Investors Await the Fed’s Next Move

Will the Fed go four for four?

Wednesday is the final meeting of the Fed’s Open Market Committee before next week’s midterm elections, and the central bank’s move on interest rates looks like a foregone conclusion.

The overwhelming consensus is for a fourth-straight increase of 0.75 percentage points, which would bring the prime lending rate close to 4 percent, a level last reached in 2008. The increase would continue the Fed’s effort to douse inflation by raising borrowing costs to reduce consumer demand.

The big question is, what will the central bank do next? Optimism has returned to the markets in recent weeks, with the S&P 500 climbing 8.1 percent last month on hopes of a “Fed pivot” toward smaller rate increases in the future. Investors in Asia and Europe nudged stocks higher this morning, and U.S. futures are flat.

There are competing factors weighing on the Fed. The most persuasive came from Tuesday’s data on job openings and quit rates, known as the JOLTS report, which showed a still-healthy and growing — though slowing — U.S. labor market. Jeffrey Roach, the chief economist for LPL Financial, wrote in a research note that the JOLTS data suggest the U.S. jobs market could withstand further rate increases. (On cue, stocks slumped.)

Meanwhile, left-leaning lawmakers, including Senators Elizabeth Warren of Massachusetts and Bernie Sanders of Vermont, openly questioned the Fed’s aggressive rate-increase policy, saying its approach reflected “an apparent disregard for the livelihoods of millions of working Americans.”

Don’t expect Jay Powell, the Fed chair, to make bold proclamations. He’s unlikely to declare an end to jumbo-size rate increases in his speech after the Fed decision. Instead, investors will be on alert for subtleties: “Certainly yanking/modifying ‘ongoing increases’ from the statement would be the first clue” that the Fed sees smaller increases in the future, Tom Porcelli, a chief economist at RBC Capital Markets, wrote in a research note.

Meanwhile, investors will also watch the Bank of England tomorrow, when it convenes its first rate-setting meeting since Rishi Sunak became Britain’s prime minister. Like the Fed, the Bank of England is expected to raise rates by 0.75 percentage points, the biggest increase in 30 years, to bring down torrid inflation and maintain a sense of calm in the markets for British government bonds and the pound.

HERE’S WHAT’S HAPPENING

CVS and others reach a tentative $12 billion settlement over the opioid crisis. CVS said it has agreed in principle to pay $5 billion to resolve thousands of state and local lawsuits accusing it and other chains of mishandling opioids. Walgreens Boots Alliance and Walmart are also said to be on the hook for billions if a deal is reached.

Jair Bolsonaro agrees to a transition of power in Brazil. The incumbent Brazilian president won’t stop his administration from handing over the country’s leadership to his left-wing rival, Luiz Inácio Lula da Silva. But Bolsonaro didn’t admit defeat or tell his supporters to end protests that have blocked highways across Brazil.

Ukraine grain shipments will restart today, Turkey says. President Recep Tayyip Erdogan of Turkey said Russia had agreed to resume participation in a deal that lets ships carrying wheat and other crops depart Ukraine. Wheat futures in Chicago dropped on the news, as investor fears about a global grain shortage abated.

Benjamin Netanyahu may yet return to power. Interim results from Israel’s election show his Likud party on a path to forming a majority in Parliament. That could propel Netanyahu back to the prime minister position, even as he stands trial on corruption charges — though pollsters said it was too early to call the election.

The U.S. should ban TikTok, a top federal official says. Brendan Carr, one of five members of the Federal Communications Commission, told Axios that the Chinese-owned video platform should be barred on national security grounds, given concerns about U.S. data privacy. TikTok noted that Carr has no role in any such decision.

Rethinking how Twitter makes money

Days into the Elon Musk era at Twitter, the makings of a new business model for the long-embattled social network are taking shape. The company’s new owner is pressing ahead with a subscription offering, which Musk has repeatedly emphasized is a necessary new source of revenue.

But its importance has also seemingly grown as more advertisers have said they are at least temporarily stepping back amid worries about widening chaos on the platform.

A key Musk focus is an $8-a-month Twitter Blue service. As currently envisioned, subscribers would receive the “verified” check-mark badge, see fewer ads, be ranked higher in replies to others’ tweets, be able to share longer videos and bypass paywalls at news publishers that partner with Twitter. (The $8 monthly fee was lowered from the original $20 figure … after Musk seemed to negotiate publicly with the author Stephen King.)

Twitter is also reportedly rushing out a service that would let users charge others to see content like video, according to The Washington Post; the feature has raised internal concerns about copyright infringement and other legal issues.

Will users pay for Twitter Blue? Supporters of the move point to other social networks, like LinkedIn and Snap, that charge users for additional features. And some organizations, like the newsletter publisher Puck, said they would fork over the fees to keep their employees verified.

But others point out that verification is meant at least in part to, well, verify that the Twitter user is authentic, and paying to get a check mark defeats that purpose. Check marks will also effectively turn subscribers’ prioritized tweets into paid advertisements for Twitter Blue, which could turn off actual advertisers that want their ads to appear next to organically popular content, Slate argues.

