Stocks drop as Treasury bond yields push higher.

New York Times - Tue Jan 18 15:19

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Gamers play the game Call of Duty: Black Ops at the 24th Electronic Expo in Los Angeles in 2018.
Credit...Frederic J. Brown/Agence France-Presse — Getty Images

Microsoft agreed on Tuesday to buy Activision Blizzard, the video game maker behind hits like Call of Duty and Candy Crush, for $68.7 billion in cash. It is the largest takeover in Microsoft’s 46-year history and a big bet on its future direction.

The deal plants Microsoft’s flag in the emerging battle for dominance in the so-called metaverse, the next-generation internet that melds the traditional online world with virtual and augmented reality.

It is also a challenge to regulators in Washington, as Democrats and Republicans alike have pushed to limit the power of technology giants.

In buying Activision, which faced accusations of sexual harassment and discrimination that senior executives ignored, Microsoft appears to be rebuffing a controversy about the game maker’s workplace culture. The allegations have weighed on Activision, with its shares falling 27 percent since California sued the company in July over the matter. The game maker’s shares are up nearly 40 percent in premarket trading. Microsoft’s shares fell by 1 percent after the announcement.

The transaction may be seen as a victory for Bobby Kotick, Activision’s longtime chief executive, whom some critics had sought to oust over the controversy. Mr. Kotick negotiated a big premium for investors — Microsoft is paying $95 a share, roughly 45 percent above his company’s stock price before the announcement — and will continue running the company.

Microsoft would gain Activision’s nearly 400 million monthly gaming users and access to some of the world’s most popular games, which are expected to form a cornerstone of the metaverse. Combining with Microsoft will also give Activision access to a vast array of artificial intelligence and other programming talent.

It would give Microsoft a significant boost in particular against Facebook, whose renaming of its parent company to Meta underscored its commitment to the metaverse. Adding Activision could bolster the virtual reality offerings from Microsoft’s Xbox unit as it competes with Facebook’s Oculus system.

“Gaming is the most dynamic and exciting category in entertainment across all platforms today and will play a key role in the development of metaverse platforms,” Satya Nadella, Microsoft’s chief executive, said in a statement.

The deal would also drastically transform Microsoft. Despite owning Xbox and the studios behind Minecraft and Halo, the company has remained largely focused on corporate users for software like Office 365 and especially Azure, its cloud-computing business that competes with the likes of Amazon and Google.

This is breaking news. Check back for updates.

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Credit...Mike Blake/Reuters

Goldman Sachs’s fourth-quarter earnings fell, the investment bank said on Tuesday, taking the shine off a solid year in which it reported a record $21.6 billion profit.

The Wall Street bank said profit in the final three months of the year dropped 13 percent from the previous year to $3.94 billion, or $10.81 a share, falling short of analysts’ expectations. The results echoed a pattern of declining fourth-quarter earnings set by other banking giants — JPMorgan Chase and Citigroup — that reported results on Friday.

But the firm still racked up its largest-ever annual profit on revenue of $59.3 billion, helped by deal-making by its investment bankers.

“2021 was a record year for Goldman Sachs,” David M. Solomon, the company’s chief executive, said in a statement. “Our leadership team remains committed to growing Goldman Sachs, diversifying our businesses and delivering strong returns.”

Shares of Goldman Sachs fell more than 2 percent in premarket trading.

Goldman Sachs joined its Wall Street peers in bumping up pay after producing blockbuster profits. The company’s investment bankers brought in record revenue, while its stock and bond traders generated the highest revenue in 12 years, even as quarterly revenue in its trading division slumped 7 percent. Their performance prompted “significantly higher compensation” expenses, which rose 33 percent from a year earlier.

Stocks fell on Tuesday, as Treasury yields continued to rise above prepandemic levels, and disappointing results from another major Wall Street bank dragged the sector lower.

The S&P 500 fell 1.6 percent to start the week after Martin Luther King’s Birthday on Monday. The Nasdaq composite fell 1.8 percent. The losses added to a losing streak that’s seen both indexes fall sharply since the start of the year.

A key reason for those losses, a jump in government bond yields, continued on Tuesday. The yield on the benchmark 10-year U.S. Treasury note climbed to 1.84 percent, the highest level since January 2020, before the pandemic hampered the economy.

Losses in the S&P 500 were led by Goldman Sachs, which fell about 8 percent after the company reported its profit in the last quarter tumbled 13 percent from the previous year to $3.94 billion, falling short of analysts’ expectations.

A pair of rival banks, JPMorgan Chase and Citigroup, had also published disappointing results last week, and shares of large banks were broadly lower on Tuesday. Morgan Stanley fell about 5 percent, while Citigroup, Bank of America and JPMorgan were all lower.

