Wall Street won’t stop betting on the Fed
All year, Wall Street has poured money into risky assets thanks to reassurances that the Federal Reserve would keep interest rates at rock-bottom levels and protect the economy. Looking ahead, investors don’t expect the Fed to reverse course — so they don’t plan to either.
What’s happening: The Federal Reserve’s latest policy meeting wraps up Wednesday. The central bank is expected to reaffirm its commitment to easy monetary policy given the ongoing health crisis and concerns about deep economic scarring without significant support.
Investors will be closely watching the language used to discuss the Fed’s asset purchase program. The central bank’s money-printing efforts have been central to the investment case for stocks this year.
But the consensus is that the Fed is on a very clear path forward, paving the way for another round of healthy returns in 2021.
“This once-in-a-generation global health crisis was met with an almost unprecedented globally coordinated fiscal and monetary response, both of which have led to historically low interest rates and that are likely stay this way until the world can finally free itself from the pandemic,” Brian Belski, chief investment strategist at BMO Capital Markets, wrote in a column for CNN Business.
He continued: “The combination of these conditions has typically supported continued stock market gains in the past, and we see no reason for 2021 to be any different.”
There are some risks to the outlook, of course. If Covid-19 vaccines help deliver an economic boom next year, and people flood out from their homes for trips and shopping, prices could start to rise, forcing central banks to raise rates sooner than expected.
According to Bank of America’s fund manager survey, published Tuesday, 42% of respondents said the vaccine would start positively affecting the economy between April and June, while 28% thought there could be an impact as soon as the first quarter.
But inflation fears are for the future. Right now, Wall Street is gearing up for a rush of activity aided by Fed policy.
“Investor sentiment bullish as vaccine hopes induce strong ‘buy the reopening’ trade,” Bank of America said in its report.
Jerome Powell’s term as Federal Reserve chair doesn’t expire until February 2022, but that hasn’t stopped speculation about whether President-elect Joe Biden will ask him to stick around for another four years. Powell was nominated by President Donald Trump, but Biden — and Wall Street — may find value in continuity during an unstable period.
This helps stocks, too: Congressional leaders in both parties expressed growing confidence Tuesday evening that Washington will be able to cut a last-ditch deal to provide relief to Americans and businesses hit hard by the pandemic.
Democrats and Republicans sounded upbeat following the conclusion of in-person talks between House Speaker Nancy Pelosi, Senate Majority Leader Mitch McConnell, Senate Democratic Leader Chuck Schumer and House GOP leader Kevin McCarthy, my CNN colleagues report.
Nothing has been finalized, and details about the terms of a potential agreement are scarce. But all signs are pointing to an announcement that will include an extension of jobless benefits, loans for struggling small businesses and funding for vaccine distribution. Lawmakers may also extend the federal eviction moratorium and defer student loan payments.
BP bets on trees while Exxon battles a revolt
The contrast between the two oil giants couldn’t be more stark.
On one side of the ocean is BP, which announced Wednesday that it has acquired a majority stake in the largest developer of carbon offsets in the United States. The investment in California-based Finite Carbon is part of the company’s push into clean energy to deliver on its climate goals.
Then there’s Exxon, which is facing down a credible challenge from frustrated investors seeking to overthrow its board of directors, my CNN Business colleague Matt Egan reports.
Led by a new activist firm called Engine No. 1, investors are pushing Exxon to rein in its massive spending ambitions, revamp executive pay and explore a push into clean energy. Engine No. 1 has received support from the Church of England and one of America’s most powerful pension funds: the California State Teachers’ Retirement System, or CalSTRS.
That’s not all. Activist hedge fund D.E. Shaw has built a larger Exxon stake than those held by CalSTRS and Engine No. 1 and is asking the oil company to slash spending to save its dividend and improve its poor performance, according to a person familiar with the matter.
Big picture: The efforts show how far Exxon has fallen. Once the world’s most valuable public company, Exxon’s market valuation has crumbled by more than $200 billion since mid-2014. It’s losing money for the first time in decades and got kicked out of the Dow Jones Industrial Average after 92 years in the benchmark index.
“Historically Exxon hasn’t had to care too much about shareholders,” said Peter McNally, an analyst at Third Bridge Group. “Now they’ve got people rattling their cage.”
Shareholder dissent has been percolating in recent years — especially on the climate front, as activists pushed proposals seeking to force Exxon to disclose emissions targets, stress test its climate risk and separate the CEO and chairman roles.
But unlike those fights, Exxon is now facing a campaign to take control of board seats. Engine No. 1 revealed four individuals with strong energy industry credentials who have agreed to be nominated, “if necessary,” to the Exxon board.
Spotify investors love exclusive content
Wall Street has applauded Spotify’s charge into podcasting — and the streaming service’s stable of formidable talent is only growing.
See here: Spotify has announced an exclusive partnership with Archewell Audio, a new audio production company founded by the Duke and Duchess of Sussex.
Prince Harry and Meghan Markle are just the latest on a list of high-profile names to have inked a Spotify deal. Kim Kardashian West signed an exclusive deal with Spotify in June. Michelle Obama debuted “The Michelle Obama Podcast” on the service in July. And “The Joe Rogan Experience,” one of the most popular podcasts in the world, can no longer be found anywhere else.
The strategy: Dawn Ostroff, Spotify’s chief content and advertising business officer, told CNN Business last year that the company was planning to offer more exclusives as a way to lure customers from the other platforms. Spotify now has 320 million monthly active users, a 29% rise in the past year.
Investors like what they see. The company’s shares have jumped 12% since the beginning of this month after rallying 2% on Tuesday. They’ve risen nearly 120% this year.
JPMorgan analyst Doug Anmuth cites podcasts as a driver of engagement for Spotify moving forward. He thinks that the service could have 520 million users in 2023, including 245 million people who pay for the premium option.
Up next
The British pound is up 0.6% to $1.35 on hopes that the United Kingdom and the European Union can strike a last-minute trade deal.
US retail sales for November arrive at 8:30 a.m. ET. The Federal Reserve makes its latest policy announcement at 2 p.m. ET, followed by a press conference.
Coming tomorrow: FedEx, a key part of global efforts to deliver Covid-19 vaccines, reports earnings.
