fortune--2020-01-27--It’s okay for Tim Cook to go to Davos

It’s okay for Tim Cook to go to Davos

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For a presentation supporting my 2012 book about Apple, I had mocked up a photo illustration of what it would look like if Apple showed up onstage at the World Economic Forum in Davos. I drew a red line through the photo to show that Apple didn’t “do” Davos. Apple had perfected the art of making others come to its events, obviating the need for its executives to chew up time at non-Apple occasions. Though I never wrote down the words, I remember an oft-repeated gag line as I gave the talk, saying something like: “If you see Apple executives on the agenda in Davos, sell the stock.”
That hasn’t happened yet. But the company is more than halfway there. It had escaped my attention until recently that Tim Cook has attended the talkfest in the Alps for two consecutive years, including last week. He hasn’t been on the official program. But he did meet with world leaders, including his professional bestie, Donald Trump.
I’m not ready, either, to declare the downfall of Apple over Cook’s decision to behave like a normal CEO. His behemoth brethren Sundar Pichai of Alphabet and Satya Nadella of Microsoft—together the troika of founder successors—were in attendance, too. Sheryl Sandberg, a true Davos woman, represented Facebook there. (And yes, Cook has spoken twice at Fortune conferences, as have a bevy of Apple executives.)
When I made the observation about how Steve Jobs’s company basically had dissed every other company with its exceptionalism, it was yet another quirky and unique aspect of the brilliant design by a founder who didn’t particularly play well with others. That Cook has softened those edges doesn’t strike me as a sign of Apple’s decline. Neither does its $1.4 trillion valuation.
***
In case you missed my interview in the new issue of Fortune with Sundar Pichai, I got him to open up slightly about his scrutiny of Alphabet’s “other bets” and his management structure. But I think Casey Newton’s criticism of the interview is fair and worth reading … Samasource CEO Leila Janah, was a vibrant, creative, and committed entrepreneur trying to use tech to have an impact. (For an illustration, see my 2016 interview with her in Rome.) She died Friday at age 37 and will be missed by her many friends, partners, and admirers … Book recommendation: Homegoing, by Yaa Gyasi, an ingenious, sorrowful, and gripping tale of slavery, racism, and resilience on two continents.
Adam Lashinsky
Twitter: @adamlashinsky
Email: adam.lashinsky@fortune.com
This edition of Data Sheet was curated by Aaron Pressman.
NEWSWORTHY
Plague patrol. As the deadly coronavirus continues to spread from Wuhan, China, around the world, it turns out that one of the earliest warnings of the outbreak came from a startup called BlueDot. The Canadian company uses A.I. to monitor news feeds looking for signs of infectious disease outbreaks and then make predictions about how they will spread.
Sticking their necks out. Hundreds of Amazon employees on Sunday signed their names to a blog post on Medium criticizing the company's record on climate change. Amazon said the post violates its employee policy on external communications. "We do enforce our external communications policy and will not allow employees to publicly disparage or misrepresent the company," the company said.
M&A all day. Fintech payments company WEX is spending $1.7 billion to acquire Australian payments startup eNett International and British startup Optal. The deals will help Maine-based WEX expand overseas and into the travel payments market.
Reading is fundamental. About a month after a court in Turkey held that the government's ban on Wikipedia was unconstitutional, people in Turkey can again access the online encyclopedia. Turkey's government blocked access to Wikipedia, which has 335,000 articles written in Turkish, in April of 2017.
Are you in the right headspace? Online (and podcast) mattress seller Casper set terms for its initial public offering. Expected to price at $17 to $19 per share, the deal will value the money-losing company at under $800 million, well below the $1.1 billion value it reached in its last private fundraising in 2019.
Rest in peace. In addition to the death of Samasource CEO Leila Janah, Harvard Business School professor Clayton Christensen, who came up with the theory of "disruptive innovation" to explain how new companies used technology to bring down dominant players, passed away on Friday at 67. Many of the most successful tech executives, such as Apple co-founder Steve Jobs and former Intel CEO Andy Grove, credited Christensen's insights with influencing their strategies.
FOOD FOR THOUGHT
Not everyone gets their news from news sites anymore. And with a growing number of readers turning to chat apps like WhatsApp, journalists need to pay more attention to the sometimes false information being spread by these alternative channels, argues Sharon Moshavi, senior vice president at the International Center for Journalists. In an essay for the Columbia Journalism Review, Moshavi says the professional media should try harder to get accurate stories into chat apps, too.
It’s imperative that news media figure out how to map the contours of these opaque, unruly spaces, and deliver fact-based news to those who congregate there. Journalists must experiment with different ways to identify and engage the chat-app influencers and networks that can amplify quality journalism.
If journalists don’t step up, audiences won’t find much credible news on private messaging apps. Over the past two years, according to our survey, newsrooms in seven out of the eight global regions we examined have cut back on the use of these apps as a distribution platform for their content. The steepest drops occurred in Eurasia/ former USSR (20 percentage points), Europe (16 points), and North America (10 points).
IN CASE YOU MISSED IT
What is tech doing to protect the whistleblower’s identity? Not much, experts say By Jeff John Roberts and Danielle Abril
The future of sustainable air travel: How airlines (and you) can fly more efficiently By Danielle Bernabe
Telehealth startup Ro partners with Pfizer to give its ED business a boost By Sy Mukherjee
This tech giant says A.I. has already helped it save $1 billion By Maria Aspan
Ready guest one: Atari-themed hotel deal punctuates the gaming pioneer’s turnaround By Chris Morris
Berlin’s ‘ghost’ airport might finally open—billions over budget and 8 years late By Steven Perlberg
BEFORE YOU GO
Speaking of artificial intelligence combing the world to find signs of imminent disaster, I just finished William Gibson's latest novel Agency about an A.I. program that...combs the world to find signs of imminent disaster and then tries to intervene in human events to help out. Not Gibson's best work and suffering from being the middle book in a trilogy, it was good fun nonetheless. Gibson tells The Guardian it's getting harder to invent a world as weird and crazy as the real world.
Aaron Pressman
On Twitter: @ampressman
Email: aaron.pressman@fortune.com


fortune--2020-01-27--Market preview: 5 pressing questions to hone your investment strategy this quarter

