The Economy May Be Weakening. Here’s What That Means for Interest Rate Hikes.
Johnson & Johnson offers $8.9 billion talc settlement, Trump pleads not guilty at New York arraignment, Nvidia and Micron fall on China chip complaints, and...
Job openings falling below 10 million for the first time in almost two years feels like a significant moment.
The stock market certainly saw it that way, seemingly ignoring the dovish implications of the data for the Federal Reserve, and focusing instead on concerns over the health of the U.S. economy.
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It may be a sign that the Fed’s aggressive rate hikes are finally having an impact. Earlier this week the Institute for Supply Management’s manufacturing index fell to its lowest level since May 2020, adding weight to that thesis. Friday’s March jobs report will provide more insight into that argument.
That doesn’t necessarily mean an end to high rates is imminent, though. Cleveland Fed President Loretta Mester said Tuesday that the fed funds rate should move above 5%, noting that how long it stays high depends on inflation.
With the data beginning to point to a weakening economy, and Fed officials still talking about higher-for-longer interest rates, it’s no wonder the stock market’s recent rally has stalled.
It’s not all bad news. Walmart reaffirmed its first-quarter and current fiscal quarter guidance, implying that the country’s largest retailer hasn’t seen a significant change in consumer behavior in recent months.
The economic picture is uncertain to say the least, and more evidence is needed before rushing to a judgment on the outlook.
Mester said the Fed will have to monitor a “whole panoply” of data to figure out where the economy is going. Investors will have to do the same.
*** Join MarketWatch personal finance reporter Aarthi Swaminathan today at noon when she speaks with TransUnion’s Margaret Poe. It’s Financial Literacy Month and we’re digging into how credit scores work. We’ll talk about a range of issues -- from what major changes have been made to scoring models, what are the common mistakes people make, and what consumers can do to boost their scores. Sign up here.
Try your hand at this morning’s Barron’s Daily crossword puzzle and sudoku games. For all games, including a digital jigsaw based on the week’s cover story, click here.
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Johnson & Johnson Offers $8.9 Billion Talc Settlement
Johnson & Johnson announced an $8.9 billion proposed settlement to cover claims that its talcum powder causes cancer and said it would refile for bankruptcy protection for the LTL Management entity that holds the talc claims. The pharmaceutical maker’s stock rose 3% in after-hours trading.
- Johnson & Johnson said the move isn’t a sign it has changed its longstanding position that its talcum powder products are safe. It originally offered $2 billion in 2021, when it established and sought bankruptcy for LTL Management, a move lawyers call a “Texas two-step.”
- The strategy is risky, Carl Tobias, a professor at University of Richmond’s School of Law, told Barron’s. Other consumer product companies have attempted it with limited success. Federal appeals court judges from the third circuit rejected Johnson & Johnson’s arguments in January, which the company vowed to fight.
- Senate and House Democrats also criticized the strategy, saying the company was attempting to deny people their day in court. Johnson & Johnson said its reorganization plan is more equitable and more efficient.
- Tobias told Barron’s that while the latest offer is $6.9 billion higher than the first, Johnson & Johnson may have to go higher. The company “just wants to be out of it,” he said. “The $9 billion is a starting figure. It might not be their ending figure.”
What’s Next: A group of 17 law firms representing nearly 70,000 talc cancer victims said it supports the settlement. If a bankruptcy court and a substantial number of plaintiffs approve, the move could help J&J clear thousands of lawsuits.
—Ben Levisohn and Janet H. Cho
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Trump Pleads Not Guilty at New York Arraignment
Former President Donald J. Trump pleaded not guilty to 34 felony counts of business fraud in a Manhattan court. The charges stem from a grand jury indictment over hush-money payments to a porn star in the weeks before his election as president.
- Each charge related to falsifying business records of the Trump Organization, including invoices and ledger entries relating to $130,000 in payments to porn star Stormy Daniels. Prosecutors also point to a larger scheme to suppress potentially damaging personal revelations.
- A statement of facts by the prosecutors details other hush-money deals involving the tabloid the National Enquirer. One allegation was over $30,000 the tabloid paid to a former Trump Tower doorman, and the other was $150,000 paid to a former Playboy model Karen McDougal.
- Trump has raised $10 million since the indictment last week, senior aide Jason Miller tweeted on Tuesday, citing Newsmax. Shares of the special purpose entity Digital World Acquisition, which is planning to merge with Trump’s Truth Social, fell 8% in trading on Tuesday.
