Finance

Traders work on the floor of the New York Stock Exchange (NYSE) in New York, April 6, 2022.
Brendan McDermid | Reuters

Stock futures were flat in overnight trading Wednesday after a two-day losing streak for the major averages as investors digested the Federal Reserve’s plans to tighten monetary policy.
Futures on the Dow Jones Industrial Average dipped 30 points. S&P 500 futures inched 0.1% lower and Nasdaq 100 futures were little changed.

The back-to-back sell-off came as Fed meeting minutes showed that officials planed to reduce their trillions in bond holdings with a consensus amount around $95 billion. Meanwhile, policymakers indicated that one or more 50-basis-point interest rate hikes could be warranted to battle surging inflation.
“The minutes from the latest FOMC meeting portray a higher level of urgency than previous communication as the Fed has circled on a commitment to run the balance sheet down faster than market participants may have expected,” said Charlie Ripley, senior investment strategist at Allianz Investment Management.
Officials “generally agreed” that a maximum of $60 billion in Treasurys and $35 billion in mortgage-backed securities would be allowed to roll off, phased in over three months and likely starting in May. 
On Wednesday, the blue-chip Dow fell more than 100 points, while the S&P 500 slid 1%. The tech-heavy Nasdaq Composite dropped another 2.2%, bringing its week-to-date losses to 2.6%.
“It does seem like they are talking up the possibility of raising rates by 50 basis points at the next meeting so the hope is that message is well telegraphed in advance,” said Brian Price, head of investment management at Commonwealth Financial Network. “I expect that volatility will remain elevated for the time being as there is a lot of uncertainty for investors to digest right now.”   

Investors await the weekly jobless claims data Thursday morning, which is expected to show a total of 200,000 claims filed.
Shares of Levi Strauss & Co. rose more than 1% in extended trading Wednesday after the denim retailer reported its quarterly earnings and revenue that topped analysts’ estimates.

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A JetBlue passenger jet (Embraer 190) taxis at LaGuardia Airport in New York, New York.
Robert Alexander | Archive Photos | Getty Images

Check out the companies making headlines in midday trading Wednesday.
JetBlue — Shares of JetBlue fell another 8.7% on Wednesday, as investors weighed the airline’s $3.6 billion cash offer to take over rival Spirit Airlines. The move also comes after Raymond James downgraded JetBlue to market perform from outperform. Spirit Airlines shares fell more than 2%.

Eli Lilly — The pharmaceutical stock gained 4.6% after Morgan Stanley named Eli Lilly a top pick. The investment firm said Eli Lilly had the “most robust new product cycle” outlook in the industry.
Tilray — Tilray rose 3.1% after reporting an unexpected profit in its latest quarter. Tilray also announced a deal with supermarket chain Whole Foods, which will sell the hemp powders produced by the company’s Manitoba Harvest subsidiary.
Rivian — Shares of the electric vehicle company fell 5% after Rivian said it was on pace to achieve its previously stated production target of 25,000 electric vehicles this year.
Occidental Petroleum — The energy producer’s shares added 0.7% after Stifel initiated coverage with a buy rating. Stifel said Occidental remains “attractively valued” even after the stock is the best-performing name in the S&P 500 this year.
Intel — Intel’s stock fell 1.2% after the chip maker announced it suspended business operations in Russia. Last month, Intel halted semiconductor shipments to customers in Russia and Belarus.

Twitter — Shares of the social media company fell slightly after rising for three straight days. The stock surged earlier this week, as investors grew optimistic about Elon Musk’s big investment in the company. Musk will join its board of directors, and he teased “significant improvements” in the coming months.
— CNBC’s Jesse Pound and Yun Li contributed reporting.

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Check out the companies making headlines before the bell:
Twitter (TWTR) – Twitter fell 1.5% in premarket trading, potentially breaking a three-day win streak that has seen it gain nearly 32%. Elon Musk – now Twitter’s largest shareholder – changed the type of SEC filing regarding his share purchase to show it was not “passive.”

