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The debate on Wall Street: Did the Fed turn too quickly?

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The S&P 500 is nearing a record after the Fed indicated it would cut rates next year. Investors are betting that the US economy will achieve the rosiest outcome: a soft landing And cheaper borrowing costs.

But some Wall Street veterans are already questioning the Fed-led rally and debating its sustainability.

The stock rise was almost unthinkable a year ago, when Wall Street made lackluster predictions for the economy and markets due to fears of recession and persistently high inflation. Instead, the benchmark S&P 500 has risen, closing yesterday within 1.6 percent of the peak it reached in January 2022.

The latest jolt of good news for the bulls: The Fed signaled Wednesday that it would cut rates three times next year as it predicted inflation would cool. Global stocks and bonds have soared since then, with investors increasingly confident that a period of tight credit is coming to an end.

But the Fed’s easing has put Europe’s central bankers in trouble. Futures traders were betting Yesterday the European Central Bank said the European Central Bank would follow the Fed’s lead and predict aggressive spending cuts next year. Instead, Christine Lagarde, the president of the ECB, spent much of her press conference suppressing such expectations.

Wall Street is also divided over whether the Fed can cut rates. “I’m still not convinced we’ll get the cuts the Fed is talking about, and certainly not the cuts the market is talking about next year,” said Lee Ferridge, head of multi-asset strategy at State Street . Global Markets, DealBook told.

In the opposite camp: the economists at Goldman Sachs to predict that the Fed will start cutting borrowing costs in March, and futures traders have done just that prediction Next year, the cuts will amount to 1.5 percentage points.

Is the Fed changing too quickly? Ferridge notes that US consumers are still spending money, as evidenced by yesterday’s numbers strong retail sales, and that the economy and the labor market are still growing strongly. These conditions could release the inflation genie from the bottle. “The battle against inflation has not been won,” he said.

And Larry Summers, the former Treasury Secretary and an outspoken critic of the Fed’s approach to inflation, has expressed his concerns that the US central bank is sending mixed messages.

Why lower interest rates when the economy looks pretty good? That’s a question market watchers are asking, including economist David Rosenberg. The Fed’s forecast cuts would indicate that the US is on the brink of a recession. he said. If that’s the case, why are investors buying stocks at such a breakneck pace?

Ferridge noticed a similar fracture. That shows there is “market confusion” about the Fed’s messaging this week, he said. “What do they know?”

The Biden administration is urging Israel to limit its campaign in Gaza. Jake Sullivan, President Biden’s national security adviser, urged Israeli officials to end their large-scale ground and air operations by the end of this year and focus on more targeted tactics, The Times reports. The suggestion is the latest sign that Biden, who has publicly supported Israel after the Oct. 7 Hamas attacks, is under pressure to rein in the country’s military campaign.

The EU opens the door for Ukraine to join the bloc. Even as Hungary forced a delay in financial aid to Kiev, the news that European leaders were ready to begin accession negotiations offered some hope for Ukraine. That said, joining the EU would take years if it were to happen at all, and US military aid to Ukraine is still in limbo.

General Motors and its autonomous vehicle division have been cutting jobs. Cruise is laying off about 900 employees, or nearly a quarter of its workforce. The measure is part of a turnaround after the company took its vehicles off the road following an October 2 accident involving a pedestrian. Meanwhile, GM is Cut 1,300 employees in Michigan.

Netflix resumes advertising on X. The streaming giant is show ads again on the social network, The Wrap reports, after joining a boycott to protest Elon Musk’s endorsement of an anti-Semitic conspiracy theory. Meanwhile, Musk has told lenders of his $44 billion takeover of the company that they won’t lose any money about the deal, despite a huge loss in advertising revenue, according to The Financial Times.

When activist investor Nelson Peltz formally launched a proxy fight at Disney, his second fight in as many years, he drew on a figure from the company’s past: Jay Rasulo, its CFO from 2010 to 2015.

The choice of Rasulo as nominated director (together with Peltz) is intended to create a contrast between the Disney of yesteryear and the company of today that faces plenty of challenges.