We’d also ask: How much money would subscriptions bring in? “It won’t be the majority of people, but there’s a small base of people that will” subscribe, the analyst Rich Greenfield told The Wall Street Journal. But given that Twitter’s own internal research from before the Musk deal closed purportedly showed a drop in activity among power users, it’s unclear how much Twitter Blue would add to a top line that hit $5 billion last year.

Speaking of advertisers … Twitter’s ad leadership is in disarray, after Leslie Berland, its chief marketing officer, and Sarah Personette, its sales chief, left the company.

And though Musk flew to New York this week to allay advertising executives’ fears over content moderation, the ad giant IPG has joined the firms advising clients to temporarily suspend campaigns on the platform over just that.

In other Twitter news:

• Here’s a running list of celebrities who have said they’ll leave Twitter.

• U.S. officials are said to be deliberating whether they have the authority to review Musk’s takeover on national security grounds.

• Musk has reportedly pulled over 50 Tesla workers into Twitter-related duty — even though their skill sets aren’t compatible with Twitter’s systems.

The trillion-dollar club gets smaller

The great tech rout of 2022 continued on Tuesday as Amazon, a bellwether tech stock, fell 5.5 percent on fears about the slowing global economy and rising interest rates sapping consumer demand. In the past year, investors have dumped shares in Amazon, erasing about $700 billion from its market valuation.

Amazon is the third tech stock to crash out of the trillion-dollar club this year. Meta Platforms, Facebook’s parent company, is down 71 percent for the year, and is now valued at $252 billion, while Tesla is down nearly 42 percent and has a market cap of $719 billion. Only Apple, the Google parent Alphabet and Microsoft still have thirteen-digit valuations.

A reminder: Andy Jassy, who took over as Amazon C.E.O. last year, will join Andrew to discuss the future of its business at the DealBook Summit on Nov. 30.

“We’re all very pro-China … We are not reading the American press; we actually buy the story.”

— Colm Kelleher, the chair of UBS, responding to a top Chinese official at a bankers’ summit in Hong Kong today. Participants at the event were advised to discount unfavorable reports in international media about what’s happening in China.

Tallying the “Dobbs effect” for start-ups

After the Supreme Court overturned Roe v. Wade in June, start-ups focused on women’s health seized the moment to rally supporters of abortion rights. There are now emerging signs that investment dollars for these companies — which for years have been largely neglected by venture capitalists — are growing in the wake of Dobbs v. Jackson.

“Something changed,” Elizabeth Bailey, a managing director of the women’s health-focused venture firm RH Capital, told DealBook. RH Capital this week closed its oversubscribed second fund at $38.5 million — with more than a quarter of that amount coming in the few months after the Dobbs decision. “We simply had not seen that momentum previously,” Bailey added.

That said, some women’s health start-ups, particularly those focused on abortion access, are still reporting difficulties. The co-founder of Hey Jane, which provides abortion pills and which recently raised $6.1 million in new funding, said last month that many potential investors were wary of being entangled in politics.

Overall investment in women’s health start-ups is coming off a low baseline. Global investment in so-called “femtech” companies crossed $1 billion for the first time just last year, according to PitchBook. (Female-founded companies overall received only 2.4 percent of the nearly $330 billion of U.S. venture capital invested last year.)

Among the reasons for the low numbers is the historical dearth of female venture investors, leading mostly male-led firms to ignore start-ups focused on women’s health and concerns. Still, the trend lines are improving, as more women rise in the venture capital industry and investors recognize the market potential of femtech and related industries. “We are at least seeing things moving in the right direction,” Bailey said.

THE SPEED READ

Deals

• Qatar’s sovereign wealth fund reportedly plans to increase its stake in Credit Suisse as part of the Swiss bank’s financial turnaround. (FT)

• KKR said its third-quarter earnings fell 11 percent amid a slowdown in dealmaking. (Reuters)

• Washington sued Albertsons to stop the grocery chain from paying $4 billion in special dividends to shareholders before antitrust regulators review its planned sale to Kroger. (Bloomberg)

Policy

• U.S. banks reported handling more than $1 billion in potential ransomware payments last year, a record, according to the Treasury Department. (CNN)

• Truth Social, Donald Trump’s social media platform, is flourishing even as it faces dire business prospects. (NYT)

• Barclays has asked a British court to shut nearly 100 companies as it seeks to recover money from government-backed pandemic support loans it had extended. (Bloomberg)

Best of the rest

• Chinese authorities ordered a pandemic lockdown in a district of Zhengzhou that is home to the world’s largest iPhone factory. (BBC)

• Children’s hospitals in the United States are increasingly overwhelmed by cases of R.S.V., the respiratory illness. (NYT)

• Do you subscribe to Disney+? You might soon get access to exclusive Disney merchandise, too. (NYT)

• Where some of the quitters of the Great Resignation have ended up. (WaPo)

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