Raphael Stevens

Check out the companies making headlines before the bell:
Dollar General (DG) – Dollar General rallied 5% in the premarket after the discount retailer forecast better-than-expected full-year sales. Dollar General’s quarterly earnings of $2.57 per share matched forecasts, although revenue was slightly below estimates and same-store sales fell more than expected. The company also raised its dividend by 31%.

Accenture (ACN) – Accenture jumped 5.3% in premarket trading after beating top and bottom-line estimates for its latest quarter and forecasting current-quarter revenue above current analyst forecasts. The consulting firm earned $2.54 per share for its most recent quarter, compared with the $2.37 consensus estimate.
Signet Jewelers (SIG) – The jewelry retailer’s stock surged 7.4% in premarket action after it reported quarterly results. Signet’s adjusted earnings of $5.01 per share matched analyst forecasts, while revenue and same-store sales exceeded estimates. Signet also raised its quarterly dividend to 20 cents from 18 cents.
Warby Parker (WRBY) – Warby shares slumped 13.4% in the premarket after the eyewear retailer forecast 2022 revenue that fell short of consensus. For its latest quarter, Warby Parker reported an adjusted loss of 8 cents per share, 1 cent smaller than expected, with revenue matching analyst forecasts.
Lennar (LEN) – The homebuilder reported quarterly earnings of $1.69 per share for its fiscal first quarter, missing the $2.60 consensus estimate. Revenue beat analyst forecasts on strong demand and higher prices, but the bottom line was hit by higher costs for materials and labor. Lennar added 1% in premarket trading.
Williams-Sonoma (WSM) – Williams-Sonoma earned an adjusted $5.42 per share for its latest quarter, beating the $4.82 expected by Wall Street analysts, even as the housewares retailer’s revenue fell slightly short of estimates. The company said it was able to navigate supply chain challenges and material and labor shortages. Williams-Sonoma surged 7.6% in the premarket.

PagerDuty (PD) – PagerDuty lost an adjusted 4 cents per share for its latest quarter, 2 cents less than analysts were anticipating, with the digital operations platform provider’s revenue also exceeding Street forecasts. PagerDuty also issued an upbeat revenue forecast, and its stock soared 13.6% in premarket trading.
Occidental Petroleum (OXY) – Berkshire Hathaway (BRK.B) bought another 18.1 million shares of Occidental, according to an SEC filing. That brings Berkshire’s holdings in the energy producer to 136.4 million shares, or about a 14.6% stake. Occidental shares rose 3.6% in premarket trading.
Guess (GES) – Guess reported adjusted quarterly earnings of $1.14 per share, one cent below estimates, while the apparel maker’s revenue also fell short of Street forecasts. However, profit margins were better than anticipated, and the stock jumped 4.9% in the premarket.

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Lloyd’s of London has fined its syndicate member firm Atrium Underwriters £1.05 million ($1.38 million).
Lloyd’s brought three charges of “detrimental conduct” against Atrium, including bullying and heavy drinking.
In addition to the fine, Atrium agreed to pay Lloyd’s £562,713.50 in costs.

The interior of Lloyd’s of London, the centuries-old insurance market, is pictured in central London on April 27, 2016.
Leon Neal | AFP | Getty Images

LONDON — Lloyd’s of London, the U.K. insurance giant, has hit one of its member firms with a record £1.05 million ($1.38 million) fine for misconduct, which included allowing an annual inappropriate “boys’ night out” for a number of years.
Lloyd’s said in a notice of censure, published Wednesday, that its syndicate member firm Atrium Underwriters had accepted three charges of “detrimental conduct.”

One of the charges was for “sanctioning and tolerating over a period of a number of years up until 2018 an annual ‘Boys’ Night Out’ during which some male members of staff, (including two senior executives in leadership roles) engaged in unprofessional and inappropriate conduct.”
This included “initiation games, heavy drinking and making inappropriate and sexualised comments about female colleagues.”

‘No adequate steps were taken’

Lloyd’s also charged Atrium because it failed to notify the insurer about the facts relating to the misconduct of one of its members of staff, referred to in the document as “Employee A.”
In addition, the notice stated that Employee A’s conduct was well known with Atrium, “but no adequate steps were taken to deal with it.”
“Employee A’s behaviour included a systematic campaign of bullying against a junior employee over a number of years,” Lloyd’s said, adding that Atrium failed to protect the junior member of staff once it became aware of the bullying.