More than 350 Amazon employees risk their jobs to speak about climate crisis

This article is part of Fortune‘s quarterly investment guide for Q1 2020.
Following a relentless rise in the markets in 2019, it’s not easy to know how to approach the markets this year. When markets are falling investors tend to overreact and rush their decision-making. But when markets are rising investors tend to question the legitimacy of those gains. This is especially true for those of us who have lived through two enormous crashes this century. Is the stock market going to crash again? Is the U.S. overdue for a recession? How much will the 2020 election impact how investors feel about risky assets?
Here are five burning questions for investors to consider as we try to digest 10 solid years of market gains.
Are international stocks ready to run?
U.S. stocks have handily outperformed the rest of the world for some time now. There are a number of good reasons for American exceptionalism during this cycle. The U.S. dollar has appreciated relative to most other currencies around the globe. That’s a headwind for foreign stocks and companies. The U.S. also has a far greater weighting to tech stocks than the rest of the world, and technology has been one of the best- performing sectors as companies such as Amazon, Apple, Facebook, and Google have become some of the largest in the world.
Over the past 10 years, U.S. stocks are up roughly 250%, while foreign developed markets and emerging markets have risen just 67% and 35%, respectively, over that time. This disparity has caused many investors to suggest it makes sense to shun international diversification. It’s certainly possible this trend will continue and U.S. outperformance will persist. But history shows the relationship between U.S. and foreign stock market over- and underperformance is quite cyclical:
This chart shows the rolling three-year total return differential between the S&P 500 and the MSCI World ex-U.S. Index. There have been much greater differentials between this return series in the past, but this is the longest run of consistent outperformance by one region of the world going back to 1970. U.S. stocks have been handily outpacing the rest of the world by this measure consistently since 2012 or so.
U.S. stocks currently make up around 50% of total global equity markets, but we account for only 25% or so of world GDP and just 4% of the world’s population. Said another way, the rest of the world still makes up half of all stock market capitalization and provides a bulk of the growth. It can be tempting for investors to keep all of their stocks invested in the U.S. because of the recent outperformance and comfort in investing in what you know. But a home country bias can cause investors to miss out on the important diversification benefits international stocks provide.
Corporations have become more globalized over time, but cycles haven’t been outlawed. Eventually the rest of the world’s stock markets will play catch-up or the U.S. will slow down. It’s just impossible to know the timing of when that will occur.
Should we still be worried about a recession?
Because the U.S. economy is equal parts enormous and dynamic, it’s difficult to come up with useful signals that will tip us off to the timing of the next recession. The only reliable historical indicator we have is the onset of an inverted yield curve. In the past when long-term interest rates have fallen below short-term interest rates, that’s been a sign that the economy is going to slow. You can see each of the past four recessions have followed an inverted yield curve event:
The hard part, again, is the timing. The lag between an inversion and the onset of a recession in these five instances is a range of 10 to 22 months. You should also notice on this chart that we experienced an inverted yield curve towards the end of 2019 for about 15 minutes or so. The curve has now steepened, meaning long-term rates are back above short-term rates, which is what you would expect in a normally functioning interest rate environment.
But the 30-year Treasury recently yielded only 0.5% more than the 10-year Treasury, which itself yielded just 0.2% more than the two-year Treasury. So these spreads remain low by historical standards. It’s hard to say if the yield curve will continue to keep its predictive power in an era where interest rates are as low as they’ve ever been. But this chart is worth keeping an eye on for those who believe an unhealthy interest rate environment is a precursor to an economic downturn.
How will the interest rate environment impact expected returns?
Interest rates have been falling since the early 1980s, but the situation at the moment for investors in fixed income is made even more challenging by the fact that the yields on different-maturity debt have converged. In theory and all else equal, investors should be paid a higher interest rate for accepting the risk that comes with longer maturity on their bonds. This is because the further out you go, the harder it is to project what the future path of interest rates, inflation, and economic growth will be.
At the moment, as we’ve noted, there isn’t much of a difference between the yields investors can earn on 30-year Treasuries and the yield they can earn on two-year Treasuries. A half-percentage-point difference in yield isn’t much of a buffer for taking on 28 more years of maturity and thus, more volatility in price.
Interest rates could always fall further. There’s nothing stopping U.S. bond yields from going negative as they have in other developed countries all across the globe. But eventually, lower interest rates are going to act as a return suppressor on longer-term bond returns, no matter how much risk you’re willing to take in the space.
Investors in fixed-income assets basically have two choices in this environment: (1) You can adjust your return expectations accordingly by planning for lower returns in bonds than investors have become accustomed to; or (2) You can invest in riskier bonds or bond funds that pay a higher yield, such as corporates, mortgage-backed securities, or junk bonds. Understanding your appetite for risk in the land of fixed income is going to be more important than ever in the coming years. Just remember, risk never completely goes away. Earning a higher return typically involves taking more risk, whether you know it or not.
Is the consumer in better shape than most believe?
One of the reasons the 2008 financial crisis was so devastating is because so many Americans were overleveraged. People borrowed too much money to buy houses and other things they couldn’t possibly afford once an economic setback hit. Many are worried we’re due for more of the same when the next downturn hits. You can see total household debt has now surpassed the previous highs from 2007:
Based on the latest reading, we’re fast approaching $14 trillion in U.S. total household debt. The majority of the debt in this country is made up of mortgages (68% of the total), student loans (11%), auto loans (9%), and credit card debt (6%). While overall debt levels are at all-time highs, you can’t simply look at borrowing on its own. You also have to look at the income and assets available to service those debt payments.
Here you can see household debt service as a percentage of income has never been lower, going all the way back to 1980 when the Federal Reserve began tracking this data. Lower interest rates and more high-quality borrowing have both helped clean up the consumer’s balance sheet. Whenever the next economic downturn hits, there will be a number of people facing financial difficulty. That’s a given. But consumers are in a much better position than they were heading into the Great Financial Crisis, making it unlikely the next recession will be as damaging.
Will politics affect the stock market?
The 2020 presidential election is already underway but expect the volume to start getting louder as we head into the first quarter. The Democrats have already had a number of debates, but as that field slowly but surely begins to narrow, the policy implications on the markets and the economy will heat up in earnest. Data from Dimensional Fund Advisors shows that stock market returns have generally been strong under both Democratic and Republican presidential regimes:
Presidents always get blamed far too much when things go poorly and praised too much when things go well on the economic and market fronts. Still, expect to hear more about how much the outcome of the election in 2020 will impact the markets. Expect the predictions and rhetoric to really heat up in the coming months as the debates, poll numbers, and campaign promises come into full swing. Just remember, politicians don’t have nearly as much sway over the markets or economy as people think. And even if they did, there is a huge difference between the things presidential candidates say on the campaign trail and the actual policies they are able to enact while in office.
A final tidbit
With tensions rising in the Middle East following our recent conflict with Iran, many are worried about what’s in store for energy prices. While prices could rise if things get out of control, there is a buffer in the form of prices having gone nowhere for the past decade. In late December 2009, the average price of retail gas in the U.S. was $2.65 per gallon. In late December 2019, the average price of retail gas in the U.S. was $2.63 per gallon. That’s an entire lost decade of gas prices where they went nowhere. Of course, there were fluctuations along this 10-year journey of price points:
It helps that crude oil prices have also experienced a lost decade of their own. WTI crude oil prices have gone from roughly $72 a barrel a decade ago to around $60 a barrel today. Regardless of the reasoning behind this move in prices, the fact that gas prices are the same as they were 10 years ago should be helpful to the U.S. consumer, who accounts for 70% of economic growth in this country.
Ben Carlson, CFA, is the director of institutional asset management at Ritholtz Wealth Management. He may hold assets or securities in some of the investments mentioned in this article.
More from Fortune’s investment guide:
—Start a donor advised fund for your charitable giving
—The health of the economy in nine charts
—Goldman Sachs Asset Management’s Sheila Patel on her 2020 outlook
—Investors are uneasy over the surge of near-junk corporate bonds
—Chasing returns: 12 lessons for real estate investors
—10 stocks that are poised for a stellar 2020
Subscribe to Fortune’s Bull Sheet newsletter for no-nonsense finance news and analysis daily.


fortune--2020-01-27--Q&A: Goldman Sachs Asset Management’s Sheila Patel on her outlook for 2020

This article is part of Fortune‘s quarterly investment guide for Q1 2020.
In September, Sheila Patel was promoted to the role of chairman of Goldman Sachs Asset Management, the Wall Street giant’s $1.3 trillion investment management arm.
Patel started her career as a trader at Morgan Stanley and rose to head of trading strategy at the bank, before joining Goldman in 2003. Over the past 17 years, she’s held a number of major roles at Goldman, including head of U.S. derivatives sales and cohead of equities distribution in Asia; along the way, she was named a partner at the firm and has worked out of Goldman offices in New York and Singapore.
Now based in London, Patel—who sits on Goldman’s prestigious firmwide management committee—helps lead an investment strategy responsible for trillions of dollars in assets held by some of the world’s largest institutional investors. So when it comes to finding a banker with her finger on the pulse of the global financial markets these days, you’d be hard-pressed to find someone as plugged into the current state of affairs as Patel.
For Fortune’s first quarterly investor’s guide, Patel took some time to discuss her expectations for 2020, why millennials increasingly factor into Goldman’s investment philosophy, and what advice she’d give a young trader hoping to make it to the top on Wall Street.
This conversation has been edited and condensed for clarity.
From the ongoing trade dispute between the U.S. and China to rising tensions in the Middle East, there are a lot of headlines for investors to keep track of these days. What would you say is the biggest macro issue influencing your outlook for 2020?
I think you’re right—the last few years have been quite dramatic for investors as they try to contend with geopolitical risks. But when you get down to it, the question we get every year [from investors] is, “Is this the year this extended bull market ends?”
We expect economic activity to be moderately higher than it was last year. There will be slower growth in the U.S., China, and Japan, for sure—but when we look at the overall picture, we’re not seeing the negatives that have made people nervous about owning equities. We see a bit of pickup in sequential growth in the eurozone, which everyone has been waiting to see, and in emerging markets like Russia, India, and Brazil. But we don’t see anything derailing global growth in a [significant] way.
What I’ve witnessed in the last two years is tremendous concern from clients, where they came into January and said now is the time to sell—but it wasn’t. The risk of underweighting U.S. equities early tends to be much costlier to a portfolio than overweighting U.S. equities. We recognize that this is getting on as the longest bull phase we’ve seen, but not every one of these phases has to end in a debacle.
Then what, in your estimation, could conceivably end this bull run?
Our current forecast for the probability of a recession in 2020 is in the range of 20% to 25% in the U.S. and eurozone, which is low. The questions around the trade war are certainly a concern, and election years can always be unpredictable. But we’ve had a de-escalation in the U.S.-China situation, and we’ve also had the removal of a no-deal Brexit risk, though it remains to be seen how that evolves.
On the U.S.-China dynamic, do you see the recent progress made between the two sides on a trade deal as promising, or do you subscribe to the notion that this is a dispute that could roil on for years to come?
I think it’s a dynamic that’s here to stay. You have two extremely important economies to the global markets, and it’s a question of how well they work with each other—whether individual ecosystems start to form around each of them, or whether we have a level of globalization that allows [more] opportunities.
If you take a trade issue to its full conclusion—whether it’s tariffs, or other restrictions on technology and intellectual property that have the U.S. and China in conflict—then companies have to respond, and have to set themselves up so they can run in uncertain circumstances. You’re seeing them have to address their supply chains, and think about the implications of any prolonged [trade] issue. But it’s been relatively contained to this point, and our expectation is for that to continue.
One of the long-term concerns is about a bifurcated system; two [economic] ecosystems is a costly negative for both sides. Have we hit peak globalization? I think it’s a little early to tell, but you can see where the concern comes from.
Shifting to the equity markets, last year was characterized by significant outflows from investors who instead shifted capital into bonds and money-market funds. In 2020, where do you see opportunities for equity investors—particularly those who are finding the current environment in the U.S. too expensive and limited in upside?
Emerging markets are a place where we think, from an active management perspective, that there are opportunities and growth is starting to pick up again. When you look at some of the small- and midcap, off-benchmark companies in the emerging-markets space, there have been some interesting signs. Either they’re domestically focused in a place like India, where growing access to technology and a burgeoning middle class is leading to new opportunities for companies, or it’s something related to changing dynamics in the world, like Brazilian agriculture companies that have done well with increased access to China. We look at emerging markets as providing potentially attractive returns.
What about opportunities in the fixed-income space, which has been increasingly perceived as yield-challenged?
Generally, fixed-income [markets] face some of the same headwinds as far as global growth and fears of a recession, or the shock of a geopolitical issue. That said, the overriding issue that investors have had is a persistent low-yield environment.
As investors have adjusted, we’ve seen real changes in the fixed-income environment; they have to go down the credit spectrum, potentially, or people are pushing out their duration and moving into different areas of the market. There are opportunities in the high-yield space; in such a yield-starved environment, it’s definitely a wider range of investors looking at those areas. And when you hear “emerging markets,” there’s a presumption of more risk—but the fiscal status of various countries in the emerging-markets space leads them to be interesting sovereign debt positions to take on. People have had to be more creative in what they consider appropriate as an investment.
You recently described millennials as a “top driver of alpha” as far as Goldman’s investment philosophy is concerned. What about the millennial demographic, in particular, are you spotlighting and targeting when it comes to your investments?
Millennials are now the most powerful consumer force; there are 2.3 billion of them globally. They’re consuming more, and they’re doing it differently, and that’s a potential tailwind for different companies—whether it’s companies that are offering services online that have traditionally been more brick-and-mortar, or those offering experiences versus products and goods.
On the experiences versus physical goods question, it leads you [away from] luxury brands and the product side of things, but there are interesting things to look at in the travel sector. And there are things that are offered from a convenience perspective; if you look at some of the tech companies in Asia, many of them are creating entire ecosystems in an app—one where I can pay back the money that I owe you, order a taxi, and buy a gift for my sister, all in the same app. These are things we watch very closely.
You’ve also spoken about the increased prevalence of environmental, social, and governance (ESG) criteria, both in how Goldman crafts its investments and in the larger invest management ecosystem at large. How significant is this shift, as far as clients demanding more sustainable investment practices? Is it a genuine priority on their part, or mere lip service?
There’s a trend going on where people are integrating their concerns about various factors that fit within ESG into every facet of their lives. What I mean by that is, I look at my investment portfolio, I look at my pension, and I demand the people who are managing it to consider climate change. People are thinking, “What values do I uphold?” And that’s something that millennials are looking at, in particular.
At every kind of company, people are looking at where they work and asking those companies to have a sense of purpose. And companies themselves are now starting to look at “stakeholders” in a broader sense than just their shareholders, and have all these things to respond to. As we look at it, we’re heading into the next phase as investors where ESG is going to be revealed as something that can truly add alpha if we have the right data to judge it, quantify it, and find the right companies to perform. Europe is probably at the forefront of pushing companies to provide that [ESG-focused] data.
There’s been a lot of talk about the shift to passive investing via index funds and ETFs, and how the institutional investors who constitute your clientele have influenced that evolution. Are there other trends you’re witnessing that are informed by clients’ needs and demands?
As you look at the largest pools of capital globally—the pension funds, sovereign wealth funds, other institutional investors—the low-yield environment in fixed-income has affected all of them, and there’s been a change in the complexion of equity markets globally because companies are staying private longer. The need for yield, and the fact that innovative companies with growth potential are staying private longer, has led to an increase in allocation to alternatives.
That’s reflected in the types of products and asset managers you’re seeing; clients are looking more into private credit, and markets they haven’t looked at before. Private equity, private credit, infrastructure, and real estate have probably been the main beneficiaries of that. As an investor on the institutional side, those are the areas that have offered more attractive returns in this generally benign but low-yield environment.
That trend of companies staying private longer is notable, given some of the high-profile companies that experienced difficulties in their public-market debuts last year. Do you think those challenges will further dissuade private startups from going public? If so, how do you see investors responding?
As an investor, if you want exposure to the full swath of business activity in the U.S. and elsewhere, you want exposure to both the public and private markets. I see a lot of the institutions I work with grappling with these changes—but in the meantime, investors have to invest, pensions have to generate returns, and [the private market] is a space that can’t be ignored.
As I look at 2020, it’s a year where people will move on from looking at this as a binary question. There’s room for both public and private markets, and need for both. What the debate should hinge on is: When are companies ready to be in the public market, such that they have a business model and a structure that is suitable for public investment? It isn’t appropriate for all of them to be public.
What advice would you give young people starting out in finance who strive to make it to the top of such a competitive field?
I got a piece of feedback when I was just an analyst only a few years out of college; it was from one of the few women managing directors I was around at the time. I was working in investment banking at the time: staying up late, building models, working on a lot of convertibles and derivatives. She said in my review that my quantitative skills were great, but she thought I should move to the trading desk because I had a skill at interacting with people and explaining things, and that should be something I should leverage more.
I remember, as a young person, being insulted—I thought my quant skills were the most important thing. But no one should underestimate how important relationships are, and being able to explain things, take problems apart and put them back together in a way that people understand. In finance, we get so wrapped up in numbers, we forget that at the end of the day it’s about people and the problems we solve. There are plenty of people who can solve the math equation, but sometimes you need to be able to listen to someone’s problems and solve them.
More from Fortune’s investment guide:
—Start a donor advised fund for your charitable giving
—The health of the economy in nine charts
—5 pressing questions to hone your investment strategy this quarter
—Investors are uneasy over the surge of near-junk corporate bonds
—Chasing returns: 12 lessons for real estate investors
—10 stocks that are poised for a stellar 2020
Subscribe to Fortune’s Bull Sheet newsletter for no-nonsense finance news and analysis daily.


