Finance

Take a look at some of the biggest movers in the premarket:
Pinterest (PINS) – Pinterest shares tumbled 13.2% in premarket trading after PayPal (PYPL) said it was not pursuing an acquisition of the social media company at this time. Its statement came in response to reports that it was pursuing an acquisition of Pinterest for as much as $45 billion. PayPal shares jumped 6.1%.

Tesla (TSLA) – Tesla raised prices on certain versions of its Model X and Model S cars, according to the company’s website. Additionally, car rental giant Hertz has reportedly ordered 100,000 Tesla vehicles for its fleet. Tesla shares rallied 4.3% in the premarket.
Kimberly-Clark (KMB) – The consumer products company’s stock slid 3% in premarket trading after quarterly earnings came in 3 cents a share below estimates at $1.62 per share. Revenue was slightly above forecasts, but Kimberly-Clark’s results were hit by higher inflation and supply chain issues.
Restaurant Brands International (QSR) – The restaurant operator reported quarterly profit of $1.52 per share, 2 cents a share above estimates. Revenue was slightly below Wall Street forecasts, with Covid-19 contributing to supply chain and labor pressures for the parent of Tim Hortons, Burger King and Popeyes. The stock added 1.2% in the premarket.
Otis Worldwide (OTIS) – Otis came in 4 cents a share above estimates, with quarterly earnings of 77 cents per share. Revenue also topped analysts’ projections. The company best known for its flagship elevators also raised its full-year outlook.
Facebook (FB) – Facebook continues to be embroiled in controversy, with a Wall Street Journal story this morning detailing internal arguments over the handling of right-leaning content. The stock fell 5% Friday, breaking a four-session win streak. Its shares dropped another 1.5% in the premarket.

Knight-Swift Transportation (KNX) – The trucking and logistics company’s stock rose 1.5% in the premarket after UBS upgraded the stock to “buy” from “neutral.” The firm said Knight-Swift’s non-trucking business is expanding faster than it had anticipated.
HSBC (HSBC) – HSBC reported better-than-expected quarterly profit, with a 74% rise from a year earlier, and the bank also announced a $2 billion share buyback.
Southwest Gas (SWX) – Investor Carl Icahn is calling on Southwest Gas to first offer shares to existing shareholders, amid the energy producer’s plans to sell up to $1 billion in equity as part of financing to buy pipeline company Questar. Icahn – who holds a significant stake in the company – is against the deal, and is moving ahead with a tender offer to buy the shares he doesn’t already own for $75 per share.
Whirlpool (WHR) – Whirlpool was downgraded to “underperform” from “sector perform” at RBC Capital, which cites a number of factors including the appliance maker’s loss of market share in North America. The stock slid 1.4% in premarket trading.
Pfizer (PFE), BioNTech (BNTX) – The Covid-19 vaccine made by Pfizer and BioNTech showed 90.7% effectiveness in children aged 5-11. Health officials say a rollout of the vaccine for kids could come as soon as early November.

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Wells Fargo is developing a virtual assistant to help it convert more retail banking customers into digital users, CNBC has learned.
The assistant, named Fargo, will be able to execute tasks including paying bills, sending money and offering transaction details and budgeting advice, according to Michelle Moore, the bank’s consumer digital head.
It’s expected to be out next year after the bank releases a revamped mobile app and website in early 2022, she said.

A Wells Fargo logo is seen at the SIBOS banking and financial conference in Toronto
Chris Helgren | Reuters

Wells Fargo is developing a virtual assistant to help it convert more retail banking customers into digital users, CNBC has learned.
The assistant, named Fargo, will be able to execute tasks including paying bills, sending money and offering transaction details and budgeting advice, according to Michelle Moore, the bank’s consumer digital head. It’s expected to be out next year after the bank releases a revamped mobile app and website in early 2022, she said.

The move by Wells Fargo, a consumer banking giant with more branches than any lender except JPMorgan Chase, is part of a broader technology overhaul under CEO Charles Scharf. Updating the bank’s aging systems has been a priority for Scharf since becoming CEO two years ago, a key part of the turnaround needed after the bank’s 2016 fake accounts scandal. Last month, Wells Fargo announced a decade-long plan to move computing to Google and Microsoft cloud servers.

