Finance

U.S. stock futures were steady in overnight trading Monday following a rise in bond yields that pressured growth pockets in the market.
Dow Jones Industrial Average futures fell just 20 points. S&P 500 futures were flat, and Nasdaq 100 futures fell 0.2%.

The 10-year Treasury yield rose on economic optimism and inflation fears, briefly topping 1.5% on Monday, its highest level since June.
Equities saw an uneven session amid the spike in rates.
The Dow Jones Industrial Average on Monday gained 71 points, and the small-cap Russell 2000 rallied 1.5%. However, the S&P 500 fell 0.3%. The Nasdaq Composite was the relative underperformer, dipping 0.5%, as the drop in bond prices pressured growth names like Microsoft and Amazon.
“The stock market increasingly indicates that the U.S. economy has entered another reopening cycle,” Leuthold Group chief investment strategist Jim Paulsen.

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“A Covid-led resurgence in economic activity may well worsen supply chain woes and eventually reignite inflation concerns. But, for now, it has forced investors to reevaluate whether they have too much in growth and tech and not enough in economically sensitive investments,” Paulsen added.

Traders were also poring through testimony from Federal Reserve Chair Jerome Powell. In prepared remarks set to be delivered Tuesday, the central bank chief said that inflation could persist longer-than-expected.
“Inflation is elevated and will likely remain so in coming months before moderating,” Powell said. “As the economy continues to reopen and spending rebounds, we are seeing upward pressure on prices, particularly due to supply bottlenecks in some sectors. These effects have been larger and longer lasting than anticipated, but they will abate, and as they do, inflation is expected to drop back toward our longer-run 2 percent goal.”
The central bank indicated last week that it was ready to begin “tapering” — the process of slowly pulling back the stimulus they’ve provided during the pandemic. The Fed left rates unchanged but penciled in possibly one interest rate hike in 2022, followed by three apiece in the 2023 and 2024.
The potential for a government shutdown also clouded the market Monday.
Lawmakers must act on a funding plan before the government faces a shutdown Friday. While there could be a temporary solution extending funding, the bigger issue of raising the debt ceiling may not be resolved for several more weeks. Senate Republicans on Monday blocked a bill that would fund the government and suspend the U.S. debt ceiling.
Wall Street is also looking ahead to Thursday, when the House is expected to vote on the $1 trillion bipartisan infrastructure bill already approved by the Senate.
Thursday marks the final day of trading of September and the third quarter. The Dow is down 1.4% for the month, and the S&P 500 is off by 1.8%. The Nasdaq Composite has lost 1.9% in September.
The Covid-19 delta variant, the Federal Reserve’s tapering plan and inflation have worried investors. However, the Dow is still up nearly 14% year to date despite the weakness in September. The S&P 500 and Nasdaq are also sharply higher.
“I think the wall of worry continued to grow,” Lindsey Bell of Ally Invest told CNBC’s “Closing Bell” on Monday. “While there are very valid concerns by market participants I do think the one thing … is the strength of the consumer. While inflation could be coming, the consumer has been resilient.”
— with reporting from CNBC’s Patti Domm.
Correction: A previous version misspelled Lindsey Bell’s name.

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Three Fed officials said Monday they are ready to pull back on stimulus despite not feeling pressure from inflation.
Fed Governor Lael Brainard and regional presidents John Williams of New York and Charles Evans of Chicago all expressed comfort with the first phase of policy tightening.

At least three Federal Reserve officials said Monday they are ready to pull back on their economic support measures even though they don’t see a threat from inflation.
Speaking at separate engagements, Fed Governor Lael Brainard and regional presidents John Williams of New York and Charles Evans of Chicago all expressed comfort with the first phase of policy tightening – a gradual pullback on the monthly bond buying that has provided support for markets and the economy.

