Finance

Customers carry their items after shopping at Costco in Washington D.C., May 5, 2021.
Ting Shen | Xinhua News Agency | Getty Images

Here are the stocks making notable moves in extended trading:
Costco — The wholesale membership club retailer was down about 2.8% after reporting fiscal fourth quarter earnings post-market, and saying it’s seeing higher labor and freight costs.

DocuSign — Shares were up 1.7% after the technology company named former Google executive Allan Thygesen its new CEO.
Guidewire — The software maker rose 0.9% after authorizing a $400 million buyback.
Scholastic — The education company fell 2% after reporting an 82% decline in fiscal first quarter operating income and 74% lower earnings before taxes. Revenue grew 1%.

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The heads of seven of the biggest U.S. banks, including JPMorgan Chase CEO Jamie Dimon and Citigroup’s Jane Fraser, are set to testify Thursday before the Senate Committee on Banking, Housing and Urban Affairs.
The hearing, which is focused on industry oversight, comes the day after the CEOs endured more than six hours of questioning from the House Financial Services Committee.

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The heads of seven of the biggest U.S. banks, including JPMorgan Chase CEO Jamie Dimon and Citigroup’s Jane Fraser, are set to testify Thursday before the Senate Committee on Banking, Housing and Urban Affairs.

The hearing, which is focused on industry oversight, comes a day after the CEOs endured more than six hours of questioning from the House Financial Services Committee.

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A woman holds a smartphone with the Robinhood logo in the background.
Rafael Henrique | Sopa Images | Lightrocket | Getty Images

Shares of retail brokerage Robinhood popped Thursday after a report that U.S. regulators would not ban payment for order flow, a key part of the company’s business model.
Bloomberg News reported that the Securities and Exchange Commission would stop short of banning payment for order flow, though the regulatory agency may still make rule changes that could lower the profitability of the practice.

Shares of Robinhood were up more than 8% in premarket trading.
Payment for order flow is a controversial practice that effectively allows market makers and brokerage firms to split the profit made on trades from retail customers. It is a key source of revenue for Robinhood and other low cost brokerage firms, and it helps them offer trading with no up-front cost.
SEC Commissioner Gary Gensler has been critical of the practice, questioning whether the payment relationships between market makers and brokerage firms was hurting the execution price for customer trades.
“Our markets have moved to zero commission, but it doesn’t mean it’s free. There’s still payment underneath these applications. And it doesn’t mean it’s always best execution,” Gensler told CNBC’s “Squawk on the Street” last year.
Robinhood and the SEC did not immediately respond to requests for comment.

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Check out the companies making headlines before the bell:
Accenture (ACN) – The consulting firm reported a better-than-expected quarterly profit and revenue, but gave a weaker-than-expected revenue forecast for the current quarter. Accenture pointed to IT spending cuts by corporate customers and a negative impact from the stronger dollar. Nonetheless, Accenture gained 1% in premarket trading.

Darden Restaurants (DRI) – The parent of Olive Garden and other restaurant chains fell 2.5% in the premarket after reporting in-line quarter results. Darden’s same-restaurant sales rose by 4.2%, short of the consensus FactSet estimate of 5.1%. Food and beverage costs also rose slightly more than expected.
KB Home (KBH), Lennar (LEN) – KB Home and Lennar both reported better-than-expected quarterly earnings, but the home builders also posted lower-than-expected revenue as a housing market slowdown weighed on new home orders. KB Home fell 1.7% in premarket trading, while Lennar gained 1%.
Salesforce (CRM) – Salesforce shares added 1.9% in the premarket after the business software giant unveiled a plan to operate more efficiently and increase profit margins. Salesforce is aiming for a 25% adjusted operating margin for fiscal 2026, compared with the 20% it had targeted for fiscal 2023.
Steelcase (SCS) – Steelcase reported a better-than-expected profit for its latest quarter, but the office furniture company’s revenue came in below estimates. the company also cut its outlook on slower-than-expected return-to-office trends. Steelcase fell 1% in the premarket.
Novavax (NVAX) – The drug maker’s stock slipped 6.1% in premarket trading after J.P. Morgan Securities downgraded it to “underweight” from “neutral”. The firm said the company’s recent guidance cut may not have gone far enough, given reduced vaccine demand as well as other factors.