Spirit Airlines (SAVE) – Spirit said its board will consider a new $3.6 billion cash takeover offer from JetBlue (JBLU). Spirit had agreed in February to be bought by Frontier Airlines parent Frontier Group (ULCC) for $2.9 billion in cash and stock. Spirit slid 2.8% in the premarket, with JetBlue dropping 3.7% and Frontier falling 3.9%.
Tilray (TLRY) – Tilray rose 2.1% in the premarket after reporting an unexpected profit for its latest quarter, even as revenue fell below analyst estimates. The cannabis producer also announced a deal with supermarket chain Whole Foods, which will sell the hemp powders produced by Tilray’s Manitoba Harvest subsidiary.
Rivian (RIVN) – Rivian shares gained 1.7% in the premarket after the company said it was on pace to achieve its previously stated production target of 25,000 electric vehicles this year.
Occidental Petroleum (OXY) – The energy producer’s shares added 1.7% in premarket action after Stifel Financial began coverage with a “buy” rating. Stifel said Occidental remains attractively priced even after it nearly doubled so far this year, noting a largely underappreciated low carbon business.
Intel (INTC) – Intel announced it suspended business operations in Russia, following last month’s suspension of semiconductor shipments to customers in Russia and Belarus. Intel fell 1.1% in premarket trading.

Gogo (GOGO) – Gogo surged 10.4% in premarket trading after the aviation industry broadband provider announced its stock would join the S&P SmallCap 600 index prior to Friday’s open.
Array Technologies (ARRY) – Array Technologies rallied 14.5% in the premarket after the renewal energy equipment maker reported better-than-expected quarterly revenue and issued an upbeat revenue outlook. It also named Kevin Hostetler as its new CEO, effective April 18, replacing the retiring Jim Fusaro.
Simply Good Foods (SMPL) – The maker of nutritional foods and snacks reported better-than-expected profit and revenue for its latest quarter and raised its sales forecast for the current year.

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Fed Governor Lael Brainard and San Francisco Fed President Mary Daly spoke Tuesday, emphasizing the central bank’s commitment to fighting inflation through higher interest rates.
“It is of paramount importance to get inflation down,” Brainard said.
Raising rates “is what is necessary to ensure that again, [you] go to bed at night, you’re not worrying about whether prices will be higher, considerably higher tomorrow,” Daly added.

If there was any question about where the Federal Reserve stands on the key issue of the day — inflation — two important officials brought even more clarity on Tuesday.
Fed Governor Lael Brainard and San Francisco Fed President Mary Daly both issued comments that showed they both envision higher rates and, in the former’s case, an aggressive drawdown of the assets the central bank is holding on its balance sheet.

Investors didn’t particularly like what they heard, sending major averages considerably lower on the day and the 10-year Treasury yield to a new 2022 high.

Lael Brainard, governor of the U.S. Federal Reserve, speaks during a Senate Banking, Housing, and Urban Affairs Committee confirmation hearing in Washington, D.C., U.S., on Thursday, Jan. 13, 2022.
Al Drago | Bloomberg | Getty Images

“It is of paramount importance to get inflation down,” Brainard said during a Minneapolis Fed webinar. The Federal Open Market Committee, which sets interest rates, “will continue tightening monetary policy methodically through a series of interest rate increases and by starting to reduce the balance sheet at a rapid pace as soon as our May meeting.”
The comments helped knock down a positive opening on Wall Street that ultimately turned into a nearly 1% loss for the Dow Jones Industrial Average. The more aggressive Fed chatter also comes as the 30-year fixed mortgage rate topped 5%, a key threshold which could slow the housing market.

‘We’re not going to let this go forever’

Later in the day, Daly said inflation running at a 40-year high “is as harmful as not having a job.” Speaking to the the Native American Finance Officers Association, she assured the group that the Fed is on the case.
“Most Americans, most people, most businesses, hopefully people in tribal nations, you all have confidence that we’re not going to let this go forever,” Daly said. “But if you don’t have that confidence, let me give it to you.”