fortune--2020-01-27--The health of the economy in nine charts

This article is part of Fortune‘s quarterly investment guide for Q1 2020.
We are living in the longest economic expansion in American history. When the last recession hit in December 2007, most of us still had flip phones and hadn’t yet created a social media presence. And many younger workers today have no clue what a downturn looks like. Case in point: Justin Bieber was 15 when the Great Recession ended in the summer of 2009.
But the hard truth is the good times are going to end—the only question is, When?
Some economic signals are already flashing yellow or even red. In August the U.S. yield curve temporarily inverted—long seen as a recession precursor. And in the final months of 2019, the U.S. manufacturing sector started to contract. Then again, the economy is still hitting some high notes, like rising building permits and a strong holiday shopping season.
To get an indication of where the economy is headed in the early months of 2020, Fortune pulled nine top economic indicators. We looked at both leading economic indicators like new building permits and the purchasing manager index, along with core economic stats like GDP and the unemployment rate. Taken together they can give investors a sense of where things are today—and where they might be headed.
The charts are shaded between December 2007 and June 2009, when the U.S. economy was last in recession.
The U.S. economy grew at 2.1% in the third quarter of 2019. That’s neither robust nor weak. It’s a steady uptick that is similar to what we’ve seen in most quarters during this record long expansion.
But the latest GDP numbers also show some weakness, including declines in exports and private investment. But those drops are offset by consumer spending, which continues to push the economy forward.
The unemployment rate is well below the 5% rate that many economists recently considered full employment in the U.S. That’s helping Americans secure bigger paychecks.
Economists consider the jobless rate a strong lagging indicator, meaning it’s an excellent snapshot of what is happening now, but it doesn’t really tell us what is coming next.
The yield curve inverted in August 2019 when long-term rates were temporarily lower than short-term rates. That’s important because it signifies that long-term outlook is poor, and usually this precedes a recession. The good news is that long-term Treasury rates have since improved relative to short-term rates.
In December, American manufacturing posted its worst month since the Great Recession. Whenever PMI drops under 50, it signifies a contraction in the sector. We’re currently at five straight months with the index under 50.
“The headline numbers are bad. This is the weakest it has been in 10 years,” says Tim Fiore, the chair of Institute of Supply Management’s Manufacturing PMI Business Survey Committee. This is a moderate contraction, he says, and is the result of the U.S.–China trade war.
When businesses start pushing back business orders or canceling them, it can forewarn of troubling economic times ahead. In the latter half of last year, firms did just that. However, “the US economy is expected to continue to expand over the next three to six months with growth accelerating modestly, based on insights from the Coupa BSI,” says Jeff Collins, lead economist at Coupa. “Planned business spend appears to be rebounding as trade concerns wane and Fed interest rate cuts propel the longest expansion in U.S. history.”
Consumers are the backbone of the economy. As exports and business investment fall, consumer spending is what’s keeping GDP figures moving upward. So it’s good to hear that consumers are still confident.
“Consumers continue to support economic growth, but on the other hand we don’t expect significant growth in consumer spending or the economy as a whole,” says Lynn Franco, senior director of economic indicators and surveys at the Conference Board.
When the Shiller P/E Ratio gets high, it points to an overvalued stock market. The price-to-earnings ratio is above its pre-recession peak. However, it’s still below levels it hit before the dotcom bubble popped. Then again, it is higher now than it was leading up to Black Tuesday in 1929.
If we enter a recession in 2020, it’s unlikely it will come from the housing sector. Home price growth is moderate compared with insanely high bubble days, and homebuilding is steadily growing. And the recent uptick in permits suggest this will be a solid year for construction.
Americans are buying fewer cars. That’s bad news for firms like Ford and General Motors, and for U.S. auto plants and suppliers that are the backbone for huge swaths of the Midwest and South.
Now let’s look at our scorecard and see how these nine economic indicators are flashing. Cheat sheet: Green = signaling growth, yellow = steady, and red = forewarning trouble.
Green: Two metrics (unemployment rate and building permits)
Yellow: Five metrics (GDP growth, the yield curve, consumer confidence, stock price to earnings, and vehicle sales)
Red: Two metrics (manufacturing purchasing managers index and business spend index)
The trajectory of the economy in early 2020 is pointing to neither a boom or a bust, but instead it looks like we’ll get more of the same: modest economic growth. Which, considering this bull market has run for more than a decade, is not a bad place to be.
More from Fortune’s investment guide:
—Start a donor advised fund for your charitable giving
—Goldman Sachs Asset Management’s Sheila Patel on her 2020 outlook
—5 pressing questions to hone your investment strategy this quarter
—Investors are uneasy over the surge of near-junk corporate bonds
—Chasing returns: 12 lessons for real estate investors
—10 stocks that are poised for a stellar 2020
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fortune--2020-01-27--10 stocks that are poised for a stellar 2020