H.B. Fuller (FUL) – H.B. Fuller rose 2.2% in premarket trading following a slight earnings beat and revenue that missed estimates. The industrial adhesives maker reported an increase in market share and raised the lower end of its fiscal 2022 earnings range.
Eli Lilly (LLY) – Eli Lilly rose 1.4% in premarket trading after the FDA approved its cancer drug Retevmo for new uses. Separately, UBS upgraded the drug maker’s stock to “buy” from “neutral” for several reasons, including a lowering of risks surrounding the Lilly weight loss drug tirzepatide.
FactSet Research (FDS) – The financial information services provider fell 7 cents shy of estimates with adjusted quarterly earnings of $3.13 per share. However, revenue exceeded Wall Street forecasts as FactSet reported an increase in organic revenue and annual subscription value.

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Housing is the world’s biggest asset class. But until recently renting out family homes was a mom-and-pop cottage business, seen as uninvestable by Wall Street. When Blackstone, a private-equity giant, floated the idea of creating vast portfolios of homes after the global financial crisis of 2007-09, banks refused to lend to it. The firm ran the idea by Sam Zell, a property mogul who sold Blackstone his $39bn office empire before the financial crisis. “No way,” he retorted. For an investor routinely splurging on hotel chains and swanky office towers, the buy-to-let business seemed like small fry by comparison. Blackstone went ahead despite Mr Zell’s advice. A decade on from the first purchase in Phoenix, Arizona—an outlay worth $100,000—the experiment has morphed into an institutional-grade asset class. Last year interest in the sector reached fever pitch. According to John Burns Real Estate Consulting, a research firm, big investors committed at least $45bn to buying single-family homes in America, up from $3bn the year before. Even as housing markets cool, investment is pouring in, with firms including Goldman Sachs and kkr following in Blackstone’s footsteps.It is easy to see why. Between 2016 and 2021, annual returns from family rentals (of 21%) have outperformed those of housing for old folk (7%), offices (5%), shopping malls (-1%) and even apartments (12%), according to Green Street, another research firm. In the past decade, the value of homes owned by institutions has doubled to $4.7trn, a figure that towers over the estimated value of America’s offices, at $1.9trn.Unlike mom-and-pop investors, who tend to own no more than a handful of homes, the biggest institutions hold tens of thousands, which are offered renovated and have around-the-clock maintenance. Invitation Homes, America’s largest family landlord, says it spends an average of $39,000 fixing up each one, kitting them out with new flooring, upgraded plumbing and the latest tech, such as video doorbells and smart locks.These goodies are attracting richer tenants. Between 2010 and 2018, those with incomes of above $75,000 accounted for three-quarters of the growth in renters. Covid-19 accelerated this, as bidding wars forced high-earners to rent. Invitation Homes says its residents now have an annual household income of above $131,000, nearly twice the country’s median.There is plenty of room for further expansion. In America, real-estate investment trusts (reits) own just 1% of single-family rentals, compared with 5-10% of offices and warehouses, 15% of housing for old people and 50% of shopping malls. Big investors are also starting to build more, rather than just buying up existing stock. Last year, they built a record 7,705 family units, up from an average of 5,500 in 2015-20. By 2030, MetLife Investment Management, an asset manager, expects institutions to have amassed 7.6m homes, more than two-fifths of all family rentals.The trend has also spread to Europe. Investors such as Aviva and Legal & General are building thousands of rental homes across Britain, which now has more than 73,000 “build to rent” properties. Institutional investors are also gobbling up property in Germany, Ireland, the Netherlands and the Nordic markets, which have higher shares of renters than other rich countries.What’s behind the explosive growth? One explanation is that ageing millennials offer a growing market. As they approach their late 30s and early 40s—a sweet spot for landlords—many want better schools for their children or space for pets, or finally have enough money to dump their housemates. In America, population growth in this age category will nearly double over the next five years. Ageing baby-boomers are also renting in higher numbers. In England, the proportion of those aged 55 to 64 who are renting has almost doubled since 2011.Declining housing affordability helps. Those unable to buy homes have little choice but to rent, meaning landlords are confident of their ability to find and keep new tenants, especially for entry-level homes. In America, at least 420,000 starter homes were built each year in the 1970s. Last year, just 93,000 were. Thus rents continue to climb. Across the country, those for family homes rose by more than 13% in June compared with a year earlier. In Orlando, they were up by 23%. In Miami, by more than a third. Despite rising rents, Wall Street landlords are not immune to economic uncertainty. Inflation means the cost of renovating and maintaining homes is rising. Invitation Homes says the amount it spent on these things rose by nearly 8% in the second quarter of this year. Construction costs have also risen, posing risk for investors building from scratch. Prices for building materials, including concrete, lumber and steel, have surged by 38% since the start of 2020. Interest-rate rises are another worry; as the market softens, investors are taking a more cautious approach. Home Partners of America, owned by Blackstone, announced in August that it would pause home purchases in 38 cities, markets that represent 5% of its activity. Economic cycles are inevitable. Rents are unlikely to continue to climb at a record pace. Yet history suggests that residential rents are more resilient than those from other property types, especially in periods when supply is tight. From 1974 to 1985, another period of high inflation, rents actually increased by 7-12% a year, notes Jay Parsons, an economist at RealPage, a data firm. Even as homebuyer demand crashed during the global financial crisis, demand from residential tenants did not waver. Although the housing splurge of institutional investors may calm a bit, it is unlikely to cease. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter. More