“I think it’s clear that we have made substantial further progress on achieving our inflation goal. There has also been very good progress toward maximum employment,” Williams told the Economic Club of New York. “Assuming the economy continues to improve as I anticipate, a moderation in the pace of asset purchases may soon be warranted.”
They stressed, however, that the move, known as tapering, isn’t providing any signal about looming interest rate hikes.
“The forward guidance on maximum employment and average inflation sets a much higher bar for the liftoff of the policy rate than for slowing the pace of asset purchases,” Brainard told the National Association for Business Economics. “I would emphasize that no signal about the timing of liftoff should be taken from any decision to announce a slowing of asset purchases.”
The positions were largely consistent with a statement released after last week’s Federal Open Market Committee meeting. Officials agreed that “tapering may soon be warranted,” with Chairman Jerome Powell saying after the meeting that he’d like to bring the minimum $120 billion a month bond-buying program to a close by mid-2022.
That move toward tightening comes even though the committee does not expect the current inflationary pressures, which are running at the highest rate in decades, to persist.

Evans also said he thinks the Fed should shoot higher on its inflation target than the traditional 2% goal. Instead, he said it should aim for inflation “above but close to 2%.”
“I think the FOMC’s own actions and communications are playing an important role in restraining long-run inflation expectations,” he said, also speaking Monday before the National Association for Business Economics. “Taken altogether, I am more uneasy about us not generating enough inflation in 2023 and 2024 than the possibility that we will be living with too much.”
Williams said he expects inflation to continue to run above 2% for “another year or so” as “pandemic-related swings in supply and demand gradually recede.” However, he said inflation should fall to the target at some point during the year.
In their quarterly economic outlook, FOMC members say they see core inflation, which excludes food and energy prices, running at 3.7% this year before falling to 2.3% in 2022 and 2.2% and 2.1% respectively in the following two years. Officials also penciled in possibly one interest rate hike in 2022, followed by three apiece in 2023 and 2024.

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An employee brings a television to a customer’s car at a Best Buy store in Orlando, Florida.
Paul Hennessy | SOPA Images | LightRocket | Getty Images

Check out the companies making headlines in midday trading.
Energy stocks – Energy stocks led the S&P 500 on Monday as oil prices climbed amid supply concerns driven by a pick-up in demand as pandemic conditions around the world start to ease. Cimarex and Cabot climbed over 8%, Diamondback and Occidental added more than 7%, Marathon Oil rose 6% and Halliburton wasn’t far behind with more than 5% gains.

Financial stocks – Shares of financial institutions also rallied as the yield on the benchmark 10-year Treasury note climbed above 1.5% at one point Monday morning. M&T Bank and Lincoln rose 5.5% and and nearly 5%, while MetLife and State Street added more than 3%. Bank stocks tend to benefit from rising interest rates because they allow for higher margins and profits.
Best Buy – Shares of Best Buy jumped 5% after Piper Sandler raised its price target on the stock to $150 from $146 per share. The new projection implies 43.2% upside from Best Buy’s closing price Friday. Piper Sandler called Best Buy “one of our top ideas under coverage” and said Best Buy’s new membership program is “one of the most intriguing initiatives BBY has launched in 5+ years.”
Altice – Shares of the broadband and video company dropped more than 3% after Credit Suisse downgraded the stock to neutral from outperform. The Wall Street firm said Altice could experience a short-term negative impact from its aggressive fiber buildout strategy.
Carnival Corp. – Shares of the cruise line operator jumped 4.7% after the company issued an upbeat business update on Friday. Carnival said its “voyages are already cash flow positive” and it expects the positive trend to continue. The company reported a U.S. GAAP net loss of $2.8 billion and an adjusted net loss of $2.0 billion for the third quarter of 2021.
Vaccine makers – Makers of Covid-19 vaccines fell as Singapore reported a daily record in Covid cases and hit five new daily highs in the past week. The two main vaccines used in Singapore are those developed by Pfizer-BioNTech and Moderna. Pfizer is roughly flat Monday but BioNTech dropped almost 8%, Novavax also dropped about 7% and Moderna fell nearly 5%. CureVac lost over 3%.