This article is part of Fortune‘s quarterly investment guide for Q1 2020.
Thinking back to December 2018, the story was pretty bleak. A nearly 10% plunge of major indexes in December (the worst December since 1931) rang recession alarms, and the Dow Jones industrial average and S&P 500 both posted their worst Christmas Eve losses on record.
Today’s situation and that one are poles apart. Going a month into the first fiscal quarter of 2020—and a brave new decade—markets are buoyed by renewed optimism. In fact, markets ended 2019 on a high note, with the S&P 500 gaining nearly 29% for the year. Ever-faithful consumers have held up their end of the bargain thus far, and GDP looks on track for a rise of over 2% this year. A phase 1 trade deal with China (the lack of which was a pivotal concern for investors and executives alike) was signed in the first weeks of 2020, and a higher degree of resolution over Brexit adds another level of economic certainty—something investors have been chasing all year.
“I am struck by how absolutely polar opposite the sentiment and the market is today versus a year ago,” James Tierney, CIO of concentrated U.S. growth at AllianceBernstein, notes. Yet Tierney is one of many portfolio managers who aren’t exactly flush with optimism. “I think the question investors have to ask is, is all the good news priced in? For me, a lot of it is.”
For those like Ramiz Chelat, deputy portfolio manager of asset manager Vontobel’s $33 billion Quality Growth Boutique’s Global Equity Strategy, this renewed optimism in the strength of the expansion may be premature. “Everything points toward a slower growth, lower growth environment in 2020.”
The challenge for stock investors in the upcoming quarter, portfolio managers say, is to remain defensive while looking for opportunities, namely companies that can thrive in a lower growth environment, according to Mark Baribeau, head of global equity at Jennison Associates.
For others, the 180-degree reversal of the Fed’s rate cuts in 2019 were far more significant than other geopolitical headline grabbers. But investors can’t bank on the same support this quarter, some say. “I think [this] year the rubber has to hit the road. We can’t expect the same type of multiple expansion with what the Fed did [last] year,” says Todd Ahlsten, the CIO and manager of Parnassus’s $18.7 billion Core Equity Fund.
The solution? Focus on companies that can sustainably grow earnings without depending on a supportive Fed or accelerating macro growth into 2020. Says Tierney, “You can’t count on the whole broad market elevating further, [so] I think it becomes much more company [based] or situational in terms of what’s going to drive things in 2020.”
With those challenges (and upsides) in mind, Fortune asked five top portfolio managers how they’re strategizing for the first quarter. Here are 10 stocks these managers are eyeing to kick off the roaring ’20s.
Alibaba Group (BABA, $214)
Growth in China was tepid in 2019, slowing to 27-year lows by the third quarter—and analysts aren’t anticipating much acceleration just yet. But one company that is seemingly defying this overall growth trend (and, instead, generating some of its own) is Chinese staple Alibaba Group. The world’s largest retailer has been able to tap into China’s lower-tier cities, those that are smaller than their Beijing-size counterparts—which are increasingly wielding more spending power. The stock is trading at an all-time high, having risen some 55% last year. Still, not only is Alibaba expanding its footprint, but Vontobel’s Chelat maintains that “Alibaba has done an incredibly good job of both expanding the number of categories people can buy items in…and it’s also expanded the number of merchants.” That’s why he thinks that growth in the value of items users purchase on the platform will be “very strong” leading into 2020—and, combined with the retailer’s push to invest in new areas like video content and logistics, could help grow earnings by 20% to 30% sustainably over the next three to five years.
Disney (DIS, $140)
Make no mistake: Portfolio managers aren’t predicting the same kind of multiple expansion investors saw in 2019 as we enter the first quarter. In fact, Parnassus’s Todd Ahlsten suggests focusing on companies that are “going to grow their earnings [this] year in a sustainable way and are not betting on multiple expansion or [the] Fed [to] stimulate returns.” One company that fits the bill for Ahlsten is Disney—a stock he notes has “particular catalysts” for further growth heading into 2020. The Bob Iger–led behemoth launched its much-anticipated streaming service, Disney+, in November—which garnered over 10 million subscribers in its first couple of days. Ahlsten sees Disney’s investment push into cord cutting as a selling point, as the media conglomerate is putting capital into its direct-to-consumer business and ESPN+ streaming service, while snatching up Fox assets. All that growth is going to come at a price, as the stock is nearing all-time highs. But with analysts expecting it to grow revenues by 18% in this fiscal year, Disney is poised to keep making magic for investors.
Cisco (CSCO, $49)
The world is increasingly moving to 5G, and 2020 will be a pivotal year in the shift. As Apple plans to launch its 5G iPhone in September, telecommunications and hardware titan Cisco is poised to be a key player in 5G technology. That’s why the company “should be a winner in 2020,” according to Diane Jaffee, who manages global asset manager TCW’s Relative Value Large Cap Fund. She likes Cisco’s strong product pipeline and growing popularity in security-embedded switches and routers—but she also thinks Cisco will be a strong defensive play in the first quarter amid geopolitical uncertainty. “In this kind of environment where the world is aflame, you do want the power of a very large, super well-run company,” Jaffee says. Apart from doling out a 2.9% dividend yield, Cisco currently comes cheap—trading at around 19 times earnings (the sector average is 24).
Charles Schwab (SCHW, $47)
Financials were touch and go in 2019, as Fed rate cuts and slumping growth pulled many names in the sector down. Yet some managers are seeing signs of life going into the first quarter of 2020, and AllianceBernstein’s Tierney has his sights set on Charles Schwab. Despite a rocky 2019 for the stock (it’s currently trading some 19% off its all-time high in 2018), Tierney thinks Schwab’s megadeal to acquire online brokerage TD Ameritrade, announced in late November, will bolster the stock in 2020. “That’s a company that’s creating their own engine of earnings growth, and we think that’s meaningful,” Tierney says. “Assuming the deal does happen, there’s a heck of a lot more upside in Schwab.” In fact, he thinks the deal (if approved) will provide for 15% to 20% of cash earnings over the next three years through savings on costs and increased combined revenues. To wit, Tierney suggests that a Fed on pause heading into 2020 and rates inching back up should be a positive boost to Schwab’s underlying business by helping to stabilize its net interest income on client cash.
Shopify (SHOP, $465)
Software-as-a-service (SaaS) companies were all the rage in 2019, and according to Jennison’s Baribeau, they’re still looking like a good bet this year. Baribeau owns Shopify, the e-commerce platform that enables entrepreneurs to set up shop and sell their goods with customized software stacks. The company’s stock may have seen a triple-digit increase last year, but Baribeau says it still looks good going into 2020. He highlights the company’s international expansion as an important shift this year—as he puts it, “taking their success from North America and moving it globally.” With roughly 45% topline growth in the last quarter of 2019, Shopify is looking to grow revenues another 36% in its upcoming fiscal year.
Medtronic (MDT, $119)
With 2020 an election year (and a particularly contentious one at that), one sector earmarked for headwinds is health care. As various candidates debate Medicare for All and advocate curbing drug prices, few health care stocks are immune from potentially getting hit. But one stock Vontobel’s Chelat thinks has some downside protection and minimal exposure to pharma worries is medical device maker Medtronic. Ramiz is bullish on the company’s strong pipeline of pacemakers, cardiovascular devices, insulin pumps, and robotics, and he says investors are just now beginning to see the benefits of the company’s ramp-up in investment in product innovation over the past three years. He thinks Medtronic “can provide very predictable earnings growth and will potentially see some acceleration as a result of this better pipeline that they have.” To wit, the stock is estimated to trade at around 19 times expected earnings this year, coming in on the cheaper side of the health care sector at large.
IQVIA (IQV, $158)
For investors wanting to avoid Big Pharma heading into 2020, AllianceBernstein’s Tierney favors contract resource outsourcing company IQVIA, which has been steadily gaining share in the health care–adjacent space. IQVIA provides analytics, tech solutions, and contract research services to biotech and big drug companies. Trading at over 100 times sales, the company is one of the most expensive stocks on Fortune‘s list, but 2020 is shaping up to be a big year for IQVIA. In fact, the company announced in late December that pharma giant AstraZeneca contracted IQVIA’s Orchestrated Customer Engagement (OCE) platform to aid its digital push—what Tierney calls a “big engagement” from AstraZeneca that’s helping IQVIA gain “tremendous” share. “This is a company [where] there’s more R&D going on,” he says. “I love that short term and long term.” That momentum has IQVIA projecting over a 7% pop in revenues in the next fiscal year.
Adyen (ADYEY, $18)
The digital payments space continues to be hot for investors going into 2020, and some of them, including Jennison’s Baribeau, favor Netherlands-based Adyen. In late December, the global payments company inked a deal with U.S. fast food powerhouse McDonald’s for the use of Adyen’s platform (what Baribeau calls a “landmark victory” for the company), which will begin to roll out in the U.K. in the first quarter of 2020. “[Adyen is] now making big headlines in the United States, where their market share is quite low. It’s because of their technology stack that they’re winning in the market,” says Baribeau. That tech stack, Baribeau suggests, has helped contribute to the company’s nearly 40% topline growth rate. Another thing that’s growing? Adyen’s share price, which nearly doubled in the past year. But Baribeau believes Adyen’s McDonald’s deal shows its technology is applicable to traditional retail as well, and that the company is poised to scoop up more share in the U.S. in 2020. “It’s one of these underappreciated growth drivers, and we think it could emerge as a big payments platform [this] year,” he contends.
CME Group (CME, $209)
According to Parnassus’s Ahlsten, “Volatility was not the trade you wanted [in 2019]”—but it might be in 2020’s first quarter. With a bevy of potential boat-rockers for markets—including tensions in the Middle East, a U.S. President’s impeachment, continued questions over trade, and a Fed that’s pumping the brakes—Ahlsten is bullish on options and futures trading titan CME Group as a volatility play. The stock has traded off slightly since fall of last year. And as a “fantastic, high-margin cash flow business” that pays a 2.3% dividend, Tierney thinks CME is a good stock to have in the portfolio if markets go topsy-turvy. As a stock that typically goes up if volatility spikes, “that’s going to be a really good place to be,” he says.
General Electric (GE, $12)
While mounting geopolitical tensions aren’t a death knell for the markets by any means, some managers are exercising caution in an already tumultuous first quarter. TCW’s Jaffee sees this quarter as an opportune time for General Electric—a stock that saw an impressive boost in 2019, rising over 40% last year, but is still some way off from all-time highs. After a long fall driven by a combination of business catastrophes and accounting controversies, GE’s stock finally appears to have bounced off the bottom in 2019. Two different avenues show promise for GE going into 2020, Jaffee suggests—its gas turbine business and its burgeoning offshore wind turbine unit. In an uncertain climate regarding international troubles, she notes GE’s gas turbines present a “very important power business that’s on the mend,” and that the possibility of conflict “actually is benefiting [GE] a little more.” On the other hand, GE’s new alternative energy push via its Haliade wind turbines offshore at the port of Rotterdam is already becoming “an increasingly important role for [GE] internationally.” Estimated to trade at around 17 times earnings this year, the stock is one of the cheapest on Fortune‘s list, but the troubles that made the stock so inexpensive may finally be receding.
All stock prices calculated as of 01/24/2020.
More from Fortune’s investment guide:
—Start a donor advised fund for your charitable giving
—The health of the economy in nine charts
—Goldman Sachs Asset Management’s Sheila Patel on her 2020 outlook
—5 pressing questions to hone your investment strategy this quarter
—Investors are uneasy over the surge of near-junk corporate bonds
—Chasing returns: 12 lessons for real estate investors
Subscribe to Fortune’s Bull Sheet newsletter for no-nonsense finance news and analysis daily.