Lloyd’s said that Atrium failed to acknowledge or challenge Employee A’s behavior, “motivated in part by the desire of senior managers to protect Atrium from bad publicity.”
The employee who complained about Employee A was also instructed not to speak about Atrium’s investigation into the misconduct or the allegations made.
The notice said that because Atrium had settled these proceedings at the “earliest opportunity,” Lloyd’s Enforcement Board accepted a 30% discount on the fine, which otherwise would have been £1.5 million. Even so, Lloyd’s said in a separate statement that this was still the largest ever fine imposed in its 336-year history.
In addition to the fine, Atrium agreed to pay Lloyd’s £562,713.50 in costs.

Lloyd’s CEO John Neal said the firm was “deeply disappointed by the behaviour highlighted by this case, and I want to be clear that discrimination, harassment and bullying have no place at Lloyd’s.”
He said that all Lloyd’s employees should “expect to work in a culture where they feel safe, valued, and respected.”
An independent survey of workers within the “Lloyd’s market,” published in September 2019, found that 8% had witnessed sexual harassment during that past year, but just 45% said they felt comfortable raising their concerns.
The survey was commissioned by Lloyd’s on the back of reports of sexual harassment within the business. It also found that 22% of respondents had seen people in their organization turn a blind eye to inappropriate behavior.

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Berkshire Hathaway class A shares achieved a key milestone Wednesday, hitting an all-time closing high of half a million dollars as Warren Buffett’s multifaceted conglomerate fires on all cylinders during the economic recovery.
The class A shares gained 1.3% Wednesday, rising for a fourth straight day to close at $504,400 — its first-ever close above the half-million dollar threshold. Shares of the Omaha-based company have rallied more than 11% this year, significantly outperforming the broader market.

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“I think a rotation into value names, coupled with Berkshire’s exposure to the energy and utility space … and investors’ enthusiasm for Berkshire’s aggressive share buybacks drove the shares’ performance,” said Cathy Seifert, a Berkshire analyst at CFRA Research.
The rally in the stock pushed Berkshire’s market cap above $730 billion, surpassing tech pioneer Meta Platforms in market value and becoming only non-tech companies on the list of 10 most valuable U.S. public companies.

Arrows pointing outwards

Berkshire’s Class A shares are the conglomerate’s original offering, which rapidly ballooned over time in price to eventually become one of the most expensive single stocks on Wall Street. Buffett has said he will never split the Class A shares because he believes the high share price will keep and attract more long-term, quality-oriented investors.
Still, in response to demand for a cheaper option among small investors, Berkshire issued convertible Class B shares in 1996 for one thirtieth of Class A share price initially. The affordable share class allows investors to purchase a piece of the company directly instead of buying a fraction of a share through unit trusts or mutual funds.
Berkshire’s Class B shares closed at $336.11 apiece on Wednesday, rising a similar 12% this year.

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The company’s operating earnings — which encompass profits made from the myriad of businesses owned by the conglomerate like insurance, railroads and utilities — jumped 45% from a year ago in the fourth quarter as businesses continued to roar back to life from the pandemic economic slowdown.
A slew of Buffett’s stock holdings are also paying off handsomely, from Apple to big banks and Japanese trading houses. The 91-year-old investing legend’s massive bet on Apple, which makes up 40% of Berkshire’s equity portfolio, has made more than $120 billion on paper.
Meanwhile, Berkshire has further supported the stock by repurchasing a record $27 billion of its own shares in 2021 as the “Oracle of Omaha” found few opportunities externally. The conglomerate hasn’t pulled off any big acquisitions in recent years so has consistently bought back its own shares with its massive cash pile.

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The Fed approved a 0.25 percentage point rate hike, the first increase since December 2018.
Officials indicated an aggressive path ahead, with rate rises coming at each of the remaining six meetings in 2022.
Members also pared expectations for economic growth this year and sharply raised their outlook for inflation.

The Federal Reserve on Wednesday approved its first interest rate increase in more than three years, an incremental salvo to address spiraling inflation without torpedoing economic growth.
After keeping its benchmark interest rate anchored near zero since the beginning of the Covid pandemic, the policymaking Federal Open Market Committee said it will raise rates by a quarter percentage point, or 25 basis points.

That will bring the rate now into a range of 0.25%-0.5%. The move will correspond with a hike in the prime rate and immediately send financing costs higher for many forms of consumer borrowing and credit. Fed officials indicated the rate increases will come with slower economic growth this year.
Along with the rate hikes, the committee also penciled in increases at each of the six remaining meetings this year, pointing to a consensus funds rate of 1.9% by year’s end. That is a full percentage point higher than indicated in December. The committee sees three more hikes in 2023 then none the following year.
The rate rise was approved with only one dissent. St. Louis Fed President James Bullard wanted a 50 basis point increase.
The committee last raised rates in December 2018, then had to backtrack the following July and begin cutting.