Speaking recently at the National Conservatism Conference in Miami, Peter Thiel, an investor and intellectual, made a provocative argument. He suggested that California suffers from a “tech curse”: a play on the “resource curse”, the notion that countries with abundant natural resources often have weak economies and corrupt political systems. If data is the new oil, then California is the new Saudi Arabia—even, he said, if things aren’t quite “as bad as Equatorial Guinea”. Mr Thiel made the Equatorial Guinea comparison with tongue firmly in cheek, but he was deadly serious about the tech-curse theory. At first glance it seems plausible. California’s tech industry has in recent years produced astonishing wealth. The state is also in many ways dysfunctional. Parts of downtown San Francisco resemble an open-air drug den. Many of the state’s public schools seem keener on talking about social justice than teaching children. Each year, one in every 100 Californians, on net, leaves for another state. Mr Thiel thinks that California’s poverty and prosperity are two sides of the same coin, with state and local governments providing the link. Public-sector employees draw on tech’s enormous tax revenues to overpay themselves and do no work, he says. The state’s tech moguls in effect buy off politicians, ensuring, for example, that they enact super-restrictive planning regulations to keep house prices high. It is in vogue to criticise both California and tech: doing both at the same time left the audience in raptures. There is also a grain of truth to what Mr Thiel says. But there are two big problems with his theory. Take the benefits offered by California’s tech industry first. Tech has, in fact, turned the state into a growth superstar, not a laggard. In the past five years, California’s state-level gdp has grown by 18%, the fourth-fastest rate in the country and a better performance than either Florida or Texas (see chart). Even subtracting tech, California’s growth was above average, according to our calculations. Less fashionable industries such as chemicals manufacturing have also done well in recent years. Many of the proceeds of this growth have gone on enormous mansions in Atherton and Los Altos, but they have also trickled down to a greater extent than Mr Thiel appreciates. Just over a decade ago the median Californian household had an income 7% higher than the median American one. Now their income is 15% higher. The unemployment rate, relative to the national average, has fallen. So has poverty. And there is little to suggest that the decline in joblessness or poverty is caused by poor people leaving the state.Mr Thiel also overstates tech’s costs. It is true that some of California’s politicians behave with nearly as much impunity as the Saudi elite. Yet anyone with a passing knowledge of Californian history knows that dirty dealing in politics long predates tech. San Francisco’s politics today is tame in comparison with the 1970s. It is similarly hard to blame tech for California’s housing market. The ratio of California’s average house price to America’s is much lower than in the mid-2000s. Meanwhile, California’s anti-building rules, the cause of sky-high prices, emerged with the environmentalist movement of the 1970s, not Mark Zuckerberg and Elon Musk. There is a lot to dislike about Big Tech, but it is not as malign as Mr Thiel believes. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter. More

Last summer people felt good. Unemployment was falling, wages were growing, and everyone could eat indoors and travel again. Little surprise, then, that consumer confidence across the rich world was above its long-term average. This summer has been very different. People are astonishingly downbeat—more so even than during the global financial crisis of 2007-09 or the first lockdowns of 2020 (see chart).What has changed? The obvious explanation is a once-in-a-generation surge in inflation. Across the oecd club of mostly rich countries, prices are rising by about 10% a year. Economists dislike inflation; the general public despises it. Many people think that price-gouging firms are taking them for fools. Yet high inflation is not a sufficient explanation for the gloominess. Our analysis finds that American consumer sentiment is about a third lower than you would expect given the rate of inflation. Behavioural economics offers three other potential explanations. The first is to do with expectations. In 2020 many pundits speculated that, once covid-19 was beaten, the world would enter the “roaring twenties”. So far, that hasn’t happened. Productivity growth remains low; no one owns a flying car. How could you not be disappointed? The second relates to the comedown from the stimulus bonanza. In 2020-21 rich-world governments doled out trillions of dollars to households, boosting disposable incomes by an unusually large amount. This year governments have largely stopped the handouts. Average disposable incomes are now falling, even without accounting for inflation. Nobody likes that. The third relates to the stimulus bonanza itself. A new working paper by Ania Jaroszewicz of Harvard University, and colleagues, finds tentative evidence that people who get modest cash payments of up to $2,000—the sort of amounts given out during the pandemic—actually become unhappier. These payments are not big enough to be life-changing, and may simply highlight what recipients are unable to afford. The fiscal response to covid, it seems, has a sting in its tail. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter. More

