Global markets are rallying this morning and U.S. futures are pointing higher as the number of new coronavirus cases, now called COVID-19, diminishes. As of Tuesday evening, China’s National Health Commission reported that a total of 44,653 cases had been confirmed, with 1,113 deaths. Oil futures are back above $50 for the first time in several weeks as Russian authorities meet with crude oil producers to discuss the OPEC+ proposal to deepen cuts to reduce supply. OPEC released its monthly report today and lowered its global oil demand growth forecast due to the coronavirus outbreak.
Fed Chair Jay Powell will resume his semi-annual testimony to the U.S. House Financial Services Committee, but investors may have heard enough yesterday when Powell said the Fed is comfortable with interest rates at current levels, and that low interest rates here in the U.S. and around the world could become an issue if global growth slows, leaving the Fed and its counterparts little room to reduce them further. That could become a real problem in places like Europe as manufacturing in the euro area ended 2019 in a deep slump with industrial production dropping 2.1% in December from a year earlier.
But investors are chasing yield, and they are finding it in stocks.The S&P 500 and the Nasdaq are at record highs, having closed higher four out of the last five sessions. That trend looks to continue today.
Welcome to Wednesday.
- Amazon CEO Jeff Bezos has sold over $4 billion in stock over the past week, according to regulatory filings. After barely selling stock over the past decade, the world's richest person has been unloading shares at a record pace of late. Bezos split with his wife MacKenzie last year, but retains 75% of the couple's interest in Amazon, according to court records. He is also funding Blue Origin, his space exploration company.
- The Federal Trade Commission is looking into past acquisitions made by Amazon, Apple, Facebook, Microsoft, and Google-parent, Alphabet. The FTC will require the companies to give information on past acquisitions not previously reported to the antitrust agencies under the Hart-Scott-Rodino Act. Apparently, the Hart-Scott-Rodino Act does not apply to Sprint and T-Mobile, which were approved to merge in a $26 billion deal.
- Despite more and more record highs for U.S. equities, fixed income has seen the majority of the inflows from investors since 2019. According to Lipper, which tracks fund flows, $382 billion has flowed into bonds since the start of 2019, while $191 billion has flowed out of equity funds. That suggests that there is a lot of money on the sidelines, and large investors may be taking risk off the table.
- Bed Bath & Beyond is experiencing "short-term pain," according to CEO Mark J. Tritton. The company said in a news release Tuesday that same-store sales fell 5.4% during the holiday quarter. BBBY shares cratered 25% in extended trading.
- Bernie Sanders has narrowly won the New Hampshire primary. Wall Street has been nonplussed by the senator's growing popularity so far, but former Goldman Sachs CEO and Chair Lloyd Blankfein made a strong statement on Twitter late last night. Andrew Yang, a supporter of cryptocurrency and universal basic income, has dropped out of the 2020 presidential race. The businessman stood out among the Democratic contenders with his proposals related to technology and jobs, and developed a small but passionate base called the Yang Gang.
The Big Story
Ride-sharing's Path to Profitability
When Uber reported earnings last Thursday, it moved forward its (adjusted) profitability target by a year to the end of 2020. Yesterday rival Lyft did not offer investors the same hope, and the stock is being punished for it.
Lyft's revenue surpassed $1 billion for the first time ever in Q4 2019 and was up 52% YOY. Active riders and revenue per active rider both grew 23% from 2018 to 22,905 and $44.40, respectively. Adjusted EBITDA loss for Q4 2019 was $130.7 million versus $251.1 million in Q4 2018. The company beat expectations on all these metrics, but it still expects to be profitable only by the last quarter of 2021. Shares fell around 5% in extended trading.
Ride-sharing has been one of the most innovative and disruptive technologies of the last decade, but the industry is focused on profitable growth as investors grow increasingly impatient and skeptical. This means raising prices and curbing discounts for customers. A Barclays study said most people won't abandon the platform in such a scenario. The other hope is autonomous cars, but that transition is long and expensive.
Remember the industry's very business model is under threat as regulators demand drivers be treated as employees instead of contractors and better security for passengers. Lyft spent $930,000 and Uber spent $2.36 million last year on lobbying the U.S. government, according to OpenSecrets, placing them both among the top five spenders in the transportation industry.