In its post-meeting statement, the FOMC said it also “anticipates that ongoing increases in the target range will be appropriate.” Addressing the Fed’s nearly $9 trillion balance sheet, made up mainly of Treasurys and mortgage-backed securities it has purchased over the years, the statement said, “In addition, the Committee expects to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities at a coming meeting.”

Fed Chairman Jerome Powell at his post-meeting news conference hinted that the balance sheet reduction could start in May, and said the process could be the equivalent of another rate hike this year.

The indication of about 175 basis points in rate increases this year was a close call: The “dot plot” of individual members’ projections showed eight members expecting more than the seven hikes, while 10 thought that seven total in 2022 would be sufficient.
“We are attentive to the risks of further upward pressure on inflation and inflation expectations,” Powell said at the news conference. “The committee is determined to take the measures necessary to restore price stability. The U.S. economy is very strong and well-positioned to handle tighter monetary policy.”
Officials also adjusted their economic outlook on multiple fronts, seeing much higher inflation than they expected in December and considerably slower GDP growth.

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Committee members bumped up their inflation estimates, expecting the personal consumption expenditures price index excluding food and energy to reflect 4.1% growth this year, compared with the 2.7% projection in December 2021. Core PCE is expected to be 2.7% and 2.3%, respectively, in the next two years before settling to 2% over the longer term.
“Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures,” the statement said.
On GDP, December’s 4% was sliced to 2.8%, as the committee particularly noted the potential implications of the Ukraine war. Subsequent years were unchanged. The committee still expects the unemployment rate to end this year at 3.5%.
“The invasion of Ukraine by Russia is causing tremendous human and economic hardship,” the statement said. “The implications for the U.S. economy are highly uncertain, but in the near term the invasion and related events are likely to create additional upward pressure on inflation and weigh on economic activity.”
Stocks initially reacted negative to the announcement but then bounced back. Bond yields momentarily moved higher, with the benchmark 10-year Treasury note rising to 2.22% before receding.

“Ultimately, they’ve come through with a clear message, that the Fed has a path forward to continue to tighten in response to this overwhelming concern around inflation,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors. “The question is, will it be enough and are they even recognizing that they’ve … perhaps fallen behind the curve?”

Changing course

The central bank had slashed its federal funds rate in the early days of the pandemic to combat a shutdown that crippled the U.S. economy and financial markets while sending 22 million Americans to the unemployment line.
But myriad factors have combined to force the Fed’s hand on inflation, a condition that policymakers last year dismissed as “transitory” before capitulating. Officials over the past two months have strongly indicated that interest rate hikes are coming, with the main question left for investors being how many increases and how quickly they would come.
The current trend of price increases, at their fastest 12-month pace in 40 years, has been fed by demand that has far outstripped supply chains that remain clogged if less so than their pandemic-era peaks. Unprecedented levels of fiscal and monetary stimulus — more than $10 trillion worth – have coincided with the inflation surge. And the Ukraine war has coincided with a major spike in oil prices, though that has abated in recent days.
Heading into this week’s FOMC meeting, markets had been pricing in the equivalent of about seven 0.25% hikes this year, according to CME Group data. However, traders were split about 50-50 over whether the Fed might hike 50 basis points in May, as some officials have indicated could happen if inflation pressures persist.
Prices are up 7.9% year over year, according to the consumer price index, which measures a wide-ranging basket of goods and services. Energy has been the biggest burden, as gasoline prices have risen 38% in the 12-month period.

However, price pressures have broadened out from simply gas and groceries.
For instance, clothing prices, after plummeting in the early days of the pandemic, have risen 6.6% over the past year. Motor vehicle repair costs are up 6.3% and airline fares have jumped 12.7%. Rent of shelter costs, which make up nearly one-third of the CPI, have been moving up sharply in recent months and are up 4.8% year over year.
All of those cost increases have left the Fed’s 2% inflation target in the dust.
The Fed in September 2020 approved a new approach to inflation, in which it would let it run hotter in the interest of a full and, most notably, inclusive employment goal that spans across race, gender and wealth. However, the change in approach was followed almost immediately by more pernicious inflation than the U.S. economy had seen since the days of the Arab oil embargo and inflation that peaked in the early 1980s at nearly 15%.
In those days, the Paul Volcker-led Fed had to jack up interest rates to a point where they tipped the economy into recession, something central bankers now want to avoid. Back then, the funds rate eclipsed 19%.
Baird said the Fed will need to live up to its promise to be “nimble” if it is to continue to assuage market fears about runaway inflation.
“Will the path that they’ve laid out be enough to bring inflation back down to more comfortable levels in some reasonable time frame? The possibility certainly exists that they could get more aggressive,” he said.

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