Finance

U.S. President Joe Biden delivers the State of the Union address to a joint session of Congress in the House Chamber of the U.S. Capitol in Washington, U.S., March 7, 2024. 
Elizabeth Frantz | Reuters

President Joe Biden on Saturday signed a $460 billion spending bill into law, averting a partial government shutdown that would have taken effect this weekend.
This partial budget deal covers funding for six major areas of government, which encompass military and veterans affairs departments, agriculture, commerce, justice, transportation, housing and urban development and energy.

On Friday evening, the Senate had voted 75 to 22 to approve the package after the House passed it earlier this week.
The agreement marks a step forward in the push to secure a permanent budget plan for the rest of the fiscal year, which started Oct. 1.The other six appropriations bills that keep the rest of the government funded are due to expire March 22.
This is the fourth time this fiscal year that Congress has had to pass a short-term spending bill to keep the government funded and avert a shutdown.
Democrats have been pushing for the continued full funding of a special food assistance program for women, infants and children. They also secured wins on rent assistance and pay for infrastructure employees like air traffic controllers and railway inspectors.
Meanwhile, Republicans also considered the first half of funding package as a win as they declared victories on veterans’ gun ownership and funding cuts to government agencies like the Environmental Protection Agency, the FBI and the Bureau of Alcohol, Tobacco, Firearms and Explosives.
— CNBC’s Rebecca Picciotto contributed reporting. More

The top holdings of many ESG funds may be surprisingly familiar.
While these strategies consider a company’s environmental, social and governance factors, these funds still aim to invest in top performers across industry groups, DWS Group’s Arne Noack explained.

“The idea isn’t to be super concentrated and only select a handful of stocks that do the best from an ESG or from a climate principle, but [to] still have a portfolio that largely resembles the economic makeup of the US economy,” the firm’s head of systematic investment solutions for the Americas told CNBC’s “ETF Edge” earlier this week. 
Noack’s firm manages the Xtrackers MSCI USA Climate Action Equity ETF (USCA). Its top holdings include Nvidia, Amazon, Microsoft, Apple, Meta Platforms and Google’s parent company Alphabet — six of the “Magnificent Seven” mega-cap tech stocks that also lead ETFs that track the S&P 500.
ESG funds also tend to be more heavily invested in technology stocks because the sector is one of the “cleaner” industries, according to former VettaFi financial futurist Dave Nadig.
“If you solely look at climate as your window, you’ll probably not end up not owning a lot of energy companies, not owning a lot of miners [and] not owning a lot of steel companies,” Nadig said. “So, you end up with something that looks like services, health care and technology, which is a very strong bet to take.”
Information technology stocks currently account for more than 30% of USCA’s allocation, according to Xtracker’s website. That’s more than double the fund’s second largest sector allocation — 13.5% in health care.

But Noack considers the idea that ESG funds only invest in clean, sustainable sectors as misleading. 
“There’s sometimes a misperception that ESG funds cannot invest in energy companies. That’s absolutely wrong. Energy is a vital component of our economy,” he said. 
Is ESG still relevant?
Global ESG funds saw their first net quarterly outflows on record in the fourth quarter of 2023, according to Morningstar. However, Nadig points out while financial advisors may have pulled back from recommending ESG funds to clients, investor interest hasn’t gone anywhere. 
“[Advisors] pulled back. They probably aren’t coming back. The demand from individuals, however, never really waned,” Nadig said. “What went away was the hot money of people thinking this was going to be a momentum kind of play. It’s not a momentum play. This is a long-term way of approaching your allocation.”
The Xtrackers MSCI USA Climate Action Equity ETF is up nearly 9% so far this year.
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Foreign visitors to China can now spend up to $2,000 a year using the mobile app Alipay without having to register their ID, the app operator said Friday.
Ant Group also announced that for international travelers who do register their ID with Alipay, they can use the app for single-transactions as large as $5,000, up from $1,000 previously.
The changes in those transaction amounts follow announcements this month from the People’s Bank of China for such increases.

Scanning QR codes with a mobile pay app has become the most common way to pay in mainland China.
Bloomberg | Bloomberg | Getty Images

BEIJING — Foreign visitors to China can now spend up to $2,000 a year using the mobile app Alipay without having to register their ID, the app operator said Friday.
That’s four times more than the previous limit of $500, a move that will impact international tourists the most. The number of foreign travelers to China had declined after the country temporarily imposed strict border controls during the pandemic.

The increased transaction limit reflects Beijing’s push this year to make it easier for foreign travelers to pay for daily purchases in a country in which mobile payment has become ubiquitous.
However, stringent real-name verification policies have often made it difficult for foreign visitors to China to use mobile pay.
Alipay, operated by Alibaba-affiliate Ant Group, is one of two major mobile payment apps in China. Tencent-owned WeChat Pay operates the other commonly used app.
Tencent did not confirm an exact figure for ID-free transactions using WeChat Pay, but noted foreigners could complete some payments without registering their ID.
Ant also announced Friday that international travelers who register their ID with Alipay can use the app for single transactions as large as $5,000, up from $1,000 previously.