fortune--2020-01-27--Survivors return to Auschwitz 75 years after liberation

Survivors of the Auschwitz-Birkenau death camp gathered Monday for commemorations marking the 75th anniversary of the liberation of the camp, using the testimony of survivors to warn about the signs of rising anti-Semitism and hatred in the world today.
In all, some 200 survivors of the camp are expected, many of them elderly Jews who have traveled far from homes in Israel, the United States, Australia, Peru, Russia, Slovenia and elsewhere. Many lost parents and grandparents in Auschwitz or other Nazi death camps, but today were being joined in their journey back by children, grandchildren and even great-grandchildren.
Most of the 1.1 million people murdered by the Nazi German forces at the camp were Jewish, but among those imprisoned there were also Poles and Russians, and they will also be among those at a commemoration Monday led by Polish President Andrzej Duda and the head of the World Jewish Congress, Ronald Lauder.
Auschwitz was liberated by the Soviet army on Jan. 27, 1945.
World leaders gathered in Jerusalem last week to mark the anniversary in what many saw as a competing observance. Among them were Russian President Vladimir Putin, U.S. Vice President Mike Pence, French President Emmanuel Macron and Britain’s Prince Charles.
Politics intruded on that event, with Duda boycotting it in protest after Putin claimed that Poland played a role in triggering World War II. Duda had wanted a chance to speak before or after Putin to defend his nation’s record in face of those false accusations, but he was not giving a speaking slot in Jerusalem.
Ukraine’s President Volodymyr Zelenskiy is expected at the event at Auschwitz, which is located in southern Poland, a region under German occupation during the war.
London Mayor Sadiq Khan was guided through the camp by museum director Piotr Cywinski and viewed a plaque that now includes the name of his city after it recently pledged a contribution of 300,000 pounds for the site’s preservation.
Organizers of the event in Poland, the Auschwitz-Birkenau state memorial museum and the World Jewish Congress, have sought to keep the spotlight on survivors.
“This is about survivors. It’s not about politics,” Lauder said Sunday as he went to the death camp with several survivors.
Lauder warned that leaders must do more to fight anti-Semitism, including by passing new laws to fight it.
On the eve of the commemorations, survivors, many leaning on their children and grandchildren for support, walked through the place where they had been brought in on cattle cars and suffered hunger, illness and near death. They said they were there to remember, to share their histories with others, and to make a gesture of defiance toward those who had sought their destruction.
For some, it is also the burial ground for their parents and grandparents, and they will be saying kaddish, the Jewish prayer for the dead.
“I have no graves to go to and I know my parents were murdered here and burned. So this is how I pay homage to them,” said Yvonne Engelman, a 92-year-old who came from Australia, joined by three more generations now scattered around the globe.
She recalled being brought in from a ghetto in Czechoslovakia by cattle car, being stripped of her clothes, shaved and put in a gas chamber. By some miracle, the gas chamber that day did not work, and she went on to survive slave labor and a death march.
A 96-year-old survivor, Jeanette Spiegel, was 20 when she was brought to Auschwitz, where she spent nine months. Today she lives in New York City and is fearful of rising anti-Semitic violence in the United States.
“I think they pick on the Jews because we are such a small minority and it is easy to pick on us,” she said, fighting back tears. “Young people should understand that nothing is for sure, that some terrible things can happen and they have to be very careful. And that, God forbid, what happened to the Jewish people then should never be repeated.”
In Paris, French President Emmanuel Macron paid his respects at the city’s Shoah Memorial and warned about rising hate crimes in France, which increased 27% last year.
“That anti-Semitism is coming back is not the Jewish people’s problem: It’s all our problem — it’s the nation’s problem,” Macron said.
More must-read stories from Fortune:
—Seattle area election puts mobile, online voting to its first big test in the U.S.
—5 surprising consequences from a decade of Citizens United
—Understanding the 2020 election as brand marketing
—Why so many 2020 presidential contenders are running for the exit early
—Millions have been purged from voter rolls—and may not even realize it
Get up to speed on your morning commute with Fortune’s CEO Daily newsletter.


fortune--2020-01-27--One smart money move: Start a donor advised fund for your charitable giving

This article is part of Fortune‘s quarterly investment guide for Q1 2020.
If you ever want to see what true love looks like, just ask financial planners about donor-advised funds.
They swoon like schoolchildren, and for good reason. Such funds are the hottest thing in philanthropy right now, making life much easier for givers and planners—as well as benefiting charities themselves.
“It makes it all really easy,” says Eileen Heisman, president and CEO of the National Philanthropic Trust. “You can be a grantmaker 24/7, and you never even have to write a check.”
Here’s how they work: You make a donation to a donor-advised fund, and get the immediate tax deduction. You can invest those funds for growth, just as you would in other vehicles like 401(k)s or IRAs. So if your $300 grant grows to $500, say, you now have $500 to dole out to worthy causes.
When you want to make that donation to a charity of your choice, the fund will handle that for you, presuming your desired recipient has official charitable status. An added bonus, if you are donating stock: You get the deduction for the full value, but you don’t have to pay capital gains on whatever increase you may have enjoyed.
A big part of the attraction is simple housekeeping: Rather than your charitable donations consisting of $20 here and $20 there, spread over a host of different organizations and never properly tracked, donor-advised funds reduce it all to a simple statement. That’s very helpful come April 15, and this accounts for the ardor of accountants and financial advisers.
Judging purely from the numbers, donor-advised funds are a hit. Total assets in the U.S. as of 2018 were $121.42 billion, according to a 2019 study of almost 1,000 plan sponsors from the National Philanthropic Trust. That’s up 10.5% from the year before.
Meanwhile, contributions for 2018 amounted to $37.1 billion, leading to a record $23.4 billion in grants for the year. The hottest subset: individual accounts. In fact such grants now add up to 12.7% of all individual giving in the country.
Think of it as your own private philanthropic venture, but without all the hassles of an actual foundation (like management and filing tax returns). It also features lower barriers to entry than private foundations: The minimum initial grant to set up a giving account with Fidelity Charitable, for instance, is $5,000. If your workplace offers such accounts, you don’t even have that hurdle.
Fidelity’s offering is the largest grantmaker in the country, giving more than $40 billion to 294,000 charities since its inception back in 1991. Other major players in the field include Schwab Charitable, the Silicon Valley Community Foundation, Vanguard Charitable, and the National Philanthropic Trust itself.
DAFs seem to have gotten extra momentum from recent tax reform, passed by the Trump administration at the end of 2017. Because you can group multiple years of giving in a single year, you can strategize to get over the raised level of standard deductions, and thus claim the full tax benefits of giving.
They may not be right for everyone, though. Donations are irrevocable, for one thing. So even if the money is just sitting there in the account and hasn’t been doled out to any charity, you can never change your mind and withdraw it for yourself, even in cases of a personal financial crisis. “If you are ever going to need that money to live on, you shouldn’t do it,” says Heisman. Or if your giving tends to focus on people or causes that don’t have official charitable status, then this type of fund may not be an appropriate fit.
But otherwise, DAFs are an elegant solution for helping a world that very much needs a hand right now. Financial planners are employing them to cement and deepen relationships with clients—going beyond just talk of asset returns, into a more holistic view of what impact they want to have with their lives, something that can extend to future generations as well.
“I love DAFs for so many reasons,” raves Brian Behl, a financial planner in Pewaukee, Wisc. “The ability to lump together multiple years of giving to itemize deductions, the ease of donating appreciated holdings, the relatively low costs compared to family foundations, easier administration and record-keeping—and the ability to leave a real family legacy.”
More from Fortune‘s investment guide:
—The health of the economy in nine charts
—Goldman Sachs Asset Management’s Sheila Patel on her 2020 outlook
—5 pressing questions to hone your investment strategy this quarter
—Investors are uneasy over the surge of near-junk corporate bonds
—Chasing returns: 12 lessons for real estate investors
—10 stocks that are poised for a stellar 2020
Subscribe to Fortune’s Bull Sheet newsletter for no-nonsense finance news and analysis daily.


fortune--2020-01-27--Plane crashes in Taliban-held area in Afghanistan

A plane has crashed in an area controlled by the Taliban militants in eastern Afghanistan, according to the country’s Civil Aviation Authority.
It is unclear to which airline the plane belonged. Afghanistan’s second Vice President, Sarwar Danish, said at an event in Kabul that a passenger plane owned by country’s national carrier, Ariana Afghan Airlines, crashed in the Deh Yak district of Ghazni province. However Ariana denied reports one of its planes was involved and said it was operating as normal.
Civil Aviation Authority spokesman Mohammad Naeem Salehi said by phone the crash occurred around 1:00 p.m. Monday. He could not provide further information as the agency was still looking into the incident.
The crash occurred as the plane was flying between Kandahar and the capital Kabul, said Adam Khan Sirat, a police spokesman of Ghazni province, by phone. Rescue teams have been dispatched to the area and the casualties are not yet known, he added.
No other details were immediately available.
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—What the alleged Saudi hack of Jeff Bezos says about encryption
—A.I. in China: TikTok is just the beginning
—The long ocean voyage that helped find the flaws in GPS
—Mysterious GPS outages are wracking the shipping industry
—Into the ‘crucible’: How the government responds when GPS goes down
Catch up with Data Sheet, Fortune’s daily digest on the business of tech.