Acceleron Pharma – Acceleron shares jumped more than 6% after Bloomberg reported on Friday that the company is in talks to be acquired by an unnamed large pharmaceutical company for about $180 per share. Bristol-Myers Squibb, which already owns an 11.5% stake in Acceleron, is reportedly one of the potential candidates being considered.
 — CNBC’s Hannah Miao, Maggie Fitzgerald and Yun Li contributed reporting

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The bank allegedly overcharged 771 businesses on foreign exchange transactions from 2010 through 2017, according to the U.S. Justice Department lawsuit filed Monday.
Wells Fargo told the commercial customers that they were being charged certain fixed rates, but then incentivized salespeople to “overcharge FX customers,” according to the filings.

Charles Scharf, chief executive officer of Wells Fargo & Co., listens during a House Financial Services Committee hearing in Washington, D.C., U.S., on Tuesday, March 10, 2020.
Andrew Harrer | Bloomberg | Getty Images

Wells Fargo paid $37 million to settle a government lawsuit accusing the bank of defrauding hundreds of commercial customers.
The bank allegedly overcharged 771 businesses on foreign exchange transactions from 2010 through 2017, according to the U.S. Justice Department lawsuit filed Monday. Wells Fargo shares were down less than 1% in afternoon trading.

The settlement is the latest regulatory matter resolved under Wells Fargo CEO Charles Scharf, who was hired in 2019 to clean up a litany of legal woes that began with a 2016 fake accounts scandal. Earlier this month, Wells Fargo was hit with a $250 million fine on the same day it announced the resolution of a Consumer Financial Protection Bureau consent order.
Wells Fargo told the commercial customers that they were being charged certain fixed rates, but then incentivized salespeople to “overcharge FX customers,” according to the suit.
The bank then concealed the overcharges from customers and obtained “millions of dollars in FX revenue to which the bank was not entitled,” the suit said.
Most of the settlement, $35.3 million, is going as restitution to the overcharged customers, the government said. A whistleblower who kicked off the case in 2016, Paul J. Kohn, is set to receive $1.6 million, the U.S. said.
The bank didn’t immediately respond to emails seeking comment.

This story is developing. Please check back for updates.

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Famed investor Michael Burry revealed on Twitter that he received a subpoena from the SEC in connection with its investigation into GameStop.
“So, who got an SEC subpoena over $GME? Actually, I know who, they’re on my subpoena. With all that’s going on in the world…” he said in a now-deleted tweet on Friday.
Burry, who leads Scion Asset Management, shot to fame by betting against mortgage securities before the 2008 crisis and was depicted in Michael Lewis’ book “The Big Short” and the subsequent Oscar-winning movie.

Dado Ruvic | Reuters

Famed investor Michael Burry revealed on Twitter that he received a subpoena from the Securities and Exchange Commission in connection with its investigation into GameStop, a wildly speculative stock that the “Big Short” trader once bet on.
“So, who got an SEC subpoena over $GME? Actually, I know who, they’re on my subpoena. With all that’s going on in the world…” Burry said in a now-deleted tweet on Friday. He attached a copy of the SEC letter dated Sept. 21.

Burry, who leads Scion Asset Management, shot to fame by betting against mortgage securities before the 2008 crisis. Burry was depicted in Michael Lewis’ book “The Big Short” and the subsequent Oscar-winning movie.
The hedge fund manager had been trading GameStop shares and publicly commenting on the meme stock for the past few years. At the end of 2018, Burry first revealed a $6.8 million position in the video game retailer, according to InsiderScore.com. Over the next few quarters, the investor trimmed, exited and reentered the stock multiple times, and his stake was worth more than $17 million at the end of the third quarter of 2020 until he closed the position the next quarter.
Back in 2019, the bullish investor told Barron’s that new consoles from Microsoft and Sony would “extend GameStop’s life significantly,” which fueled a rally in the shares. However, when the massive GameStop short squeeze shocked Wall Street in January, Burry turned into a vocal critic of the stock, saying the trading in GameStop is “unnatural, insane, and dangerous” and there should be “legal and regulatory repercussions.”
Burry’s Scion Asset Management didn’t immediately respond to CNBC’s request for comment. An SEC spokesperson told CNBC that the agency “does not comment on the existence or nonexistence of a possible investigation.”