The annual transaction limit for those who register their IDs is now $50,000 — five times more than the previous cumulative amount of $10,000, Ant said.
The changes in transaction amounts follow announcements this month from the People’s Bank of China for such increases.
Ant said the changes apply to foreign visitors to China who download Alipay, or who use 10 specific overseas mobile pay apps.
The program, called Alipay+, lets existing users of certain mobile payment apps from Singapore, South Korea, Thailand, Malaysia, Mongolia, Hong Kong and Macao scan Alipay QR codes directly to pay in China.
In early February, People’s Bank of China Deputy Governor Zhang Qingsong told CNBC that foreign visitors using Alipay or WeChat Pay did not need to provide ID information if the annual transaction volume was below $500.
“We are also looking at the possibility of raising the $500 threshold in the future,” he said at the time. More

Fed Chair Jerome Powell said inflation is “not far” from where it needs to be for the central bank to start cutting interest rates.
“I think we’re in the right place,” Powell said of the current policy stance.

Federal Reserve Chairman Jerome Powell testifies during the Senate Banking, Housing and Urban Affairs Committee hearing titled “The Semiannual Monetary Policy Report to the Congress,” in Dirksen Building on Thursday, March 7, 2024.
Tom Williams | Cq-roll Call, Inc. | Getty Images

Federal Reserve Chair Jerome Powell on Thursday indicated that interest rate cuts may not be too far off if inflation signals cooperate.
In remarks to the Senate Banking Committee, the central bank leader didn’t provide a precise timetable of when he sees easing happening, but noted that the day could be coming soon.

“We’re waiting to become more confident that inflation is moving sustainably at 2%. When we do get that confidence, and we’re not far from it, it’ll be appropriate to begin to dial back the level of restriction,” Powell said in response to a question about rates and inflation. He said the cuts would be so the Fed doesn’t “drive the economy into recession rather than normalizing policy as the economy gets back to normal.”
Powell spoke at a time when financial markets have swung considerably in their expectations on Fed policy.
At the beginning of the year, futures traders were betting the Fed would start in March and keep going until it had cut six or seven times this year. The outlook now is for the first cut to come in June, with four reductions totaling a full percentage point by the end of 2024.
Inflation data recently has indicated the pace of price increases is continuing to slow, though the consumer price index rattled markets when it came in higher than expected for January. Still, Powell noted in congressional testimony this week that inflation is progressing lower, though not at the point yet where the Fed is ready to cut.
“I think we’re in the right place,” Powell said of the current policy stance. More

Skittish investors may feel it’s better to bail on the stock market than stay invested during volatile periods.
However, investors generally lose out on significant returns by doing so, according to a Wells Fargo analysis.
Markets are unpredictable. Plus, the best and worst days tend to cluster, making it nearly impossible to time the market.

Konstantin Trubavin | Cavan | Getty Images

Investor psychology can be fickle. Consider this common scenario: The stock market hits a rough patch, and skittish investors bail and park their money on the sidelines, thinking it a “safer” way to ride out the storm.
However, the math suggests — quite convincingly — that this is usually the wrong strategy.

“Getting in and out of the market, it’s a loser’s game,” said Lee Baker, a certified financial planner and founder of Apex Financial Services in Atlanta.
Why? Pulling out during volatile periods may cause investors to miss the market’s biggest trading days — thereby sacrificing significant earnings.

Over the past 30 years, the S&P 500 stock index had an 8% average annual return, according to a recent Wells Fargo Investment Institute analysis. Investors who missed the market’s 10 best days over that period would have earned 5.26%, a much lower return, it found.
Further, missing the 30 best days would have reduced average gains to 1.83%. Returns would have been worse still — 0.44%, or nearly flat — for those who missed the market’s 40 best days, and -0.86% for investors who missed the 50 best days, according to Wells Fargo.
Those returns wouldn’t have kept pace with the cost of living: Inflation averaged 2.5% from Feb. 1, 1994 through Jan. 31, 2024, the time period in question.

Markets are quick and unpredictable

In short: Stocks saw most of their gains “over just a few trading days,” according to the Wells Fargo report.
“Missing a handful of the best days in the market over long time periods can drastically reduce the average annual return an investor could gain just by holding on to their equity investments during sell-offs,” it said.
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Unfortunately for investors, it’s almost impossible to time the market by staying invested for the winning days and bailing ahead of losing days.
Markets can react unpredictably — and speedily — to unknowable factors like the strength or weakness of a monthly jobs report or inflation reading, or the breakout of a geopolitical conflict or war.
“The markets not only are unpredictable, but when you have these moves, they happen very quickly,” said Baker, a member of CNBC’s Advisor Council.

The best and worst days tend to ‘cluster’

Part of what also makes this so tricky: The S&P 500’s best days tend to “cluster” in recessions and bear markets, when markets are “at their most volatile,” according to Wells Fargo. And some of the worst days occurred during bull markets, periods when the stock market is on a winning streak.
For example, all of the 10 best trading days by percentage gain in the past three decades occurred during recessions, Wells Fargo found. (Six also coincided with a bear market.)