Michelle Moore input Consumer Digital head at Wells Fargo
Source: Wells Fargo

“Everyone lives on their phone, and there’s an expectation on how things should work,” Moore said in a Zoom interview. “Our clients were telling us that our app was not easy to use, it’s not intuitive, there were too many dead ends and clients were getting stuck.”
While it had the most extensive brick-and-mortar presence of any U.S. bank for years, only being eclipsed in branch count last quarter by JPMorgan, Wells Fargo trails rivals in digital adoption. Regulators have criticized the firm’s technology systems, and a 2019 mishap at a Minnesota data center knocked out customers’ mobile and web access for hours.

Its 27 million active mobile users are fewer than those of JPMorgan and Bank of America. Despite the boost that the coronavirus pandemic provided for all things digital, Wells Fargo’s 4.2% user growth in the past year is less than half JPMorgan’s gains. Studies have shown that digital users are typically more satisfied with their banks, cheaper to serve and less likely to switch providers.
That’s probably why Wells Fargo recruited Moore late last year. She is a Bank of America technology veteran who helped develop the company’s own virtual assistant, known as Erica. That artificial intelligence-powered service has seen its use surge during the pandemic, tripling the number of interactions to 104.6 million in the past year, Bank of America said this month.

Early this year, Wells Fargo began studying why customers resorted to calling phone help lines and where the bank’s app failed them, Moore said. The redesigned app has a simpler login and consolidates payment options, whereas previously they were scattered throughout, she said. Future versions will be more capable, part of the company’s new digital-first efforts, she said.

Wells Fargo revamped banking app.
Source: Wells Fargo

“We can help clients really live their lives and be more than checking balances and moving money,” Moore said. “We want to be integrated and we want to help clients do their investments or buy their first house.”
As for the name of the bank’s virtual assistant, Moore said it was an obvious choice.
“We weren’t trying to create a new brand or persona here,” she said. “There’s a lot you can do with ‘Fargo.’ Flip the word around, you can ‘Go Far.’ Let Fargo take you far.”

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HSBC’s reported pre-tax profit came in at $5.4 billion in the third quarter of 2021 — beating expectations.
The bank did not announce any dividends for the third quarter. But the bank said it plans to start a $2 billion share buyback “shortly.”
“We believe that the lows of recent quarters are behind us,” said Noel Quinn, HSBC’s group chief executive.

HSBC on Monday reported third-quarter earnings that handily beat expectations and announced plans for a share buyback of up to $2 billion.
The bank’s reported pre-tax profit for the third quarter jumped 75.8% from a year ago to $5.4 billion. Analyst estimates compiled by the bank had expected a 22.8% on-year jump in reported pre-tax profit to $3.776 billion.

HSBC said it released around $700 million of cash that was previously set aside to prepare for a rise in loan losses as the global economy was weighed down by the Covid-19 pandemic. That contributed to the improved earnings, while all regions the bank operates in were profitable during the quarter, it said.
The bank’s shares in Hong Kong closed 0.43% higher on Monday.
“While we retain a cautious outlook on the external risk environment, we believe that the lows of recent quarters are behind us,” Noel Quinn, HSBC’s group chief executive, said in a statement accompanying the earnings release.

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Meanwhile, reported revenue for the third quarter was $12 billion — 0.7% higher than a year ago. Analyst estimates compiled by HSBC had pointed to a 3.1% on-year increase in revenue to $12.3 billion.
Here are the other highlights of the bank’s third-quarter financial report card:

Net interest margin, a measure of lending profitability, was 1.19% — compared with 1.2% in the second quarter.
Common equity tier 1 ratio — which measures the bank’s capital in relation to its assets — was 15.9%, compared with 15.6% in the second quarter.
Basic earnings per share was 18 cents, compared with 17 cents in the second quarter and 7 cents in the third quarter of 2020.

HSBC did not announce any dividends for the third quarter. But the bank said it plans to start a share buyback of up to $2 billion “shortly.”
Ewen Stevenson, HSBC’s group chief financial officer, said the bank’s capital position has been “very strong.” He said the bank wants to reduce its capital ratio to around 14% to 14.5% by the end of next year.
“We don’t want to sit on excess capital if we have it, and hence the $2 billion buyback,” Stevenson told CNBC’s “Capital Connection” after the earnings release.