GameStop drama continues

Eight months after the epic short squeeze, the GameStop saga continues to drag on with retail investors still propping up the stock way above analysts’ price targets.

Just a few analysts still cover the name with many throwing in the towel after the meme mania took over. Among the four analysts tracked by FactSet who are left, the average 12-month price projection calls for a 60%-plus decline to $71 apiece, according to FactSet. The stock closed at $185.16 on Friday.

Arrows pointing outwards

Wall Street research firm Ascendiant Capital Markets on Monday slashed its price target on GameStop to just $24, citing increased competition in the digital gaming space.”Reddit trading likely to propel stock near term, but likely to fade in one year as digital threats increases,” analyst Edward Woo said in a note. “We remain very concerned about the long term prospects for GME’s core video game business once hardware sales temper as the installed base matures.”
Investors are bracing for an imminent report from SEC Chair Gary Gensler on the Reddit-fueled trading frenzy as well as his recommendations on what, if any, changes should be made to the U.S. trading system.

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U.S. stocks were split on Monday morning as traders braced for the final week of a volatile September and Treasury yields rose.
The S&P 500 fell by 0.2% and the Nasdaq Composite shed nearly 2% as tech stocks showed weakness in early trading. The Dow Jones Industrial Average rose more than 200 points as energy stocks and bank shares pushed higher.

The divergence for the major averages came as Treasury yields pushed higher. The 10-year Treasury yield increased on economic optimism and inflation fears, briefly topping 1.5% on Monday. That’s the highest since June and up from 1.30% at the end of August.
“We believe that these [bond market] moves have provided the spark for another ‘Value Rip’ across equity markets. In our view, the direction of longer-term interest rates should remain the #1 driver of market returns, sector rotation & thematic performance in the weeks ahead,” Chris Senyek of Wolfe Research said in a note to clients.
Alphabet, Apple and Nvidia were lower in early trading, weighing the S&P 500 and Nasdaq. Tech stocks are seen as sensitive to rising interest rates because higher debt costs can make long-term growth less attractive to investors.
Also weighing on sentiment was a potential government shutdown to end the week.
Stocks linked to the economic comeback led the early gains as U.S. Covid cases continued to roll over. U.S. cases averaged about 120,000 per day over the last week, according to data compiled by Johns Hopkins University, down from a 7-day average of about 160,000 cases at the peak of this latest wave in early September.

Pfizer CEO Albert Bourla said on Sunday that he thought the U.S. could return to normal “within a year” though annual vaccinations might be needed.
Carnival Corp rose nearly 3% and United Airlines added 1.7% in early trading. Shares of Goldman Sachs rose 2% as higher rates appeared to boost bank stocks.
Exxon Mobil and Occidental Petroleum led gains in the energy sector as WTI crude continued its September run, topping $74 a barrel.
Additionally, the August reading for durable goods orders came in well above expectations on Monday, powered in large part by a jump for the transport sector.

Government shutdown?

Investors are monitoring the progress in Washington as lawmakers try to prevent a government shutdown, a default on U.S. debt and the possible collapse of President Joe Biden’s sweeping economic agenda.
House Speaker Nancy Pelosi said Sunday that she expects the $1 trillion bipartisan infrastructure bill to pass this week, but voting on the legislation may be pushed back from its original Monday timeline.
Congress must pass a new budget by the end of September to avoid a shutdown, and lawmakers must also figure out a way to increase or suspend the debt ceiling in October before the U.S. would default on its debt for the first time.
“DC will start garnering more attention in the coming weeks as the political calculus around passing infrastructure bills and the debt ceiling debate likely guarantees some market moving headlines,” wrote Tavis McCourt, institutional equity strategist at Raymond James.
Wall Street is coming off a roller-coaster week amid a slew of concerns from the debt crisis of China’s real estate giant Evergrande, to the Federal Reserve’s signal on rollback in monetary stimulus, and to Beijing’s crackdown on cryptocurrencies. Still, major averages managed to wipe out steep losses earlier in the week and eke out small gains.