fortune--2020-01-27--The Koch political network has given itself a new job—advising tech firms how to stand up to Washing

The Koch political network has given itself a new job—advising tech firms how to stand up to Washington

The Koch political network is advising tech companies that have come under fire in Washington that they should act as good stewards of data but resist pressure to police political ads or give the government access to encrypted devices.
After the group spent years defending business and telling the government to stand back, it released principles on Monday that press companies to change their behavior. They call on firms to be “responsible stewards of the data they collect, use, store, and share,” post clear data-use policies, and be transparent about problems.
“At a time when the tech industry is under increasing scrutiny from D.C., we think it’s critical that companies remain committed to a principled approach,” said Jesse Blumenthal, vice president of technology and innovation at Stand Together.
The manifesto is a further sign that the network of political groups and non-profits founded by billionaire industrialist Charles Koch and his late brother, David Koch, is shifting its focus away from the Tea Party-style politics it helped create a decade ago, which experts say gave rise to a more nationalist, populist Republican Party — and President Donald Trump.
Now, the Koch-affiliated groups are increasingly emphasizing tech policy. Charles Koch, 84, is courting the mostly liberal denizens of Silicon Valley. His son, Chase, 42, is pouring money into tech startups as part of an initiative to diversify the family business, many of whose products are derived from fossil fuels. The younger Koch is “interested in helping to shape our vision across issue areas, including tech,” said Jim Fellinger, spokesman for Stand Together, the umbrella name for the Koch network.
Blumenthal praised Facebook Inc. for its controversial decision to leave its political-ads policy intact and not fact-check the ads in the name of free speech. He also said Apple Inc. was right to oppose the U.S.’s renewed push for so-called back doors into encrypted iPhones.
Bipartisan Approach
The Koch organizations have broken from Trump over several high-profile issues, including trade and immigration. They have backed away from supporting some Republicans and focused on issues, such as criminal-justice reform, with more bipartisan appeal. The splits have diminished the network’s clout in conservative circles.
The group said it will promote its principles in Washington through Facebook and Twitter ads. Blumenthal said it will also refer to them in future statements, conversations with lawmakers and interactions with the companies themselves.
Aside from data stewardship, free speech and surveillance, the Koch document also wants corporations to push back on government regulation and embrace emerging technologies.
Companies should also stop seeking special deals from government, Blumenthal said, adding that the U.S. risks losing its global leadership to countries like Russia and China if the tech sector backs away from free-market ideals.
The principles come as many lawmakers, regulators and consumer groups have expressed frustration with internet companies’ privacy lapses, alleged anti-competitive practices and controversial content that users post or advertise.
Encryption Fight
Some companies and trade groups argue that the industry should accept light regulation on privacy and artificial intelligence as a way to fend off more onerous rules. In a sign that the Kochs remain true to their libertarian roots, Blumenthal said that such proposals concede too much on important issues.
The group’s document urges companies to defend free speech in particular. Last year, Twitter announced it was ending political ads, and Google’s YouTube has moved to limit political ad targeting, both in response to concerns about election misinformation.
Lawmakers and civil rights groups have argued that the platforms have allowed politicians and foreign actors to spread misinformation — a concern Twitter Chief Executive Officer Jack Dorsey acknowledged in his company’s announcement.
The tech sector should also hold the line against warrantless government surveillance and access to encrypted data, the principles say. The Trump administration’s recent push on the issue has focused on an iPhone used by the gunman in a December terrorist attack. Blumenthal praised the Cupertino, California-based phone maker for being among “businesses standing up to government and productively saying no.”
Stand Together also pressed companies to avoid using regulation or antitrust enforcement to hinder competitors. Blumenthal pointed to Yelp Inc.’s longtime allegations of anticompetitive behavior against Google as well as Google’s own role in pushing 2015 net neutrality rules, since repealed, that regulated broadband providers.
“That’s just corporate welfare,” Blumenthal said.
More must-read stories from Fortune:
—Seattle area election puts mobile, online voting to its first big test in the U.S.
—5 surprising consequences from a decade of Citizens United
—Understanding the 2020 election as brand marketing
—Why so many 2020 presidential contenders are running for the exit early
—Millions have been purged from voter rolls—and may not even realize it
Get up to speed on your morning commute with Fortune’s CEO Daily newsletter.


fortune--2020-01-28--Arizona’s very first luxury resort—originally opened in 1896—is back in business

Why 2020 is shaping up to be a strong year for IPOs

To travelers, Arizona is known for some of the Southwest’s most iconic vacation destinations—from sprawling golf and tennis facilities to innovative wellness retreats to bucket-list natural attractions. But its newest luxury hideaway is in fact also its oldest.
The recently reimagined Castle Hot Springs—a 70-minute drive north of Phoenix in the craggy, saguaro-dotted shadows of the Bradshaw Mountains—originally opened in 1896, pioneering the high-end resort concept in the state.
Listed on the National Register of Historic Places, this 210-acre refuge was beloved by some of America’s most renowned families (the Vanderbilts, the Astors, the Roosevelts, and the Wrigleys) thanks to its off-the-grid location and calming, restorative waters. But despite its sparkling past, Castle Hot Springs was through the years beset by challenges, including devastating fires. The most recent one, in the 1970s, damaged it so badly that the property was forced to close. It wasn’t until new ownership took over in 2014 that the next chapter of its star-studded history began to be written.
“We acquired the property in 2014 though we had been familiar with it for years,” says owner and Phoenix-area businessman Mike Watts. “We were captivated by its rich history and the natural beauty of the area, and the one-of-a-kind experience with the natural spring waters inspired us to rebuild it to what it once was.”
Over and under the rainbow: The iconic 210-acre resort has been popular with the Hollywood set and powerful American families since the late 19th century. Courtesy of Castle Hot Springs
In fact, many of Arizona’s “firsts” have been celebrated at Castle Hot Springs: a tennis court, a golf course, and even a telephone. Today’s pickleball court on the grand lawn, a chipping green by the pool, and a replica of that 125-year-old phone that is secreted away in a booth adjacent to the bar serve as quirky references to the resort’s age-old legacy.
While this iteration of Castle Hot Springs that officially opened in October 2019 celebrates this past, it also strives to be the kind of modern wellness sanctuary that would appeal to today’s in-the-know travelers. The 32-room, adults-only resort focuses on its famous springs as well as the photogenic natural terrain that surrounds it. There’s a certain level of rusticity to the property that is then layered on with thoughtful, stylish details. Starting with lodge rooms (from $650 per night) stacked on the upper floors of the main house—where reception, the bar, and the restaurant are also located—as well as the stand-alone, purpose-built units scattered throughout the grounds, accommodations are tranquil, comfortable, and are meant to complement the surprisingly lush Sonoran setting rather than upstage it.
Valerie Borden, the interior designer, says that the decor is supposed to be a supporting element to the overall resort experience. “Although there is attention to the smallest details, no design feature dominates,” she says of the Navajo rugs sourced through a nationwide search; the hand-cut stone milled from the surrounding desert; the Wild, Wild West–looking brown-leather headboards; and the deep soaking tubs that are fed by the springs. “Castle Hot Springs was created as an exclusive ‘home away from home.’ In bringing the property back to life, it was crucial to highlight this feeling.”
The cabanas at Castle Hot Springs. Courtesy of Castle Hot Springs
And that could explain why different room categories feature distinct amenities. Considered the most luxurious, the Spring Bungalows (from $1,350 per night) come with exceptional views of the mountains as well as indoor-outdoor fireplaces and heated stone bathtubs. The Sky View Cabins (starting at $1,200 a night) have outdoor clawfoot tubs and spacious decks outfitted with telescopes for late-night stargazing. Bathing is such a big deal here that bathrooms are built with special attention. “[You’re stunned] when entering the shower and greeted with a wall of colorful opalescent glass mosaic tiles, recreating the feeling of seeing the hot springs for the first time,” Borden adds.
As enticing as it is to remain in these private cocoons, a trip to Arizona orbits around communing with nature. And at Castle Hot Springs, that means becoming intimately acquainted with its nutrient-rich waters. This water is in every part of the resort. The showpieces are the three rustic-but-picturesque hot-spring pools shaded by palm trees and surrounded by succulents and rocks varnished with a medley of mineral-stained hues. “The springs are still presented as they were back in the day,” Watts explains. “The floor of each pool is natural earth to remind guests to be grounded during their stay.” And they can soak in them whenever they please—even at night under the stars.
Many of the first wave of guests have been water-bound, but a slew of clever programming that complements the springs can offer a more holistic wellness holiday. There are fitness classes (tai chi, anyone?), massages inside stunning canvas tents standing right next to a babbling stream, horseback riding, and heart-racing hikes to Salvation Peak, where guests might meet a family of skittish donkeys along the way. Local lore has it that John F. Kennedy, who spent three months recuperating on the property when the United States military used it as a rehabilitation center during World War II, would hike that same trail (topped with a proudly waving American flag) every day during his stay.
Tomatoes on the vine inside the greenhouse. Courtesy of Castle Hot Springs
What he is unlikely to have had in the 1940s, however, is the current culinary program supported by a verdant on-site farm. It might come as a surprise that Arizona is exceptionally fertile. Guests can tour Castle Hot Springs’ agro-operations to learn about and taste produce before chef Christopher Brugman’s recipes make them anew.
There’s even a greenhouse where several species of tomatoes are grown, including an exclusive hybrid called Lucid Tiger. (Cultivating unexpected species is a favorite pastime for the farming team, and there are even plans to start planting heritage strains of agave!) This allows the kitchen to then prepare some truly remarkable meals, making dining a real highlight of the resort. Think: omelets stuffed with super-fresh radishes and peppers; the brightest-tasting gazpacho; or perfectly grilled meat and fish surrounded by slightly spicy purple basil, crunchy Napa cabbage, and sweet carrots—all of it just plucked from the garden. Spring water is generally used for the farm, too, so some of these ingredients might even take on slightly different flavors than what many are familiar with.
But the best part? Food (as well as most activities) is bundled into the hotel’s inclusive pricing structure.
More must-read stories from Fortune:
—The most anticipated books of 2020, according to Goodreads
—Cabo’s newest luxury resort favors tranquility over nightlife
—The magic of the wedding industry’s most exclusive conference
—High-tech fitness offerings are the newest luxury hotel must-have
—The best travel destinations for every season of 2020
Follow Fortune on Flipboard to stay up-to-date on the latest news and analysis.


