What’s up with tech stocks?
The Nasdaq Composite, home to many richly valued tech companies, has dropped for four consecutive days, its longest losing streak since October 2020.
It’s not hard to see why. The economy is ripping and the post-Covid recovery is under way—and that’s great news for old-economy stocks, which are crushing new economy stocks in 2021.
Companies such as auto parts giant BorgWarner and General Motors are producing blow out quarters, while investors fret over Peloton recalls and J.P. Morgan CEO Jamie Dimon railing against Zoom calls. Borg and GM shares are up more than 30% year to date, while Peloton is down 45% and Zoom has fallen 12%.
We’re not cherry picking individual stocks either. The Russell 1000 Value Index is up 16% year to date, while the Russell 1000 Growth Index is up 5%.
The tech trade is dead—for now. The Nasdaq trades for about 32 times estimated 2021 earnings. The S&P trades for about 23 times. That’s roughly a 40% premium for tech stocks, well above the pre-pandemic average of about 25%. Investors might get more interested in tech when that ratio looks more normal.
So yes. Nasdaq futures are up again Thursday morning. Just don’t be surprised if its losing streak continues.
—Al Root
*** Alibaba staged the world’s biggest—and perhaps riskiest—IPO in 2014. Hear the story behind how the Chinese internet giant won over Wall Street in a recent episode of The Readback podcast. Listen here.
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U.S. to Back Waivers for Covid-19 Vaccine Patents
The U.S. government signaled Wednesday that it would support a temporary waiver for intellectual property rights on coronavirus vaccines, as advocated by the World Health Organization, in spite of the strong objections of the global pharmaceutical industry.
- “The extraordinary circumstances of the COVID-19 pandemic call for extraordinary measures,” Trade Representative Katherine Tai said, signaling an about-face of the U.S. position that the head of WTO called “a monumental moment in the fight against Covid-19.”
- The proposal, originally presented by India and South Africa within the WTO, aims at boosting vaccine production in developing countries, as the pandemic keeps spreading in large parts of the world.
- The pharmaceutical industry has argued that waiving patents would not address the current manufacturing bottlenecks that explain vaccine shortages, and that it could hand crucial sensitive technology and scientific secrets to countries like Russia or China.
- The EU, along with the U.S., had been opposed to the idea so far, but European Commission President Ursula von der Leyen said Thursday that it was “ready to discuss” the U.S. proposal if it helps “address the crisis in an effective and pragmatic manner.”
What’s Next: The need for unanimity among the WTO’s 164 member countries means it could take months before the proposal is adopted. By then it may become moot, if the richest nations and the industry find a way to organize the supply of vaccines to the big developing countries where the pandemic still rages.
—Pierre Briançon
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Oversight Board Backs Trump Suspension But Criticizes Facebook
Facebook’s independent oversight board rebuked the social media company for failing to state clear rules for users and explain how it enforces them, kicking back to the company a definitive decision on whether to permanently ban former President Donald Trump.
- The oversight panel found Facebook was justified in suspending Trump’s account in January in the wake of the Capitol Hill riots but said it had six months to better explain if or why he should be permanently barred from the platform.
- Wednesday’s decision forces Facebook to more clearly articulate its rules for prominent people and develop penalties when violations happen.
- The board, created in 2019, criticized Facebook’s cooperation with the review. It said “in applying a vague, standardless penalty and then referring this case to the Board to resolve, Facebook seeks to avoid its responsibilities.”
- Trump lashed out after the decision was announced. “What Facebook, Twitter, and Google have done is a total disgrace and an embarrassment to our Country,” Trump said in a statement. “These corrupt social media companies must pay a political price.”
What’s Next: Trump also began fundraising off of the Facebook announcement, texting supporters with a link to donate to his joint fundraising committee Save America, according to NBC News. The ruling could have broad implications for how social media companies police political speech.
—Liz Moyer
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Peloton Recalls Treadmills After Reports of Injuries
Peloton Interactive recalled its Tread+, weeks after the U.S. Consumer Product Safety Commission warned the treadmill was dangerous around small children and pets.
- After one death and 70 other reported incidents related to the Peloton Tread+, the company said it will allow customers to return the device for a refund. Peloton also recalled the lower-priced Tread due unrelated issues with its touch screen inadvertently detaching, causing minor injuries.
- The agency last month urged consumers with children to stop using the Tread+. Peloton initially pushed back, arguing that its device was safe when used according to instructions. Peloton CEO John Foley apologized in a statement on Wednesday.
