Are These Markets Really Efficient?

On Nov. 17-18, DealBook is holding our first Online Summit. Join us as we welcome the most consequential newsmakers in business, policy and culture to explore the pivotal questions of the moment — and the future. Watch for free from anywhere in the world. Register now.

The great rotation

The pandemic is still raging, but it would be hard to tell from the ecstatic stock market, which flirted with record highs thanks to promising clinical trial data on a coronavirus vaccine from Pfizer and BioNTech. Futures today suggest that yesterday’s rally could be extended.

Hopes that the pandemic will come under control scrambled the usual pattern, with shares soaring for the sectors most linked to growth in the broad economy, like energy and banks, and the companies most affected by lockdowns, like AMC (up 51 percent), United Airlines (up 19 percent) and Macy’s (up 17 percent). Tech-heavy stars of the pandemic were the day’s biggest losers, like Peloton (down 20 percent), Zoom (down 17 percent) and Netflix (down 9 percent).

“The probability of an L-shaped recovery has been significantly reduced,” said Johanna Kyrklund, Schroders’ chief investment officer. “We may finally have found the catalyst to spark a move away from the ‘stay-at-home’ stocks that have benefited from lockdown, towards recovery stocks.”

There are reasons to be wary. Experts cautioned that even if Pfizer wins approval for its vaccine — and it’ll need much more data — doses will be initially available to only a small sliver of the population. As our colleagues at The Morning newsletter note, there are “two very different coronavirus stories happening now”: While the markets are rejoicing, records for coronavirus infections are being set daily.

The key question: Are investors getting ahead of themselves? “These are the types of moves that tend to run out of gas if the underlying data doesn’t quickly confirm the enthusiasm,” Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management, told The Times. The sharp turns call into question the efficiency of supposedly all-knowing markets, as the Deal Professor notes below.


Europe charges Amazon with antitrust violations. The E.U.’s competition chief, Margrethe Vestager, accused the e-commerce giant of exploiting data it collects from third-party merchants to boost its own sales. “We must ensure that dual-role platforms with market power, such as Amazon, do not distort competition,” she said.

Most Republicans back President Trump’s refusal to concede. Officials like Senator Mitch McConnell, the majority leader, declined to rebut Mr. Trump’s false claims of illegal votes and a stolen election. Separately, lawyers at Jones Day and Porter Wright, two big law firms working on Mr. Trump’s legal challenges, have voiced concerns about their work.

Top SoftBank executives resign as directors. Three senior managers — including Rajeev Misra, the head of the Vision Fund, and Marcelo Claure, the company’s C.O.O. — are stepping down from the board, amid pressure to improve SoftBank’s corporate governance. (They’ll stay as executives.)

The E.U. imposes new tariffs on American goods. The $4 billion in levies, on products like aircraft and chocolate, follow a W.T.O. ruling allowing the bloc to retaliate against the U.S. over illegal subsidies to Boeing. The U.S. imposed tariffs on European goods last year after a similar ruling about Airbus.

Bill Gross’s property fight with his neighbor heads to court. A trial over competing harassment claims by the famed bond investor and the entrepreneur Mark Towfiq began yesterday. Mr. Gross reportedly said he would stop blaring the “Gilligan’s Island” theme song if the neighbor dropped his complaint; a lawyer for Mr. Gross accused Mr. Towfiq of being a “peeping Tom.”

Deal Professor: Making sense of the markets

Steven Davidoff Solomon, a.k.a. the Deal Professor, is a professor at the U.C. Berkeley School of Law and the faculty co-director at the Berkeley Center for Law, Business and the Economy.

Recent weeks haven’t been good for the efficient markets hypothesis. First, the pollsters got the election wrong, failing to forecast the results for many of last week’s contests. Then, yesterday, investors got the markets wrong.

The burst upward in stocks was aided by the thesis that the calmness of a post-Trump era and divided government would be a boon to business. But make no mistake: Most of the rise was related to Pfizer’s vaccine news.

What’s so surprising about the rise is that it shouldn’t have happened. This vaccine announcement was completely expected. Pfizer and other companies developing vaccines have been signaling a November announcement for weeks. And, in fact, some market observers have been factoring this into their advice on positioning.

Marko Kolanovic, the head of macro quantitative and derivatives strategy at JPMorgan Chase, has been right all year. He called the market bottom, then called the Nasdaq high as well as the turn to consumer cyclicals. He also put out a series of reports leading up to the election noting that evidence beyond the polls suggested President Trump would do better than expected.

Mr. Kolanovic’s forecasts show what we’re missing, despite being able to access more information than ever. People are driven by fear, live in the moment and get distracted by a deluge of extreme views on social media. This has been compounded by political bias which infects everything, including assessments of the markets. Trading is consumed by momentum plays and the Robinhood crowd. People have too much information and take longer to process meaningful signals.