Evergrande concerns

HSBC said in its earnings release that as of Sept. 30, it had no direct credit exposure to Chinese developers in the “red” category and limited exposure to those in the “orange” category.
The bank was referring to the Chinese government’s “three red lines” policy that was rolled out to limit a company’s debt in relation to its cash flows, assets and capital levels.

Stevenson said HSBC is “very comfortable” with its position in China’s real estate sector. He was responding to CNBC’s question about the bank’s exposure to embattled developer Evergrande.
“We are reasonably conservative in our approach to lending to that sector, have been for some time,” said Stevenson.
“We are going to be cautious but I think overall we are comfortable with where we stand in relation to our exposure to the sector, and whatever fallout that comes from there,” he added.
Reuters reported that HSBC’s exposure to the Chinese real estate sector was around $19.6 billion.

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Chinese President Xi Jinping has the political momentum to finally get the ball rolling on property tax, analysts said.
On Saturday, the top executive body, the State Council, was authorized to conduct a property tax test for five years in unspecified regions.
“I think the central government has chosen [the] right time because of the political reshuffling happening before and after the 20th party congress next year, so to really resist a central government policy will be [a risk] to local government officials’ own career,” said Yue Su, principal economist at The Economist Intelligence Unit.

Vehicles drive by unfinished residential buildings from the Evergrande Oasis, a housing complex developed by Evergrande Group, in Luoyang, China September 16, 2021.
Carlos Garcia Rawlins | Reuters

BEIJING — China is closer than ever to taxing property owners, analysts say, nearly two decades after authorities began floating the idea.
What’s changed is that Chinese President Xi Jinping now has the political momentum to get the ball rolling on property tax, analysts said. This summer, Xi has emphasized authorities’ commitment to delivering “common prosperity,” or moderate wealth for all, rather than just a few.

And in an essay earlier this month detailing what common prosperity means, Xi called for regulating excessively high incomes, with measures such as tests of a property tax.

It is something which they will have to do because it is coming from the top, and therefore, it will happen.

David Roche
Independent Strategy, president and global strategist

On Saturday, the top executive body, the State Council, was authorized to conduct such a test for five years in unspecified regions. These developments follow years of trying to limit speculation in China’s property market, which accounts for the bulk of household wealth.
“I think the central government has chosen [the] right time because of the political reshuffling happening before and after the 20th party congress next year, so to really resist a central government policy will be [a risk] to local government officials’ own career,” said Yue Su, principal economist at The Economist Intelligence Unit.
She was referring to the National Congress of the Chinese Communist Party, held every five years to determine top leadership positions.

Property tax talk since 2003

Unlike the U.S., China does not have a blanket tax on property. Real estate ownership in China can also differ. For example, state-owned enterprises have distributed apartments to their employees.

Chinese leaders began discussing a property tax in 2003, but so far only the municipalities of Shanghai and Chongqing have implemented a limited version, analysts said.
The experiences of those two cities in the last decade haven’t created a compelling argument for other local governments to roll out a property tax, Larry Hu, chief China economist at Macquarie, said in a note over the weekend.
In 2020, property taxes in Shanghai and Chongqing accounted for 5% or less of local tax revenue, and contributed far less than what land sales did, Hu said.
More than 20% of regional and local government revenue comes from sales of land to real estate developers, according to Moody’s. But if the property market is successfully tapped through tax channels, it could ultimately bring in significant revenue for local authorities.
Real estate and related sectors like construction account for at least 25% of China’s GDP, according to Moody’s.

Those figures partly reveal just what a force real estate is in China.
China’s privatization of the housing market in 1998 allowed an older generation to buy apartments at a low cost, giving them a disproportionately larger share of the property market than younger generations, Hu said in a note over the weekend. He added that home prices vary significantly by city.
“Property tax in China is much more than a wealth redistribution from rich to poor, but from older generations and high-tier [more developed] city residents to the rest,” Hu said. “As the result, the resistance to property tax is not only broad but also powerful.”