She assured those in attendance several times that interest rates are heading higher, though she added that she doesn’t think it will cause a recession.
Raising rates “is what is necessary to ensure that again, [you] go to bed at night, you’re not worrying about whether prices will be higher, considerably higher tomorrow,” Daly added.
The Fed already has enacted its first rate hike of the year, a 0.25 percentage point move in March. Markets expect increases at each of the six remaining meetings this year, possibly totaling 2.5 percentage points.

Two policy ‘doves’

What made the two officials’ comments more striking is that they are considered to be in the camp of Fed “doves” — meaning that they usually favor low rates and less restrictive policies. That they both see a rather urgent need to tighten underscores how seriously the Fed is taking the threat.
Brainard’s voice carries a little extra heft in that she has been nominated to be vice chair of the FOMC, a position that makes her the top lieutenant for Chairman Jerome Powell.

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Brainard said she expects the Fed’s $9 trillion balance sheet to “shrink considerably more rapidly” than was the case during the last rundown in 2017-19. In that episode, the Fed allowed $50 billion a month in proceeds from maturing bonds to roll off while reinvesting the rest. Her comments opened the door to what many economists expect to be a monthly roll-off around $80 billion to $100 billion.
Reducing the balance sheet “will contribute to monetary policy tightening over and above the expected increases in the policy rate,” Brainard added.
“Currently, inflation is much too high and is subject to upside risks. The Committee is prepared to take stronger action if indicators of inflation and inflation expectations indicate that such action is warranted,” she added.
Daly echoed the idea that the balance sheet reduction could start in May, adding that the Fed’s commitment to fighting inflation “will mean interest rates go up.”
“But inflation, what people are paying day in and day out is on the minds of everyone, they go to bed at night thinking about it wake up in the morning thinking about rent, transportation, gas prices, food prices, so we as a Federal Reserve are on a path to raise the interest rates,” she said.

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QUANTITATIVE EASING, or QE, once an unconventional tool of monetary policy, has become commonplace over the past decade. During the pandemic alone the Federal Reserve bought a staggering $3.3trn in Treasuries and $1.3trn in mortgage-backed securities as it sought to keep borrowing costs low. The reverse process, quantitative tightening (QT), when central banks shrink their balance-sheets, has been far rarer. The Fed is the only central bank to have truly attempted it, and it had to stop abruptly in 2019 because of market ructions. So its plan for reducing its assets—trailed in the minutes of its meeting in March, published on April 6th—takes it into relatively uncharted territory.Officials like to downplay the significance of QT. When at the Fed’s helm, Janet Yellen compared it to watching paint dry. Jerome Powell, her successor, says it will operate in the background. In truth it is akin to dismantling an auxiliary engine for the economy, with only hazy knowledge of the consequences.As Lael Brainard, a member of the Fed’s board, noted on April 5th, this round of QT will be more aggressive than the Fed’s previous iteration. With inflation racing ahead and the labour market tight, the central bank wants to cool the economy quickly. Coupled with interest-rate rises, QT is likely to be a drag on growth.So far the Fed has reinvested the proceeds of maturing bonds in order to maintain its stock of assets. The minutes suggest it is likely to shrink its balance-sheet not by actively selling them, but by letting some maturing bonds “roll off”, without reinvestment. The roll-off may start in May. Come July, all going well, the Fed will raise the maximum roll-off to $95bn per month, split between $60bn of Treasuries and $35bn of mortgage-backed bonds. At full tilt, the Fed could shrink its balance-sheet by more than $1trn over a 12-month period, twice as fast as its first go at QT. “Even if it’s done in a predictable way, this is a big adjustment for markets,” says Brian Sack of D.E. Shaw, an investment firm.Multiple rounds of bond-buying by central banks since the financial crisis of 2007-09 have yielded some understanding of how QE works. It signals a commitment to ultra-low interest rates. It suppresses long-term rates. And it supports liquidity, ensuring that markets operate smoothly.QT looks like QE in reverse. Instead of creating central-bank reserves (held by the private sector) by purchasing bonds, the central bank drains reserves by refraining from reinvesting as bonds mature. The three channels through which QE works also operate in reverse. First, QT sends a signal that rate rises are coming. Notably, it was in early January, when the Fed discussed a faster approach to QT than many had anticipated, that market rates shot up.The second channel—QT’s direct impact on yields—involves heroic guesstimates. Some analysts think the Fed will shrink its balance-sheet by $3trn over the next three years (taking it to about 20% of GDP, down from 36% now). Mark Cabana of Bank of America reckons this could equate to anywhere between a quarter point and 1.25 percentage points of rate increases—a remarkably wide range. Mr Powell has also noted the uncertainty about QT: “We have a much better sense, frankly, of how rate increases affect financial conditions.”When the Fed raises interest rates, it is raising overnight borrowing rates, which then ripple along the yield curve. With QT, the main impact is on longer-term yields. For some economists, such as Kristin Forbes of the Massachusetts Institute of Technology, this means that QT could be more potent than rate rises, since it would target hot segments of the credit market, such as mortgages. The Fed has said that it will stick with rate increases—the devil it knows—as its main tool. If, however, QT does hit longer yields, it may need fewer rate rises to tame inflation.The final channel is liquidity. As the Fed buys fewer bonds, there may be fewer transactions overall. Indeed, a Bloomberg index that measures the ease of trading Treasuries recently worsened to levels last seen at the pandemic’s start. That echoes uncomfortably with the past round of QT, which culminated in a liquidity crunch in the overnight-borrowing market. But the Fed is better prepared this time. There is much more cash in the market to begin with. And the Fed has set up an overnight-lending facility, which should let banks get funds if needed. “The risk of a spike in rates like we had in September 2019 is much, much lower,” says Bill Dudley, former president of the New York Fed.Yet new concerns will emerge. The Fed’s mortgage bonds have long tenors, so passive roll-offs would take decades. The central bank may have to make active sales, which it wants to avoid. Another concern is the Fed’s $326bn in short-term Treasury bills. Some observers think it will roll them off, supercharging QT; others fear that would stoke volatility. But the main worry is whether QT will work as intended, taking heat out of the economy without causing undue harm.For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter. More