- In an another development that may affect the next vote for President, Wisconsin liberal Janet Protasiewicz secured victory over conservative Daniel Kelly in the state’s supreme court election, The Associated Press declared. It was the most expensive judicial election in U.S. history and could have implications for abortion rights in the state and any potential challenges to the 2024 election.
What’s Next: “I never thought anything like this could happen in America,” Trump said in a speech from his home at the Mar-a-Lago resort late Tuesday. The judge has set the next hearing date for Dec. 4.
—Liz Moyer and Bill Alpert
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Nvidia and Micron Fall on China Chip Complaints
China says it will respond if Japan doesn’t change new restrictions on chip exports to the world’s second-biggest economy. Semiconductor stocks slipped in the Wednesday premarket.
- China’s complaint raises the prospect of greater tension between the country and others in a simmering technology Cold War. Nvidia, Intel, Micron, and Qualcomm all retreated in premarket trading.
- On Tuesday, China’s commerce ministry called on Japan to change its “wrong practice” after the country last week said it would restrict 23 kinds of semiconductor manufacturing equipment.
- Japan is aligning itself with the U.S., which has implemented a string of measures to prevent the most advanced chips from being produced in China on concerns they could be used for military purposes.
- China made a formal complaint about the chip restrictions to the World Trade Organization in December.
What’s Next: China said it will take “decisive measures” to protect its interests if Japan refuses to reverse the policy.
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Tesla Sales Soar in Norway; GM Second in U.S. EV Sales
In the battle for dominance among electric vehicle makers, Tesla is hot in Norway. In March, 87% of new passenger cars registered in March were EVs, officials said, and Tesla sold 41% of new cars registered there in March. Meanwhile, General Motors has become the second-biggest EV seller in the U.S.
- As EVs grow as a percentage of new car sales, Norway is the country EV bulls point to when explaining what’s possible for the market. In Europe, all-battery electric vehicle new car sales were 13% of all sales, compared with 6% in the U.S. in 2022.
- Ford Motor delivered 10,866 EVs in the first quarter, up 40% from the same time last year, but sales are slowing in recent months. GM ousted it from the number two spot it held in the fourth quarter, delivering 20,670 EVs in the U.S. in the first quarter.
- GM said about 5,000 salaried workers and executives have accepted voluntary buyout offers, moving it halfway toward its goal to cut $2 billion in costs by the end of 2024. CFO Paul Jacobson told a Bank of America conference that GM expects to take a charge of about $1 billion this quarter.
- GM said the voluntary buyouts mean that involuntary separations aren’t being considered right now. Employees who took buyout offers would need to leave the company by June 30.
What’s Next: GM plans to produce 400,000 EVs in North America between 2022 and mid-2024, including electric versions of the Chevy Silverado, Blazer, and Equinox this year. Along with the Chevy Bolt, GMC Hummer, and Cadillac Lyriq, they give GM an EV in nearly every segment of the North American auto market.
—Al Root and Janet H. Cho
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Biden Meets Advisors on AI, Proposes Safety Legislation
President Joe Biden met with technology advisors at the White House to talk about the promises and problems that artificial intelligence raises, including potential risks to society, national security, and the economy. He said tech companies have a responsibility to ensure their products are safe before making them public.
- Biden said it isn’t clear if AI is dangerous, but it “could be.” Social media already illustrates the potential harm powerful technologies can have without useful safeguards in place, he said at the meeting, according to a White House transcript.
- Biden stressed the importance of protecting rights and safety to “ensure responsible innovation” and urged Congress to pass bipartisan privacy legislation to protect children, limit the amount of personal data that tech companies can collect, ban advertising targeting children, and prioritize health and safety in product development.
- Stocks of AI firms started falling before the Tuesday afternoon meeting. Shares of Thailand security firm Guardforce AI fell 32%; data analytics firm BigBear.ai dropped 14%; and conversation intelligence company SoundHound AI sank 12%.
- The Center for Artificial Intelligence and Digital Policy, a tech ethics advocacy group, has asked the Federal Trade Commission to investigate OpenAI and stop it from issuing additional commercial releases of GPT-4, the chatbot that can generate humanlike responses to written requests.
What’s Next: AI software company C3.ai shares fell 26% after the short selling firm Kerrisdale Capital published a letter to the company’s auditors about their accounting and their revenue and margin numbers. C3.ai denied any wrongdoing and said Kerrisdale is misconstruing its financial filings.
—Janet H. Cho and Eric J. Savitz
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—Newsletter edited by Liz Moyer, Brian Swint, Rupert Steiner and Steve Goldstein