A tax on wealth

Property accounts for about 70% to 80% of household wealth in China, and drives about 10% of household income, Moody’s said.
A nationwide property tax would likely require disclosures of business and government leaders’ real estate holdings, which means such a policy could meet resistance even as the country has been cracking down on corruption.
But the latest political developments could tip the scale. Tycoons once built fortunes through developers like Evergrande by relying on debt for growth. That use of debt has become a target of government scrutiny in the last 18 months.
In addition, Xi said in August that pursuing “common prosperity” in China would require curbing “excessive” income and encouraging the wealthy to give back to society. Later that month, the State Taxation Administration said it was investigating individuals who concealed their high income and evaded taxes.
“The big idea is of course to recreate a lot of new, happy, middle class people who have affordable housing and affordable health care and affordable education, and therefore happy citizens,” David Roche, Independent Strategy, president and global strategist, said Monday on CNBC’s “Squawk Box Asia.”
“And in order to do this you need to make sure that housing is for living — that is, not speculation, or for investment,” Roche said. “So, [property tax] is not something which is going to be left to local authorities to put into practice or local governments. It is something which they will have to do because it is coming from the top, and therefore, it will happen.”

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Even with the latest political momentum, analysts don’t expect a nationwide tax on real estate immediately.
“We believe Beijing is determined to quicken the rollout of property tax, but will still proceed in a cautious way and only phase in the tax gradually,” Ting Lu, chief China economist at Nomura, said in a note Monday.
“Still,” he said, “the expectation of ever-rising home prices will likely be significantly reined in among Chinese households, new home sales across China could slow down, Beijing might see mounting challenges on the road to a nationwide property tax, and near-term pains are inevitable.”
Ultimately, authorities will need to weigh the economic consequences of any moves on China’s massive real estate market.
If there are simultaneous property dumps, that might slow the introduction of property tax and increase the ability of individuals to apply for exemptions, the EIU’s Su said.
— CNBC’s Weizhen Tan contributed to this report.

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Earnings season may turn an ugly corner.
Long-term bull Art Hogan warns a storm of disappointing corporate guidance and missed revenue targets is ahead.

“Buckle your seatbelts,” the National Securities’ chief market strategist told CNBC’s “Trading Nation” on Friday. “This will be the first time in the cycle you’re actually going to hear more companies guide down than guide up.”
Hogan cites headwinds tied to supply chain backlogs, inflation and worker shortages.
“There’s going to be a real earnings season of haves and have nots,” Hogan said. “The haves really have that pricing ability.”
He cites Snap’s third quarter results as an example of upcoming trouble. The social media giant reported last Thursday a revenue miss, and it lowered guidance — citing trouble in its advertising business and global supply chain interruptions. Snap stock is off 27% since the announcement.

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“Aggregate demand is outstripping aggregate supply,” said Hogan. “If you don’t have things to sell, you’re probably not increasing your ad budget.”

He wants long-term investors to resist the urge to react to volatility and believes they should take a barbell approach to investing, with growth on one end and cyclicals on the other.
“Any given earnings reporting season is not the time to make a broad sweeping change to your long-term investments plan,” he said. “But make sure you know what you have on your growth side, and make sure you’re picking companies that actually are sector leaders and are measured in a P/E [price-to-earnings ratio] versus price to revenues.”
He believes the pain won’t trickle into year-end. His S&P 500 year-end target is 4,700, which implies a 3% gain from Friday’s close.
“We’ve got a long runway in front of us, and I think a lot of demand that wasn’t satiated this year gets dragged into 2022,” Hogan said.
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Traders work on the floor of the New York Stock Exchange (NYSE) on October 15, 2021 in New York City.
Spencer Platt | Getty Images

Stock futures edged lower in overnight trading Sunday after the Dow Jones Industrial Average notched its third positive week in a row at a record high.
Dow futures dipped 50 points. S&P 500 futures and Nasdaq 100 futures both fell about 0.1%.