- Peloton will temporarily stop selling the Tread+ and will add software updates that automatically lock the machine after each use, requiring a passcode to unlock.
What’s Next: Peloton shares fell 14.5% on the news. The company is set to report fiscal third-quarter earnings after today’s close.
—Connor Smith
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Biden Administration Blocks Trump’s Gig Worker Rule
The Biden administration has blocked a Trump-era rule that would have helped companies like Uber, Lyft, and DoorDash more easily classify gig workers as independent contractors rather than employees. As employees, they would be classified under federal minimum wage and overtime rules and be able to join unions.
- Uber, Lyft and DoorDash say their drivers want the flexibility to set their own hours as independent contractors. Lyft spokeswoman Julie Wood said the regulatory action is an “opportunity to refocus the conversation on what drivers need and want, which is independence plus benefits.”
- Labor Secretary Marty Walsh, told The Wall Street Journal last month that “We’ve seen employers are increasingly misclassifying their workers as independent contractors in order to reduce labor costs and take a lot of protections away from workers, including minimum wage and overtime.”
- Uber on Wednesday said that bookings increased and beat analysts’ forecasts for the first quarter, but revenue declined to $2.9 billion, compared with $3.2 billion for the same period in 2020.
- Uber set aside $600 million to resolve a U.K. driver classification dispute. In March, it said it would call its U.K. drivers “workers” going forward, a special classification making them eligible for minimum wages, paid holidays, and a pension.
What’s Next: American factories are struggling to find more than 500,000 workers, including welders, machinists, HVAC workers and entry-level workers. Up to 2.1 million manufacturing jobs could go unfilled through 2030, a shortage that could cost the U.S. economy up to $1 trillion, the Manufacturing Institute and Deloitte warned Tuesday.
—Janet H. Cho
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U.S. Births at Lowest in 41 Years on Pandemic Worries and Economic Uncertainty
The U.S. birthrate fell 4% in 2020, the sixth straight year of decline and the lowest since 1979, according to provisional data from the Centers for Disease Control and Prevention’s National Center for Health Statistics. The birthrate was hurt by pandemic worries, economic uncertainty, and postponed pregnancies.
- Of the 3,605,201 babies born last year, the sharpest monthly drop in births, 8%, came in December, when the first full-term babies conceived after the beginning of lockdowns would have been born. The average maternal age for first births rose to 27 from 21 a decade ago.
- The average number of children American women might have over their lifetimes is 1.64, a record low. Fewer babies are being born than the number needed to replace people who are dying, the CDC said.
- The birthrate, measured as the number of births per 1,000 women ages 15 to 44, is 19% lower than the recent peak in 2007.
- At Ovia Health, which makes a fertility tracking app, a recent poll of 20,000 users found that “nearly a quarter of couples stopped or delayed trying to conceive because of concerns over finances and job security,” CEO Paris Wallace said.
What’s Next: A tumbling birthrate comes amid declining immigration since 2016 and 578,000 American deaths from coronavirus over the past year, the world’s highest death toll, according to Johns Hopkins University data. The U.S. population grew at the second-slowest rate since records began in the 18th century.
—Janet H. Cho
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How do nanny taxes work? They’re complicated, but skipping them is a mistake.
Do you have a household employee like a nanny, caregiver for an elderly relative who moved in with you, or a live-in housekeeper? You may have hired somebody to help out during difficult circumstances caused by the pandemic. Maybe that has turned into a permanent arrangement.
In these scenarios, the dreaded Nanny Tax issue may be in play for work done in the recent past or for work still being done.
The Nanny Tax refers to your duty to withhold and deposit a household employee’s share of Social Security and Medicare taxes on wages paid to the employee and also deposit the employer’s share of those taxes. The employee and employer shares of Social Security and Medicare taxes are collectively referred to as the FICA tax.
You may also owe the federal unemployment tax (FUTA) on wages paid to a household employee.
Finally, you may be required to withhold and deposit state income tax on wages paid to a household employee, and you may have to pay for state unemployment insurance too.
Here is what you need to know about the federal tax issues for household employees.
Failing to comply with nanny tax rules can result in fines and other problems, such as not being protected in the event of a workers’ compensation claim if your household employee is injured on the job.
Read more here.
—Bill Bischoff
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—Newsletter edited by Liz Moyer, Stacy Ozol, Mary Romano, Ben Levisohn
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