fortune--2020-01-28--Companies respond to the coronavirus outbreak

This is the web version of CEO Daily. To get it delivered to your inbox, sign up here.
Good morning. David Meyer here in Berlin, filling in for Alan.
The novel coronavirus has reached Germany, brought here by an employee of an automotive parts supplier that has a location in Wuhan, the virus’s epicenter and a major hub for the auto and steel industries. The employee infected a coworker at the firm’s Bavarian headquarters. It’s among the first cases outside China in which someone infected another person who is not their relative—a Japanese tour bus driver seems to be another similar case.
The German supplier in question, Webasto, has banned all travel to and from China over the next couple weeks. Carmakers including Honda, Nissan and PSA Group are pulling their employees from the country. Outside that sector, Facebook, LG and port operator DP World are among the companies telling workers not to travel to China.
Three regions in Russia’s far east have closed their borders with China, and Hong Kong has suspended high-speed rail and ferry services to the mainland (a move that may or may not mollify those calling for a strike over the city’s inadequate response to the crisis).
The sense of panic was palpable in the markets yesterday, with the Dow and S&P 500 shedding 1.6%, the Nasdaq 1.9%, and Europe’s Stoxx 600 2%. Airlines and luxury firms, with their big exposure to China, are getting hammered. So far this morning, European shares have sunk into the red after a brief rebound, but U.S. futures are looking mildly positive, suggesting an end to the first five-day losing streak the Dow has experienced since August last year.
With the Chinese death toll now standing at 106—the first life has been claimed in Beijing—Asian markets continue to tumble. South Korea’s KOSPI is down 3.1%, Australia’s ASX is 1.4% lighter, and the Nikkei has lost 0.5%. Chinese mainland markets are at least closed this week, but economists are warning of a “significant” impact on the country’s economic growth this quarter.
Still, it’s worth noting that the World Health Organization says it is confident in China’s ability to contain the coronavirus. According to state news agency Xinhua, WHO chief Tedros Adhanom Ghebreyesus does not think countries should be evacuating their citizens from China, as some—France, South Korea, Germany, Japan—are starting to do.
So keep your eyes fixed on the rate of the virus’s spread. The official number of infections in China now stands at 4,500, up 45% on yesterday.
More news below.
David Meyer
@superglaze
david.meyer@fortune.com
TOP NEWS
Airbus deal
Airbus has struck a deferred prosecution agreement with fraud agencies in the U.S., U.K. and France. The preliminary deal, which still requires court approval in each jurisdiction, should start to wrap up a four-year corruption investigation involving irregularities in its applications for state-backed funding guarantees. BBC
Philips shift
The Dutch electronics giant Philips may sell off its kitchen-appliance business, as part of its drive to focus on health care equipment. Philips has already pulled out of the markets for TVs, DVD players and lighting. Its kitchen-appliance division generates around $2.5 billion a year in sales. Bloomberg
Arconic cuts
Arconic, a major supplier for Boeing, may cut jobs as a result of the 737 MAX's paused production. CEO John Plant said the uncertainty will be Arconic's biggest challenge this year, and it expected to lose $400 million in sales. However, with profits up, Arconic's share price rose 5.4%. Wall Street Journal
MacKenzie Bezos
MacKenzie Bezos has sold around $400 million worth of her Amazon shares, though she still holds 19.5 million shares in the firm. Her ex-husband, Jeff Bezos, still retains sole voting control of all those shares. CNBC
AROUND THE WATER COOLER
Hedge defunds
Institutional investors are starting to pull away from the hedge fund sector, due to high fees and tepid returns. Hedge fund managers have underperformed the S&P 500 index for more than a decade now—and tracker funds charge investors a lot less. Financial Times
Top apps
What are the top corporate apps? Last year, Microsoft Office 365, Salesforce and Amazon Web Services topped the list—little change there—but several cybersecurity and data-management apps are making strong progress. Fortune
Sleepy time
The U.K.'s post-financial-crisis Banking Standards Board was set up to improve behavior in the sector, but its latest annual report suggested little progress was being made. However, the board has a suggestion: maybe if bankers got more sleep, their behavior might improve. Reuters
Who's Michael?
The insurance firm Aviva has apologized after emailing thousands of customers and incorrectly calling them "Michael". The error caused some to wonder what else Aviva got wrong regarding their personal information, but the company denied any other issues. BBC
This edition of CEO Daily was edited by David Meyer.


fortune--2020-01-28--Hong Kong clamps down on travelers from China as coronavirus infections spike

Governments, companies and international health organizations rushed to contain a SARS-like coronavirus that has claimed more than 100 lives, with Hong Kong the latest to announce travel restrictions on people moving in and out of the mainland.
Hong Kong will close some border checkpoints and restrict flights and train services from the mainland, Chief Executive Carrie Lam said Tuesday. The Chinese government is also suspending visas for visitors to the territory, she said.
The new measures mark a step change in efforts to contain the virus, after China effectively locked down about 50 million people in Wuhan and Hubei province, the epicenter of the outbreak. The latest moves are aimed at protecting an Asian financial hub where many of the world’s biggest banks and companies have significant operations — and which has already been reeling from months of anti-Beijing protests.
“We have to start with the source,” Lam said at a press conference, wearing a surgical mask. “This should greatly reduce visitors from China.”
Other disruptions to global businesses, travel and the world’s second-largest economy are growing. China has extended the Lunar New Year holiday, while companies are shutting stores and evacuating workers.
The spread of the illness has reignited concerns over global growth, with stocks continuing a selloff in Asia on Tuesday. China’s markets remained closed for the holiday but the country’s securities regulator told investors to evaluate the impact of the virus objectively.
The new moves to contain the disease come as the death toll in China reached 106, while confirmed cases soared 65% to 4,515. Almost all of the deaths have occurred in Hubei province. While infections have been reported throughout Asia as well as in the U.S., France and Canada, the numbers overseas have been much lower.
Germany confirmed its first case on Tuesday, a 33-year-old man in Bavaria. He was one of the first patients to fall ill with the virus outside China without having traveled to the country, officials said. Instead, he became infected after a visit from a Chinese colleague, they said.
Effective at midnight on Thursday, all rail services from the mainland to Hong Kong will be suspended while flights will be reduced by half, Lam said. Cross-border ferry services will also be halted. Before announcing the new curbs on individual travelers, who accounted for almost half of Chinese tourists in Hong Kong last year, Beijing had moved to restrict group travel.
As global anxiety over the outbreak grows, World Health Organization Director-General Tedros Adhanom Ghebreyesus visited Beijing to meet with government officials. In a meeting with Foreign Minister Wang Yi, he commended China on the public health measures it has taken.
“We can see the speed and scale with which you are really hitting the virus hard,” Tedros said. “This is something we appreciate and also respect you for what you are doing.”
Last week, the WHO declined to label the coronavirus an international emergency, a designation that would have allowed the United Nations agency to begin coordinating government responses.
Chinese officials have conceded the virus isn’t yet under control, and public anger has grown over its response. While it’s too early to assess the full impact of the virus on China, if the country fails to get a grip on the situation, it could derail a fragile stabilization in the world economy after Beijing and Washington reached agreement on a phase one trade deal.
Economic Impact
With the restrictions on travel and an extended holiday, it’s already clear the virus is hurting consumption and tourism. Industrial production will also be hit just as factories would normally be getting back into full swing following the Lunar New Year break.
Global corporations are also clamping down, restricting travel to China and urging employees in the region — or those who have recently returned from China — to work from home. Fast Retailing Co. has closed about 100 Uniqlo stores in China, mostly in Hubei, according to a company spokeswoman.
Nissan Motor Co. planned to join automakers evacuating workers from the hardest hit areas, while Carnival Corp. and Royal Caribbean Cruises Ltd. suspended nine voyages leaving China Jan. 25 to Feb. 4 and promised refunds to customers.
In Hong Kong, the government has asked civil servants to work from home and announced the temporary closing of sports and cultural facilities starting Wednesday, including museums, swimming pools, public libraries and soccer pitches.
Evacuation Plans
The U.S. and other nations — including France, Japan, South Korea and Australia — were negotiating with China to arrange flights to evacuate diplomats, personnel and citizens from the hardest-hit areas of the country.
State Department spokeswoman Morgan Ortagus said the U.S. was working with Chinese authorities to bring back American consulate personnel and other citizens from Wuhan. Ortagus said travelers would be “screened and monitored to protect their health as well as the health and safety of their fellow Americans here at home.”
A couple wearing face masks wait on a MTR underground metro train platform in Hong Kong on Jan. 27, 2020, as a preventative measure following a coronavirus outbreak that began in the Chinese city of Wuhan. ANTHONY WALLACE—AFP/Getty Images
Japan, planned to send a chartered plane Tuesday evening to repatriate the first 200 of some 650 nationals who want to return, Foreign Minister Toshimitsu Motegi said in Tokyo.
Evacuations have been complicated by the blanket travel restrictions imposed on a large part of central China to prevent the disease from spreading.
The WHO’s Tedros urged countries not to overreact, saying the agency doesn’t encourage them to evacuate citizens, according to a Xinhua report.
Travel Alert
The U.S. State Department raised its travel alert to the second-highest of four levels, saying citizens should reconsider travel to China while avoiding travel to the area near Wuhan.
The U.S. may also expand travel screening at its borders and is closely monitoring 110 people to stop the virus, testing them for presence of the pathogen. As of Monday morning, there have been no new U.S. cases after the first five patients were identified in the past week.
Anxiety is growing amid evidence that the disease has an incubation period of as long as two weeks before those infected start to show symptoms. That raises the possibility that people could travel and eventually infect others before realizing they have the illness.
So far there has been no clear evidence that the virus can spread during the incubation period before patients have symptoms, according to Nancy Messonnier, the Centers for Disease Control and Prevention’s director of the National Center for Immunization and Respiratory Diseases.
“At this time in the U.S., this virus is not spreading in the community,” Messonnier said.


fortune--2020-01-28--Why 2020 is shaping up to be a strong year for IPOs

Big Tech vs. coronavirus : can Apple , Amazon and Microsoft restore calm to the global markets ?