Wall Street is coming off a winning week on the back of strong corporate earnings. The blue-chip Dow gained more than 1% last week and closed Friday at a record. The S&P 500 rallied 1.7% last week, also posting its third straight positive week and hitting an all-time high Friday.
Of the 117 companies in the S&P 500 that have reported earnings to date, 84% posted numbers that beat expectations, according to Refinitiv. S&P 500 companies are expected to grow profit by about 35% in the third quarter.
“Rising tide of earnings is lifting all the boats and adding fuel to the bull market fire,” said Anu Gaggar, global investment strategist at Commonwealth Financial Network. “The 3Q earnings season is off to a strong start despite concerns about supply bottlenecks and labor shortages.”
Some of the biggest technology companies are slated to report earnings this week, including Facebook, Alphabet, Microsoft, Amazon and Apple. A third of the Dow companies also is set to release quarterly results this week, including Caterpillar, Coca-Cola, Boeing and McDonald’s.
Major averages have all registered solid gains for October. The Dow and the S&P 500 are both up more than 5%, while the Nasdaq Composite has climbed 4.4% month to date.

Leading the October rally in the broader market has been the energy sector, which is up 11% this month. Industrials, real estate, materials and financials have all popped at least 7% over the same period.
“Transports, consumer discretionary, and large-cap tech have led the market higher these past two weeks, signaling that growth worries around supply chain constraints are beginning to fade,” said Lindsey Bell, chief investment strategist at Ally Invest.

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Hedge fund manager David Tepper has turned somewhat bearish on the stock market, citing uncertainties around interest rates and inflation.
“I don’t think it’s a great investment right here,” Tepper said Friday on CNBC’s “Halftime Report.” “I just don’t know how interest rates are going to behave next year… I don’t think there’s any great asset classes right now… I don’t love stocks. I don’t love bonds. I don’t love junk bonds.”

The Federal Reserve has been keeping its benchmark short-term interest rate anchored near zero since the start of the pandemic. In recent weeks, officials have indicated they are ready to start tapering the monthly asset purchases, possibly starting in November.
Many believe that rising inflation, which is running near a 30-year high, could put pressure on the central bank to pull back some of the ultra-easy monetary policy soon. Traders have upped their bets that the Fed will move faster than anticipated on rate hikes, with market pricing implying a first rate increase coming in September 2022, according to the CME’s FedWatch tracker.
The founder of Appaloosa Management, whose comments have been known to move markets, said his hedge fund has been “probably too conservative” this year but has done OK because of its bets on commodities and oil.
“We continued to keep that exposure relatively low but keep investing, I think stay invested in the stock market to some extent, but don’t have your highest concentration you’ve ever had,” Tepper said.
Tepper stressed, though, that it’s nowhere near the time to short the stock market, and he still believes equities make a great long-term investment that everyone should own in their portfolio.

The hedge fund manager said if bond yields stay stable after the Fed moves to taper its bond-buying program, stocks could see a relief rally.
“If we are going to sit here with 1.60% [on the 10-year Treasury yield] after the Fed announces tapering, then you could get a rally. There might be a trading rally. You might get 5% to 10% up. I’ll go in and get out,” Tepper said.
The billionaire investor has made a number of prescient calls recently, including foreseeing the market collapse due to the Covid-19 pandemic. Back in February 2020 before the S&P 500 tumbled into a bear market, he warned that the virus could be a game changer for markets and “certainly ruined the environment” for stocks.
In March this year, Tepper turned bullish on the market, saying it’s very difficult to be bearish on stocks. The S&P 500 enjoyed seven positive months in a row from February to August, The benchmark is up more than 20%, hitting a fresh all-time high Friday.

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Longevity annuities pay monthly income for life, generally starting between age 75 and 85.
They’re among the best financial deals for seniors who are worried about outliving their savings due to old age, according to retirement experts.
However, they’re not frequently purchased largely due to psychological hurdles.

MoMo Productions | DigitalVision | Getty Images

American life expectancy is trending up — and that creates more financial risk for retirees, who must make their nest eggs last a longer time.
An average 65-year-old today will live another 20 years, about six years more than in 1950, according to the Centers for Disease Control and Prevention.