The blue-chip Dow finished the week 0.6% higher, breaking a three-week losing streak. The S&P 500 rose 0.5% on the week, while the tech-heavy Nasdaq Composite edged up 0.02% last week.
“The market recovery indicated that the buy-the-dip mentality remains,” Mark Hackett, chief of investment research at Nationwide, said in a note.
So far, September is living up to its reputation for volatility and weakness as major averages have all registered modest losses. The S&P 500 is off by 1.5%, on track to post its first negative month since January. The broad equity benchmark is about 2% off its record high from Sept. 2. The Dow is down 1.6% for the month, while the Nasdaq is down 1.4%.
But overall, investors continue to buy the dip for stocks. The S&P 500 fell as much as 4% from its record during the month before turning around. Friday was 224 trading days since the last 5% pullback, the 8th longest streak since 1930, according to Goldman Sachs.

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“We continue to exercise caution in the near term, especially as we enter the seasonally weakest part of the year (late September — mid-October),” Larry Adam, CIO at Raymond James, said in a note. “However, given continued robust economic growth, our bias is to hold existing equity exposure or add opportunistically on weakness.”
Elsewhere, bitcoin rebounded about 2% to $43,454 after dropping 5% on Friday. The sell-off came after China’s central bank declared all cryptocurrency-related activities illegal.

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Take a look at some of the biggest movers in the premarket:
Alphabet (GOOGL) – Alphabet’s Google unit will cut the commissions it collects on third-party software sales in its Cloud Marketplace. That’s according to a person familiar with the matter who spoke to CNBC, who said Google will now collect just 3% of sales compared to the prior 20%.

Tesla (TSLA) – Tesla rolled out a software update that allows customers to request access to its Full Self-Driving beta software. Access will be granted to Tesla drivers who get a sufficiently high safety score.
Gores Guggenheim (GGPI) – The special purpose acquisition company will take electric car maker Polestar public through a merger, at a valuation of $20 billion including debt. Polestar is controlled by car maker Volvo and its parent Zhejiang Geely Holding Group. Gores rose 2.4% in premarket trading.
Acceleron Pharma (XLRN) – Acceleron is in talks to be acquired by an unidentified large pharmaceutical company for about $180 per share, according to people familiar with the matter who spoke to Bloomberg. Bristol-Myers Squibb (BMY) is considered one potential candidate, as it already owns an 11.5% stake in Acceleron.
Box (BOX) – Box was upgraded to “market outperform” from “market perform” at JMP Securities, which cited the cloud computing company’s execution among other factors. Box added 2.2% in the premarket.
Altice USA (ATUS) – The broadband and video company was downgraded to “neutral” from “outperform” at Credit Suisse, which notes the likely short-term negative impact from an aggressive fiber buildout strategy. Altice USA slid 1.8% in premarket action.

Toyota Motor (TM) – The automaker’s shares rose 1.3% in the premarket after the company said it had completed a 25.8 million share buyback.
Best Buy (BBY) – The electronics retailer was named a “top idea” at Piper Sandler, which is enthusiastic about the upcoming rollout of Best Buy’s new “Best Buy Total Tech” membership program.
Gannett (GCI) – The USA Today publisher said it was seeking to refinance up to $550 million in senior secured debt. Gannett said its plan was subject to market conditions and that there is no assurance it will be able to execute the refinancing.

