan’s science fiction thriller, Tenet, opened over Labor Day weekend in about half of the nation’s movie theaters, making it the first blockbuster with a theatrical release in the U.S. since the pandemic started.
- Starring Robert Pattinson and Elizabeth Debicki, the Warner Bros. film brought in a modest $20 million through Sept. 6, according to Box Office Mojo, from screenings in 2,800 of the U.S.’s 5,500 movie theaters. Globally, it’s made more than $146 million.
- Chains began reopening in August, with about 60% to 70% now open. Theaters remain closed in many major markets, however, including New York City and Los Angeles.
- Some moviegoers crossed state and county lines to see the film when theaters were closed in their area, The Wrap reported. Angelenos headed to San Diego, for example, while New Yorkers fanned out to New Jersey and Connecticut.
- The movie industry has been devastated by the virus in 2020, with just $2 billion in U.S. box office revenue to date versus $11 billion for all of 2019 in the U.S. and Canada. Many films, including Walt Disney’s Mulan, have skipped theatrical releases and have been made available on streaming services.
What’s Next: Decent box office numbers are a hopeful sign for the industry’s recovery, but it’s a cautious reboot. Pattinson, the movie’s star, tested positive for Covid-19 just last week, putting filming for his next movie, Batman, on hold indefinitely.
—Anita Hamilton
***
Britain and EU Brace for Trade Talks Failure
Negotiations between the European Union and the U.K. about their future trade relations enter the last chance saloon Tuesday as both sides meet for yet another round of talks one day after British PM Boris Johnson threatened to walk out if a deal isn’t struck by October 15.
- The two sides failed to make any progress over the summer and remain stuck on the question of what type of “level playing field” the U.K. should accept, to reassure Europe it won’t undercut it on matters such as labor or environment regulations.
- The U.K. is also considering reneging on parts of the “political declaration” it signed with the EU last year along with a “withdrawal agreement” in the run-up to Brexit. The deal aimed at avoiding that a new border be erected between the U.K.’s Northern Ireland region and the Republic of Ireland.
- British industrial lobbies have warned in recent weeks that the U.K. government has failed to take the necessary steps to avoid a massive logistical problem at the border if the two sides failed to clinch a deal. Major disruptions are also expected in industrial supply chains or food imports.
- The long-term cost of a no-deal Brexit for the U.K. economy would amount to some 5.7% of the country’s gross domestic product, far higher than the coronavirus impact, which will cut GDP by 2.1%, according to a recent London School of Economics paper.
What’s Next: Europeans are still trying to decipher whether Johnson’s threats are serious or amount to more saber-rattling before the PM agrees on a compromise, as he did last year when signing the withdrawal agreement. But both sides are ramping up their preparations for the no-deal Brexit scenario.
—Pierre Briançon
***
Thanks to everyone who participated in August’s Barron’s Daily Virtual Stock Exchange game. We’ll announce the winners of the contest soon. In the meantime, sign up for this month’s game below.
Think you’re a master stock picker? Join The Barron’s Daily virtual stock exchange challenge and show us your stuff. Each month, we’ll start a new challenge and invite newsletter readers—you!—to build a portfolio using virtual money and compete against the Barron’s and MarketWatch community.
Everyone will start with the same amount and can trade as often or as little as they choose. We’ll track the leaders and, at the end of the challenge, the winner whose portfolio has the most value will be announced in The Barron’s Daily newsletter.
Are you ready to compete? Join the challenge and pick your stocks here.
***
—Newsletter edited by Stacy Ozol, Anita Hamilton, Matt Bemer, Ben Levisohn
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