Stock futures inched higher in overnight trading Tuesday as investors await the latest insights into the Federal Reserve’s policy tightening.
Minutes from the Fed’s Tuesday meeting are slated for release Wednesday afternoon. Investors are bracing for new details about the Fed’s plan to reduce its balance sheet.

Futures on the Dow Jones Industrial Average rose about 30 points, or 0.1%. S&P 500 futures added 0.1% and Nasdaq 100 futures ticked up 0.1%.
The moves in stock futures came after the three major stock averages each fell in Tuesday’s regular session. The Dow dipped about 280 points, or 0.8%. The S&P 500 lost 1.3% and then Nasdaq Composite declined 2.3%.
Stocks turned lower Tuesday as Fed Governor Lael Brainard indicated support for higher interest rates and said a swift reduction of the central bank’s balance sheet could begin as soon as May.
“It is of paramount importance to get inflation down,” Brainard said during a Minneapolis Fed webinar. Brainard has been nominated to be vice chair of the Federal Open Market Committee.
San Francisco Fed President Mary Daly also pledged rate hikes ahead while sharing concerns about inflation.
“I understand that inflation is as harmful as not having a job,” Daly said.

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Goldman said 236,000 people applied for internships globally at the bank, including 79,000 in the Americas, according to data provided to CNBC.
Instead of dissuading applicants, last year’s Wall Street boom — which led to overworked bankers, as well as widespread raises and bigger bonuses — seems to have drawn more interest to the bank.
The number of college students applying to internships jumped about 16% from 2021, reaching a record level, according to a person with knowledge of Goldman’s figures.
The internship acceptance rate is just 1.5%, according to the person.