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FOR THE average investor, China is the source of all sorts of uncertainty. A regulatory crackdown on social-media and education firms has sent stocks tumbling. Companies with exposure to property are suffering as a result of the government’s clampdown on leverage and a liquidity crisis at Evergrande, a large developer. A ban on cryptocurrency transactions on September 24th knocked the price of bitcoin. And a rush by provincial authorities to meet strict national carbon-emissions targets, together with tight supplies of coal, is causing power shortages, which could in turn weigh on both the wider economy and asset prices.If investors expect Chinese policy to continue to be volatile, then they could start to demand an additional risk premium for holding a swathe of assets. “The intensity of policy change has caught investors off guard,” says Chetan Ahya of Morgan Stanley, a bank. “It’s not clear to investors what the end game is for each sector, so there’s a lot of uncertainty, and it’s this uncertainty that adds to the risk.” Indeed, a risk premium may already be becoming apparent for some assets.Over the past six months the MSCI China Index, an index of stocks listed on the mainland and in Hong Kong, has underperformed global equities by the most in over 20 years. Yields on offshore Chinese high-yield dollar bonds, at around 14.5%, are higher than they were during the covid-induced market panic of March 2020.Analysts at Goldman Sachs, a bank, have attempted to work out what a change in the treatment of so-called socially important sectors—such as education, media and entertainment—might entail for private firms. Although privately owned companies have always had higher returns on equity than state-owned enterprises (SOEs), recent policy changes will act to curtail some of their profits. The range of potential outcomes is huge, depending in part on how much of the private sector will see SOE-like returns. In the most optimistic case, the MSCI China index might already be undervalued by a double-digit percentage. In a more pessimistic scenario, it could be overvalued by a similar amount.Working out which case is more likely is a question more of politics than finance. The policies of any government have a bearing on investment outcomes, and are tracked closely by asset managers around the world. But monitoring and predicting the machinations of the Chinese Communist Party is no simple task for experts, let alone the average Western financier. “For an offshore bond investor, why play this game? Policy could change, and they’re just not cut out for that,” says Alex Turnbull of Keshik Capital, a Singapore-based investment fund.Sure enough, investors in offshore assets have cooled towards China. One way to gauge this is to compare the stock prices of Chinese companies that are listed both on the mainland and in Hong Kong. Equities are typically more expensive at home, as China’s capital controls leave domestic punters with few alternatives. But the gap has widened substantially, with onshore investors paying a premium of more than 45% for identical shares (see chart). The gulf is roughly as wide as it was for much of 2015, when domestic stocks enjoyed a frenetic rally driven by margin debt. So far this year, however, mainland-listed stocks have been roughly flat. The growing wedge reflects the pessimism of international investors not constrained by China’s capital controls, rather than the optimism of mainland punters.Not all assets have a higher risk premium attached to them, though. Interbank-lending markets have been quiescent so far (perhaps aided by liquidity support from the People’s Bank of China). Safe, state-run companies at the heart of the financial system have shown no signs of turmoil. On September 17th Industrial and Commercial Bank of China, a state-owned lender and by some estimates Evergrande’s largest bank creditor, issued $6.16bn in contingent convertible bonds, with the lowest coupon for such a sale for a Chinese company on record. There have been no visible wobbles in sovereign-bond and foreign-exchange markets. That suggests investors seem not to think that the current troubles will shake China’s system of capital controls.What does a higher premium on some assets usually held by foreigners mean for China? For now the economic effect is limited. Although overseas ownership of government bonds has risen in recent years, corporate borrowing is still very much a domestic affair. Foreign institutions own just 1.5% of the roughly 7.6trn yuan ($1.2trn) in medium-term notes in the Chinese corporate-bond market. Some economists argue that China’s ageing population will mean that it starts to run sustained current-account deficits instead of surpluses, which would need to be funded through greater inflows of foreign capital. But those expectations have yet to be realised. The current-account surplus declined to a 25-year low of 0.2% of GDP in 2018, but picked up again in 2019 and 2020.A broad risk premium, though the result of various government initiatives, would defeat another policy objective, however. In recent years regulators have tried to encourage investors to be more discriminating about risk; they have, for instance, permitted more company-bond defaults, in order to dispel the idea that the state will always bail out troubled firms. Those efforts had some clear successes. The spread between the yields of AAA- and AA-rated onshore corporate bonds has risen from 1.7 percentage points two years ago to 2.3 percentage points today. Investors paid more attention to the credit fundamentals of Chinese companies.Now those efforts have been undone. Investors are instead guessing where government policy might go next, and a blanket risk premium is in place, particularly on assets most accessible to foreign investors. Instead of helping investors differentiate risks, the recent barrage of shocks has forced them to apply a broad brush again, with Chinese companies the biggest losers from the shift. More