Seniors can take measures to reduce this “longevity risk,” such as working longer and delaying Social Security.
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They also have a type of annuity at their disposal — a longevity annuity — that is among the best financial deals for seniors who worry their money won’t last, according to retirement experts. However, they’ve been little used to date.
“It’s contingent on living a long time,” said Wade Pfau, a professor of retirement income at The American College of Financial Services. “If you live a long time, you’ll get the most bang for your buck that way.”

How they work

A longevity annuity is like a form of old-age insurance. There are many different types, but such annuities are a form of “deferred income annuity.”

Here’s the basic premise: A retiree hands over a chunk of money to an insurance company today and begins getting monthly payments many years later, generally starting between age 75 and 85.
As with other annuities, that stream of income is guaranteed to last for the rest of your life.
But the deferred payments offer a unique benefit: Insurers pay more on a monthly basis than with other annuities that start earlier in life. (Morbidly, this is because there’s a greater chance that buyers will die before their income starts — thereby spreading the pot of money over fewer remaining people.)

The idea is to create a more finite horizon to plan for.

David Blanchett
head of retirement research at PGIM

Here’s a rough example, using a quote for a 65-year-old man in New York who buys a no-frills annuity with a $100,000 lump sum. This person would get about $500 a month ($6,000 a year) for life if he started receiving an immediate payout; the same buyer would get about $2,800 a month ($33,600 a year) by waiting 20 years to start payments.
That level of income can help defray concerns of outliving one’s investments and other savings, according to retirement experts.
“You don’t know how long you’re going to live,” said David Blanchett, head of retirement research at PGIM, Prudential’s investment management arm. “The idea is to create a more finite horizon to plan for.
“You know when you survive to that age, you’ll be taken care of.”
A certain type — a qualified longevity annuity contract, or QLAC — can also reduce a retiree’s required minimum distributions from individual retirement accounts and 401(k) plans.
Consumers can use up to $135,000 or 25% (whichever is less) of their retirement funds to buy a QLAC. Someone with $500,000 of retirement savings would calculate a required distribution on $365,000 instead of the full $500,000.

Unpopular

However, despite their benefits, these annuities aren’t popular among seniors.
Deferred income annuities accounted for $1.7 billion (or 0.7%) of the $219 billion in total annuity sales in 2020, according to LIMRA, an insurance industry group. (Since longevity annuities are a subset of deferred income annuities, their share would be even smaller. LIMRA doesn’t break out this data.)
By comparison, variable annuities accounted for almost $99 billion of sales last year.
The mismatch is largely due to the psychological hurdle of handing over a large sum of money that won’t yield a benefit if one doesn’t survive another 20 or so years, Blanchett said.

And they’re not for everyone — a retiree who wants to retain control and flexibility over their money may be hard-pressed to hand cash to an insurer. They may prefer investing the funds instead.
“[Longevity annuities] are potentially the most efficient annuity, economically speaking,” Blanchett said. “They’re without a doubt the hardest behaviorally.”
Perhaps the easiest way to integrate a longevity annuity into your financial plan is by assessing a desired level of guaranteed future monthly income and using the annuity to plug any gaps, after accounting for other income sources like Social Security and pensions, Blanchett said.
(For instance, a retiree who envisions needing $50,000 a year to live comfortably at age 85 and already gets $30,000 a year from Social Security would get insurance quotes to determine the lump sum needed to generate $20,000 a year from the annuity.)

Other factors

However, this is a tougher financial-planning proposition than with other annuities — precisely because it’s difficult to determine how much money one will need to live in two decades, according to Tamiko Toland, director of retirement markets for CANNEX, which provides annuity data. That’s all the more difficult when trying to assess how inflation will affect the future cost of living.
An insurer’s credit rating also becomes much more important, experts said. A stronger financial rating generally means a higher likelihood the company will be around to make payments in the future.

It would be wise to get quotes from multiple insurers, and perhaps even accept a little bit of a reduced payment from a higher-rated company, Blanchett said.
Consumers can buy longevity annuities with certain features that may make them more palatable — but they’ll give up a substantial amount of monthly income for those features, experts said.
For example, consumers can purchase them with a refund option. If the buyer dies before income starts, beneficiaries get a refund of the premium; if the buyer dies after income starts, beneficiaries get the premium minus any payments made.

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