Rasulo was once considered a potential successor to Bob Iger as CEO A 20-year Disney veteran, he oversaw the entertainment giant’s theme park operations, including an overhaul of the California Adventure resort and the opening of Hong Kong Disneyland. He became CFO in 2009 and left in 2015 after Tom Staggs was promoted to COO from running the park operations.

Rasulo told The Times that his appointment did not mean he wanted to return to management: “We can ask the right questions in the boardroom,” he said. “We can right a ship that I love.”

Peltz tries to remind Disney shareholders of better times. “I want Disney to get back to the way it was when Jay Rasulo was here as CFO, because that’s when the company understood the taste and smell of success,” the investor says. told The Wall Street Journal.

Ike Perlmutter, the former Marvel chairman and one of Disney’s largest individual shareholders, is another former Disney executive involved in the activist campaign. (Perlmutter was ousted from Disney in the spring after years of clashes with Iger and others.)

But Rasulo’s financial background may clash with the creative minds at Disney. The Journal reports that as CFO he focused on the profit potential of sequels:

“He told investors that Disney’s priority was to create more content like ‘Toy Story,’ because big franchises were the best way for Disney to grow quickly and generate a lot of revenue.”

That focus appears to be fading at Disney after the final installments in the Marvel and “Indiana Jones” universes underperformed. At the DealBook Summit, Iger admitted that the company was producing too many sequels without regard to quality: there has to be a reason “beyond commerce” to make one, he said.

— Steve Schwarzman, co-founder and CEO of Blackstone at the investment giant Taylor Swift inspired holiday video. The cheeky self-aware clip explores the joys of alternative investing, and features executives like Jon Gray, the president, and plenty of glitter.

The deadline to finalize a deal between the PGA Tour and the Saudi sovereign wealth fund is less than three weeks away, but the American golf organization is still riven by internal conflict and distrust between players and executives, according to Lauren Hirsch of DealBook and Alan Blinder from The Times. .

A reminder of how we got here: The tour and the Public Investment Fund signed a preliminary agreement on June 6 to combine the PGA Tour with Saudi Arabia-backed rival LIV Golf. The deal was done in secret, with the tour players and most of the board members kept in the dark. Many details, including valuation and governance, must be resolved by December 31, although talks could be extended.

The tour has made some concessions. In August, Tiger Woods joined the board, bringing the number of players and outside directors to six each. The tour also agreed to keep Colin Neville, a banker who advised the players, informed of the negotiations with the PIF.

But many players are still angry. “Since June 6, trust has been broken at the highest levels,” said Adam Scott, chairman of the tour’s Player Advisory Council. “Nothing has changed to restore that trust.”

Frustrations include their limited influence on the appointment of outside directors. The resignation from the board of AT&T CEO Randall Stephenson, who was supported by many players, also left a sting. (Two players were on a committee that recommended Stephenson’s successor, Joseph Gorder.)

Some say disagreements are normal. “I’ve learned that with any great board you need disagreements to get to the best solution, and we’ve had a lot of disagreements this year – even the players had disagreements,” said Webb Simpson, a player and board member. “But we’re all trying to get to a better place.”

What now? The tour is in talks with Strategic Sports Group, an investment firm led by Boston Red Sox owner Fenway Sports Group, about a deal that would inject $3.5 billion into a newly formed for-profit company with a valuation of up to about $12 billion. . LIV, meanwhile, is still on the hunt for talent: last week it recruited Jon Rahm, third in the world rankings.

Offers

Policy

  • The highest court in Europe Amazon’s side in the e-commerce giant’s long-running tax dispute with the EU (CNBC)

  • The venture capital firm Andreessen Horowitz said it would get involved in politics. support candidates who favor less regulation for technology companies. (A16Z)

  • Kevin McCarthy, the former Speaker of the House of Representatives who is retiring from Congress this month, said his next career steps will bring AI, space travel and monetization with its connections in Washington. (Axios)

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