STOCKS SLIDE: Here's what you need to know
Shutterstock/Paulo Nabas
Stocks finished lower on Wall Street for the second day in a row bringing the major averages into the red for the month of May.
First, the scoreboard:
- Dow: 17,651.3, -99.7, (-0.6%)
- S&P 500: 2,051.1, -12.3, (-0.6%)
- Nasdaq: 4,725.6, -37.6, (-0.8%)
- WTI crude oil: $43.90, +0.5%
US Economy
We're getting closer to Friday's big jobs report, and the first reading on the labor market in April was disappointing.
ADP's latest private payroll report showed the US economy added just 156,000 jobs in April, the lowest number in three years. Of course, this is the ADP's report which has been much-maligned in some corners of the economics community and so doesn't tell us a ton about how things are looking ahead of Friday's jobs report. So there's that.
Elsewhere in economic data, the trade deficit shrank to $40.44 billion in March, down $6.5 billion from February's revised deficit. Economists expected the deficit would total $41.5 billion.
In the services sector, Markit Economics' latest services PMI hit 52.8, up from the flash reading of 52.1 the prior month and indicating faster expansion of activity in the sector. ISM's similar non-manufacturing PMI rose to 55.7, up from 54.8 and also indicating a faster pace of expansion in activity in the sector.
Factory orders rose 1.1% in March, more than the 0.6% increase that was forecast by economists and better than the 1.9% decline seen the previous month.
The most notable piece of economic commentary out Wednesday was Deutsche Bank's look at the US savings rate, which remains higher than the firm expects and sets up the economy for a period of slower growth. About two-thirds of GDP is consumer spending, and so an increase in saving implies a decrease in spending, and particularly in the wake of the decline in oil prices this savings rate increase has puzzled economists.
We got some forceful reader pushback on this idea, however, with folks arguing that the savings rate is not indicative of overall savings increasing but merely marginal savings from consumers who have already spent their savings.
Tesla
Electric carmaker Tesla is out with earnings after the bell but it was a newsy day for the company during normal business hours.
Just after noon, Bloomberg's Tom Randall reported that two executives responsible for building the company's cars are leaving the automaker.
Greg Reichow, the company's VP of production, and Josh Ensign, VP of manufacturing, are leaving the firm.
Randall also noted that five Tesla VPs have departed this year, and this wave of departures can't help but raise questions about the company's production processes and potential success.
Speaking at the Sohn Conference on Wednesday, hedge fund manager Jim Chanos said that he's short shares of Tesla as well as SolarCity, the solar panel company also controlled by the Tesla CEO Elon Musk. Tesla shares lost about 4% on Wednesday; Solar City finished down about 11%.
Sohn Conference
The hedge fund industry's biggest event of the year, the Sohn Investment Conference, took place Wednesday and, of course, there were big calls to be had all over the place.
In addition to Chanos' short bets on Tesla and SolarCity, one of the biggest calls out of the event was Stanley Druckenmiller telling investors he wants to be completely out of the stock market. "The bull market is exhausting itself," Druckenmiller said Wednesday.
Druckenmiller added that this feels, to him, like the period right before the financial crisis. Also: buy gold.
Elsewhere at Sohn, VC investor Chamath Palihapitiya said Amazon can be a $3 trillion company by 2025, which would send shares to around $6,000 a piece, or roughly ten times their current price. Which is a lot.
Palihapitiya' bull case, like most of those on Amazon these days, is built on the back of the company's strong Amazon Web Services business, which he basically called a tax on the internet and innovation. Everyone needs servers and web hosting, and AWS is cornering this market.
Bill Gross
Bill Gross released his latest investment outlook on Wednesday.
As usual, it was fun.
But what really caught our eye, aside from Gross' displeasure with central bank policy and young people, was his call that we're going to see universal basic income happen and the central banks will finance this with helicopter drops of money.
Universal basic income — or basically just giving money away to people no strings attached — has gotten more attention of late, particularly out of Silicon Valley.
Joe Weisenthal had some thoughts on why tech-types like the idea of basic income, and I think this idea is mostly right.
If you're a tech-first kind of person who is sure you're going to build automated technologies that will make work as we defined it — something you do to get paid so you can live and buy stuff — almost obsolete, Joe thinks universal basic income perhaps provides a way to be left alone to do your cool work and keep the non-working classes placated.
This is would be a pretty paternalistic and self-centered point of view for the tech community to hold. I agree that they broadly do.
And this gets at why I'm generally skeptical of universal basic income. I'd love to get money and not have to work. We all would. But thinking that we're going to have to all get money not to work because technological progress is just so vast that we're all out of work has a logical conceit that we're at the end of some moment that ends our modern, post-industrial working society. Which is a big claim.
The conflict!
Additionally
There's one big problem with China's plan to transform its economy.
Aeropostale filed for bankruptcy.