David Solomon, CEO, Goldman Sachs, speaking at the World Economic Forum in Davos, Switzerland, Jan. 23, 2020.
Adam Galacia | CNBC

Last year, a slide deck made by Goldman Sachs junior bankers detailing harsh working conditions made waves across the industry, fueling speculation that the industry had lost its appeal for younger workers.
But that hasn’t exactly transpired, if data from Goldman is any indication. The bank said 236,000 people applied for internships globally at the bank, including 79,000 in the Americas, according to data provided to CNBC.

Instead of dissuading applicants, last year’s Wall Street boom — which led to overworked bankers, as well as widespread raises and bigger bonuses — seems to have drawn more interest to the top-ranked investment bank. The number of college students applying to internships jumped about 16% from 2021, reaching a record level, according to a person with knowledge of Goldman’s figures.
The internships are a rite of passage on Wall Street and an essential pipeline of talent for investment banks and the broader financial universe. Students who can endure the rigorous internships and get picked up for two-year analyst programs after graduation will often have their choice of jobs, or “exit opportunities,” at a range of companies, from private equity or venture capital firms to hedge funds and fintech start-ups.
But Goldman can hire only so many interns, who are typically high-performing students between their third and fourth years of college. The internship acceptance rate is just 1.5%, according to the person. Interns who are offered jobs after graduation become first-year analysts. About 202,000 applicants applied for analyst jobs, up 27% from the prior year.
In the U.S., internships start June 6 and will be fully in-person, similar to last year. The firm places students across its various operations, from investment banking to trading, asset management, research, strategy and consumer and wealth management. Goldman CEO David Solomon has been among the biggest advocates for a return to office life, and executives often cite the need for junior workers to learn from those around them as a reason.
“Bringing our people together is core to our apprenticeship culture and client-centric business, especially as an employer of choice for young people in the beginning stage of their career,” Vicki Tung, Goldman’s global head of talent acquisition, said in a statement. “We look forward to welcoming our newest cohort for an in-person experience this summer.”

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Take a look at some of the biggest movers in the premarket:
Carvana (CVNA) – Carvana was downgraded to “sector perform” from “outperform” at RBC Capital Markets, with the price target for the online car seller’s stock cut to $138 per share from $155 per share. RBC bases its call both on valuation and potential difficulty in integrating its recent acquisition of car auction company Adesa. Carvana slid 3.4% in the premarket.

First Solar (FSLR) – The solar company’s stock fell 4.8% in premarket trading after Bank of America Securities downgraded it to “underperform” from “neutral.” BofA said investors may be overly optimistic about growth prospects and that a new Commerce Department anti-dumping inquiry into Asian module manufacturers is unlikely to drive pricing power.
Generac (GNRC) – The maker of backup generators and other energy-related equipment was put on the “Americas Buy List” at Goldman Sachs. Goldman points to a broad product portfolio, an increasing distribution footprint, and the idea that many of Generac’s products are in the early stages of adoption. Generac added 2.1% in premarket trading.
Carnival (CCL) – Carnival rallied 3.6% in the premarket after the cruise line operator said the seven-day period from March 28 through April 3 was the busiest week for new cruise bookings in the company’s history.
Twitter (TWTR) – Twitter was up another 1.5% in premarket action after soaring 27.1% Monday. That followed Tesla CEO Elon Musk’s disclosure that he had taken a 9.2% stake in the social media company.
Nio (NIO) – Nio gained 1.1% in the premarket following a report in the Financial Times that the China-based electric car maker is speaking with peers about licensing its battery swapping technology.

Farfetch (FTCH) – The luxury fashion e-commerce company will take a $200 million minority stake in Neiman Marcus as part of a global partnership.
Acuity Brands (AYI) – The maker of lighting products and building management systems reported quarterly earnings of $2.57 per share, 20 cents a share above estimates. Revenue also topped Wall Street forecasts. The company said it was able to offset significant increases in materials and freight costs with price increases and productivity improvements.
Teva Pharmaceutical (TEVA) – The drugmaker was upgraded to “overweight” from “equal weight” at Barclays, which cited several factors including increased estimates for Teva’s biosimilar version of the immunosuppressive drug Humira. Teva added 1.5% in premarket trading.

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