Here’s a statistic that might surprise you: IPOs beat the market last year.
Yes, in a year dominated by disappointing offerings from a slew of household names including Uber, Lyft, and Peloton (and marked by the shelving of WeWork’s notorious IPO), the Renaissance IPO Index rose 35% in 2019, beating the S&P 500, which was itself up an impressive 30%.
Michael Cembalest, chairman of market and investment strategy at JPMorgan Chase, wrote a 2020 Outlook note in which he pointed to companies such as Zoom and Medallia—what he considers “pure tech” plays—which rose over 80% and 40% since their respective IPOs through the end of 2019. These companies, according to the note, were able to scale with limited added costs compared with mixed-tech players that had more hardware to fund.
Bill.com, a business-payments software maker, held its IPO in December. The poor performance of the high-profile startups that had preceded its offering were of little concern, says board member David Chao—in part because Bill.com was in an entirely different business and had sought to grow gradually over the course of 14 years versus, say, hypergrowth in three.
And many of the analysts Fortune spoke to predicted 2020 would be a strong year for deal flow as well, especially as investors grow more particular about the types of companies that can thrive in the public markets.
“Getting these highly unprofitable companies off the road map creates spaces for fast-growing—though maybe not hypergrowth companies—to go on the road map,” says Adeo Ressi, CEO of pre-seed startup accelerator the Founder Institute, of the string of high-profile IPOs last year that have performed poorly in the public sphere.
“I think it is going to be less volatile than 2019, because in 2020, investment bankers are going to be more careful about pricing,” says Chao, who also invested in Bill.com through his fund DCM. “In 2019, there were a handful of mispriced IPOs—so in 2020, there will be fewer mispriced deals.”
“We expect to see the same level of IPOs to come through” in 2020, says Michael Spellacy, capital-markets industry senior managing director at Accenture, adding that he still sees a strong pipeline of unicorns ready to take the dip. “And due diligence is only going up.”
In 2019, companies raised an aggregate $46.3 billion in proceeds through 160 offerings, raising roughly the same amount as the year prior with 32 fewer deals, according to a year-end report from Renaissance Capital.
That’s not to say that all of this year’s offerings will be froth-free.
Casper, the unprofitable unicorn that makes mattresses, jump-started the year’s IPO pipeline with its filing in mid-January, outlining its goal of transforming the “sleep economy.”
Airbnb, which says it was profitable in 2017 and 2018 (though the verdict is still out for 2020), has also announced plans to go public this year. Work-management platform Asana and software development platform GitLab are also rumored to be eyeing offerings.
Meanwhile, after a year in which recession worries dominated, the economy appears to be on more stable footing for now, with low interest rates, low unemployment, and surging equity valuations.
“Advisers, banks, lawyers, and others have been telling companies to go in the first half of the year to effectively avoid the volatility of an election year,” says David Ethridge, U.S. IPO services leader at PwC. Many still remember what happened in the biotech arena during 2016, when pharmaceutical prices came under pressure amid election year posturing and tweeting by candidates.
More investor scrutiny
“Our belief is that the WeWork situation was not a ‘one-off’ occurrence,” Henry H. McVey, head of global macro and asset allocation at private equity giant KKR, wrote in a recent note. “Implicit in what we are saying is that we believe that some private company valuations have run too far, too fast to be supported through initial public offerings the way some of the venture capital and growth communities may have hoped.”
Indeed, many VCs are adjusting to a new focus on a company’s path to profitability.
“Around mid-2019 every venture capitalist advised companies—and I was guilty of this too—that it was all about growth … profitability can come later,” says Marten Abrahamsen, CFO of business-to-business payments fintech Fundbox. “Focus today on growth and market share. Then there was this first cohort of companies going public [in the latter part of 2019], and there was this shift to, ‘Maybe this is not as good of a business model at this scale.’”
Abrahamsen, who joined Fundbox roughly two weeks ago after his time as an investor at the Chernin Group, says that an IPO “is something we are working toward,” though he has no concrete timeline. And in his current position, rather than stressing scale and total addressable market size, he says, the company’s unit economics and ability to accurately forecast and predict its financials are a greater focus.
Anecdotally, says Abrahamsen, when looking through more recent pitch decks from other startups to investors, entrepreneurs also appear to be smartening up to the trend. For example, he’s seen the inclusion of pages touting a company’s breakeven point, whereas three or four years ago it was all about market opportunity.
After SoftBank-backed WeWork saw its valuation cut repeatedly, other companies in the Japanese giant’s pen—including Fair, Getaround, and Oyo— have faced layoffs. Scooter startup Lime laid off about 14% of its workforce and exited several markets, according to Axios. And while not a one-to-one comparison to startup land, the tech sector in general cut 64,166 jobs in 2019, up 351% from the year prior per a study by Challenger Gray & Christmas.
At the height of the dotcom bubble, says Dani Hughes, CEO of Divine Capital Markets, some 15 IPO deals would cross her desk a day as a company’s early investors and employees sought to sell in optimal market conditions. So far, she has yet to experience the same rush. “There was a greed factor I haven’t seen since then,” she says.
Now it remains to be seen if the peak of the IPO market in the 2020s will mirror that of the 2000s.
Things were “pushed down the pipes that shouldn’t have been pushed down the pipes,” says Spellacy of this past year. “Let’s see if the medicine of transparency and trust has been learned.”
More must-read stories from Fortune:
—Wells Fargo is the big bank that investors like least
—What we can learn from the man who tried to sell the Eiffel Tower—twice
—Why it’s time for a futures market in health care
—Retailers reuse and recycle their way to increased growth
—3 things investors can bank on in the uncertain 2020s
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fortune--2020-01-28--Big Tech vs. coronavirus: can Apple, Amazon and Microsoft restore calm to the global markets?

This is the web version of the Bull Sheet, Fortune’s no-BS daily newsletter on the markets. Sign up to receive it in your inbox here.
Is a budding pandemic any match for tech earnings week? We’ll find out later today when Apple and eBay report results, kicking off one of the most anticipated stretches of the earnings season.
The timing couldn’t be any better. The global markets took a beating on Monday with the S&P 500 down 1.6%, its worst one-day drop since October, as coronavirus fears and its impact on global economies triggered a big sell-off.
But today is a new day. U.S. futures are up (though slipping), as I write, as are stocks in much of Europe. A reminder: Chinese markets are in Lunar New Year holiday mode for the rest of the week.
Today’s rebound is no doubt being fueled by a bit of bargain-hunting by traders, but there’s also a bit of relief that fresh corporate earnings news will shift some of the focus from disease and death tolls to profits and forecasts.
So what should we be looking for in the first batch of tech earnings? It’s a bit of a mixed picture. As the table below shows, shares in online shopping giants Ebay and Amazon are down for the year while Alphabet and Apple have come out of the gates in 2020 surging.
Cloud, iPhones, mobile services take focus off coronavirus (for now)
***
Tech is a big bellwether for the state of the economy. Strong iPhone results and Apple’s growing services business will tell us something about the health of the consumer in 2020. Meanwhile, analysts will be poring over cloud revenues from the likes of Microsoft and Alphabet to get perspective on corporate spending trends.
But don’t get too complacent. The Fed kicks off two days of meetings today as well, and coronavirus will be on the agenda. Already some forecasters are predicting the impact of the outbreak could cause economists to re-evaluate their 2020 growth forecasts. And that could alter the Fed’s calculations on interest rates, bringing forward the likeliness of a cut by year-end.
Stay tuned.
Bernhard Warner
@BernhardWarner
Bernhard.Warner@Fortune.com
Today's reads
Not so fast. In the world of high-frequency trading, every millisecond counts. And for those of us on the sidelines, there's a cost, too. A new study says the lightning-fast boys earn close to $5 billion from the highly controversial trading practice while the rest of us pay a minuscule penalty for their gains. Cue more debate from the campaign trail on the need to impose a trading tax.
Sky's the limit. Airbus shares took off on Tuesday after the aerospace giant announced it had settled a long-running bribery probe. The terms of the deal were pegged at roughly $3 billion. More importantly, it allows the company to put the scandal behind it as it looks to capitalize on Boeing's woes and gain market share.
Denialgram. Credit Suisse CEO Tidjane Thiam joined Instagram last week, just in time for the start of WEF meet-ups in Davos. On Sunday, he took to the platform to defend himself against fresh allegations in the local press that he was directly involved in a spying scandal against a star banker that rocked the bank last year. In case you're wondering: the post collected 542 likes.
Market candy
Quarterly Investment Guide. I am thrilled to tell you about a new feature Fortune is bringing readers in 2020. In our first-ever Quarterly Investment Guide, we asked our finance writers to investigate the big investment trends of the year. The package is full of insights, tips and advice. In this quarter, we've focused on whether the bull market has room to run, what warning signs are flashing in the economy, which stocks to consider, and even where to buy a second home or real estate investment. I'll break out a few of the ideas in the days to come, but you can get jump on it all on the site.