Some of the worst and best days followed in rapid succession: Three of the 30 best days and five of the 30 worst days occurred in the eight trading days between March 9 and March 18, 2020, according to Wells Fargo.
“Disentangling the best and worst days can be quite difficult, history suggests, since they have often occurred in a very tight time frame, sometimes even on consecutive trading days,” its report said.
The math argues strongly in favor of people staying invested amid high volatility, experts said.

Getting in and out of the market, it’s a loser’s game.

certified financial planner and founder of Apex Financial Services in Atlanta

For further proof, look no further than actual investor profits versus the S&P 500.
The average stock fund investor earned a 6.81% return in the three decades from 1993 to 2022 — about three percentage points less than the 9.65% average return of the S&P 500 over that period, according to a DALBAR analysis cited by Wells Fargo.
This suggests investors often guess wrong, and that their profits dip as a result.
“The best advice, quite frankly, is to make a strategic allocation across multiple asset classes and effectively stay the course,” Baker said. More

New York Community Bank said Thursday it lost 7% of its deposits in the turbulent month before announcing a $1 billion-plus capital injection from investors led by former Treasury Secretary Steven Mnuchin’s Liberty Strategic Capital.
The bank had $77.2 billion in deposits as of March 5, NYCB said in an investor presentation tied to the capital raise, down from $83 billion it had as of Feb. 5.
NYCB also said it’s slashing its quarterly dividend for the second time this year, to 1 cent per share from 5 cents, an 80% drop.

New York Community Bank said Thursday it lost 7% of its deposits in the turbulent month before announcing a $1 billion-plus capital injection from investors led by former Treasury Secretary Steven Mnuchin’s Liberty Strategic Capital.
The bank had $77.2 billion in deposits as of March 5, NYCB said in an investor presentation tied to the capital raise. That was down from $83 billion it had as of Feb. 5, the day before Moody’s Investors Service cut the bank’s credit ratings to junk.

NYCB also said it’s slashing its quarterly dividend for the second time this year, to 1 cent per share from 5 cents, an 80% drop. The bank paid a 17-cent dividend until reporting a surprise fourth-quarter loss that kicked off a negative news cycle for the Long Island-based lender.
Before announcing a crucial lifeline Wednesday from a group of private equity investors led by Mnuchin’s Liberty Strategic Capital, NYCB’s stock was in a tailspin over concerns about the bank’s loan book and deposit base. In a little more than a month, the bank changed its CEO twice, saw two rounds of rating agency downgrades and announced deepening losses.
At its nadir, NYCB’s stock sank below $2 per share Wednesday, down more than 40%, before ultimately rebounding and ending the day higher. The shares climbed 10% in Thursday morning trading.
The capital injection announced Wednesday has raised hopes that the bank now has enough time to resolve lingering questions about its exposure to New York-area multifamily apartment loans, as well as the “material weaknesses” around loan review that the bank disclosed last week.

‘Very attractive’ bank

Mnuchin told CNBC in an interview Thursday that he started looking at NYCB “a long time ago.”

“The issue was really around perceived risks in the loans, and with putting billion dollars of capital into the balance sheet, it really strengthens the franchise and whatever issues there are in the loans we’ll be able to work through,” Mnuchin told CNBC’s “Squawk on the Street.”
“I think there’s a great opportunity to turn this into a very attractive regional commercial bank,” he added.
Mnuchin said that he did “extensive diligence” on NYCB’s loan portfolio and that the “biggest problem” he found was its New York office loans, though he expected the bank to build reserves over time.
“I don’t see the New York office working out or getting better in the future,” Mnuchin said.

Shrinking lender?

Incoming CEO Joseph Otting, a former comptroller of the currency, told analysts Thursday that the bank would look to strengthen its capital and liquidity levels and reduce its concentration in commercial real estate loans.
NYCB will likely have to sell assets as well as build reserves and take write-downs, according to Piper Sander analysts led by Mark Fitzgibbon.
The bank, which has $116 billion in assets, is evaluating whether it should reduce assets to below the key $100 billion threshold that brings added regulatory scrutiny on capital and risk management, executives said Thursday.
When asked by an analyst about the feared exit of deposits after ratings agency downgrades, NYCB Chairman Alessandro DiNello said the bank got “waivers” that allowed it to keep custodial accounts that otherwise may have fled.
“Now I think given this capital raise, we’re hopeful that that relationship continues to be the way it is,” DiNello said.
While news of the Mnuchin investment is good for regional banks overall, Wells Fargo analyst Mike Mayo cautioned that the cycle for commercial real estate losses was just beginning as loans come due this year and next, which will probably cause more problems for lenders.
— CNBC’s Laya Neelakandan and Ritika Shah contributed to this report.
Correction: New York Community Bank announced an investment from a group of private equity investors on Wednesday. An earlier version of this story misstated the day.

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European Central Bank President Christine Lagarde is giving a press conference following the bank’s latest monetary policy decision.

It comes after the bank’s policymakers lowered their annual growth forecast, as they confirmed a widely expected hold of interest rates.
ECB staff projections now see economic growth of 0.6% in 2024, from a prior forecast of 0.8%. Their inflation forecast for the year was brought to 2.3% from 2.7%.
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