Good morning, and thank you for the invitation to Hieroglyph Capital Partners. You asked us to demonstrate our marketing skills by choosing an aspect of your branding to review. Now, this may be eccentric, but we’ve picked your tracker funds. Hieroglyph’s green-investment programme, its philanthropic work or its industry-leading quantitative analysts are all more obvious candidates for our attention. Tracker funds are dull, and deliberately so: they’re just algorithms that let your investors replicate the performance of stockmarket indices as cheaply as possible. Except for the choice of index, any one is just like all the others. But a nondescript product doesn’t preclude a strong brand—it demands one. Think of airlines. Or perfume. Or lager. More importantly, the boring reasons for preferring passive funds to actively managed ones are getting harder to sell. Investors are happy to buy a low-cost fund that indiscriminately tracks the market’s return when everything is heading in the right direction. But even if they know that virtually no active manager beats the market over the long-term, it gets harder to remember this when they’re losing money. This year, a lot of them have lost a lot. They’re starting to wonder if a good stockpicker could have sheltered them from the worst of it.Convince investors to associate a fund with a compelling brand, rather than just its fact sheet and Key Investor Document, and you stand a better chance of retaining them. A successful brand has three components. It is distinct from its peers, and it is relevant to your clients and their investment goals. Crucially, it also has “proof points”, or evidence that it delivers on its promises. Which brings us to our three case studies: Hieroglyph’s s&p 500 fund, tracking the index of large American stocks; the Nikkei 225 fund, tracking Japanese firms; and the ftse 100 fund, tracking the largest hundred companies listed in London.The s&p 500 fund already stands out. Investors know that it is weighted heavily towards tech firms, and that in Apple, Amazon and Alphabet it contains the biggest corporate victors of the past few decades. That lets them think of it as both a safe play—betting on established winners—and as a punt on the future. But its relevance and proof points are looking shaky. Investors like the idea of risk-taking, innovative firms, but only when their share prices are going up. So far this year the s&p 500 is down 20%. That’s not in line with anyone’s investment goals.The key is to play down the exciting, tech-driven, disruptive side of the s&p 500. Call it the “All American Fund” instead. The index captures four-fifths of America’s stockmarket value, after all. That makes it a proxy for the world’s biggest economy, one which is well-placed to weather a recession. Investors will be looking for reassurance if the market keeps falling. Give it to them.There is another fund that would benefit from a similar approach. Investors still associate Japanese stocks with deflation, weak corporate governance and the bubble of the 1980s. But today, inflation of just 3% makes Japan a safer bet than most economies. A weak yen ought to be good for its exporters, too. You could do worse than dusting off your Nikkei 225 fund and naming it the “Safe Haven Fund”. The ftse 100 fund is a thornier problem. Again, it stands out. The absence of tech firms and preponderance of “old economy” stocks—energy, mining and banks—is firmly lodged in investors’ minds. At the start of this year, this seemed like a good thing. Tech looked frothy; soaring commodity prices and rising interest rates were going to help the dinosaurs roar. If Britain’s economy and currency were shaky, no matter: most of the ftse’s earnings come from countries outside Britain.It hasn’t worked out. Measured in dollars the ftse 100 has fallen by 20% this year. To have dropped by the same as the s&p 500, after a decade of radically underperforming it, makes investors question whether London’s flagship index is good for anything at all. One answer is supposed to be its dividend yield, but at 3.7% that’s barely any better than Treasuries these days.Rather than rebranding, we’d advise taking this fund out of the spotlight. A brand can’t deliver unless the product can. As for relevance, the value of the entire index is less than that of Apple. Stop marketing it to your clients and you send them a message about Hieroglyph’s own brand: that you don’t try to sell investors things they don’t need.■Read more from Buttonwood, our columnist on financial markets:Why investors should forget about delayed gratification (Sep 15th)Emerging-market stocks are struggling in an intangible world (Sep 8th)Why investors are reaching for the astrology of finance (Sep 1st)For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter. More