All of this is to say that markets may still be efficient in the long term, but these days it takes even longer for this to become clear.

“I wish someone told me that no matter how life and death everything I was currently working on was, it wasn’t.”

—Rich Handler, the C.E.O. of Jefferies, in “20 Things I Wish Someone Told Me The Day I Started My Career As An Analyst On Wall Street

Investors are ready for an Obamacare tax refund

The Affordable Care Act is up for debate at the Supreme Court today. If the law is invalidated, some investors have prepared for refunds on past investment income. Indeed, the litigation has generated a flurry of queries and I.R.S. protective refund claims, tax experts say.

Today’s arguments are about Obamacare’s “individual mandate,” a penalty for not taking out health insurance. Challengers say that when Congress set the penalty at zero in 2017, they broke the justification given for the entire law in a previous Supreme Court ruling, which depended on treating the mandate as a tax. Theoretically, if Texas and other Republican-leaning states backed by the federal government succeed in striking down the law, refunds could be available on other taxes associated with the A.C.A.

The I.R.S. cited the case in guidance on protective refund claims earlier this year. These claims are placeholders, reserving the right to file after deadline, depending on a future event like litigation. Some filers hope that other taxes will be invalidated if the A.C.A. is struck down, including a 3.8 percent hike on net income investment passed in a 2010 companion law.

It’s a long shot. Even if the individual mandate falls, the court may preserve the health care law, and even the whole law falling wouldn’t guarantee some of these refunds. “Because arguments for unconstitutionality of the mandate depend on a change in law that was enacted in 2017 and did not take effect until 2019, it seems very unlikely that the court will hold that the A.C.A. was invalid as far back as 2016,” Jonathan Gifford, a tax attorney at Cleary Gottlieb, told DealBook. “But people filing protective refund claims presumably are thinking that anything can happen, and in 2020 that certainly seems truer than ever.”

Kevin Mayer’s next act(s)

The Times’s Brooks Barnes writes from Los Angeles: Months after his blink-and-you-missed it tenure as TikTok’s C.E.O., Kevin Mayer has taken on a new role: senior adviser to Len Blavatnik’s Access Industries.

He “will bring invaluable knowledge and insight” to Access, which owns media businesses like Warner Music and the sports streaming service DAZN, Mr. Blavatnik said. Before joining TikTok, Mr. Mayer led Disney+ and had been a contender to succeed Bob Iger as Disney’s C.E.O. President Trump’s pressure on TikTok’s Chinese owners curtailed the network’s global ambitions, prompting Mr. Mayer to leave after just three months.

Mr. Mayer called the Access role “a key component of my future endeavors.” He has also held talks to join Redbird Capital, the sports and entertainment investment firm that recently launched a SPAC.

Exclusive: Uber will soon let you book 30 days in advance

Travel is down, but when it returns it will be a little easier to get to the airport, a meeting or anywhere else at a set time. Later today, Uber will announce a feature that the business community has long wanted: reservations.

How it works. Through “Uber Reserve,” riders can schedule trips up to 30 days in advance in more than 20 U.S. cities. The program, which launches next week, will present its fare upfront, as usual. If a pickup doesn’t arrive on time, riders get a $50 credit.

It’s a swipe at legacy car services. The new program challenges the biggest advantage that car and limo services had over on-demand ride-hailing. But it may take some time to see any impact, given how little people are moving around these days.



NextEra Energy reportedly offered to buy a rival power utility, Evergy, for $15 billion in stock, months after being rebuffed by Duke Energy. (Reuters)

VF Corporation, which owns Vans and Timberland, will buy the buzzy streetwear brand Supreme for $2.1 billion. (NYT)

Politics and policy

Renewing the Fed’s emergency loan programs, which are set to expire at the end of the year, has become a bitter political fight. (NYT)

Britain will require big companies to report on climate risks. (Guardian)


President-elect Joe Biden is expected to continue the Justice Department’s antitrust lawsuit against Google and may file competition cases against Facebook, Amazon and Apple. (NYT)

Zoom agreed to third-party audits of its security protocols as part of a proposed settlement with the Federal Trade Commission. (Protocol)

Best of the rest

Since President Trump took office, corporate America has been thrust into the culture wars like never before. (NYT)

Four Seasons — the landscaping company, not the hotel — is capitalizing on its unexpected role in the Trump campaign’s legal challenges, selling shirts with slogans like “Lawn and Order!” (NYT)

We’d like your feedback! Please email thoughts and suggestions to [email protected]

Source: Read Full Article