The prospects for higher interest rates this year has weighed on technology stocks in particular and that was true again on Tuesday. Amazon and Alphabet were down more than 2.5 percent, while Meta, Facebook’s parent company, fell about 3.8 percent.

Shares of Microsoft were down 1.8 percent on Tuesday after the company announced it would buy Activision Blizzard, the video game maker, for $68.7 billion in cash. Activision jumped nearly 30 percent on the news, and shares of other game makers also rose. Electronic Arts climbed 6 percent, while Take-Two Interactive rose about 2.5 percent.

Energy stocks were also higher, as oil prices climbed sharply. Brent crude, the global benchmark, hovered above $88 a barrel in early trading Tuesday, reaching its highest level since 2014, before dropping slightly to $87.23. The price gains came after an attack on oil infrastructure and the killing of three people in the United Arab Emirates on Monday.

“The damage to the U.A.E. oil facilities in Abu Dhabi is not significant in itself, but it raises the question of even more supply disruptions in the region in 2022,” Louise Dickson, senior oil markets analyst at Rystad Energy, wrote in a note.

Futures for West Texas Intermediate were up 1.3 percent to $84.88 percent a barrel on Tuesday.

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Credit...Bryan Anselm for The New York Times

Two days before Verizon and AT&T plan to deploy more segments of their new 5G mobile internet technology, leaders of the nation’s largest air carriers warned again on Monday that thousands of flights could be grounded by interference from the technology and that “the nation’s commerce will grind to a halt.”

In unusually sharp terms, the airline industry implied in a letter to Transportation Secretary Pete Buttigieg and other top federal officials that Verizon’s and AT&T’s plans could add to the disruptions in the global shipping network that have fueled inflation.

High-speed 5G internet uses so-called C-band frequencies close to those used by aircraft to measure their altitude. The airlines say the technology can interfere with the instruments and create a serious safety hazard. Verizon and AT&T have argued that the aviation industry had years to upgrade any equipment that might be affected.

The protest by the chief executives of Delta Air Lines, American Airlines, United Airlines and seven other passenger and cargo carriers threw into question a deal reached this month between the Federal Aviation Administration and the telecommunications companies. The F.A.A. said it would not object to a rollout of the new technology after the companies promised to address safety concerns by reducing power at 5G transmitters near airports.

The airline executives said in their letter on Monday, which was reported earlier by Reuters, that aircraft manufacturers had informed them in recent weeks that the measures promised by Verizon and AT&T were not enough to prevent interference with aircraft sensors. They asked that the 5G technology not be activated within two miles of 50 major airports.

“Multiple modern safety systems on aircraft will be deemed unusable,” according to the letter, which carried the letterhead of Airlines for America, an industry group. “Airplane manufacturers have informed us that there are huge swaths of the operating fleet that may need to be indefinitely grounded,” stranding thousands of passengers and worsening turmoil in the supply chain, the airlines said.

“Immediate intervention is needed to avoid significant operational disruption to air passengers, shippers, supply chain and delivery of needed medical supplies,” said the letter, which was also signed by the chief executives of FedEx Express and UPS Airlines.

In a statement on Monday, the F.A.A. said it “will continue to keep the traveling public safe as wireless companies deploy 5G” and “continues to work with the aviation industry and wireless companies to try and limit 5G-related flight delays and cancellations.”

Spokesmen for AT&T and Verizon declined to comment.

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Credit...Karsten Moran for The New York Times
  • Goldman Sachs earnings: The bank is set to publish its financial report for the fourth quarter. Investment bank earnings have reported record profits for 2021, though fourth-quarter earnings were down.

  • United Airlines earnings: The airline will publish its financial performance report for the three months ending in December, which includes a period when the Omicron variant of the coronavirus disrupted airline services and prompted flight cancellations as workers contracted the virus.

  • Bank earnings: Bank of America and Morgan Stanley will post their earnings report for the fourth quarter. Expectations for profit in 2022 are generally lower, though the Federal Reserve has signaled that it could soon raise interest rates as it tries to cool inflation, which would help banks charge more on loans.

  • Procter & Gamble earnings: Investors will assess how inflation is affecting the company, which makes brands including Pampers, Oral-B and Gillette. The company has said that it is increasing prices to offset the higher costs of commodities, transportation and freight.

  • More 5G: AT&T and Verizon will turn on a new segment of 5G service in the United States after the companies agreed to a two-week delay to resolve airline safety concerns. On Friday, the Federal Aviation Administration said pilots would need to take additional precautions when landing at airports where the new wireless service is deployed in case the wireless signal affects the electronics of certain planes.

  • American Airlines earnings: Investors are waiting to hear how and when the airline expects corporate and international travel to recover.

  • Netflix earnings: The streaming service is expected to have added 8.5 million new subscribers during the quarter ending in December, similar to what it added in the same period the year before. The pandemic has limited Netflix’s ability to make new shows and movies, but investors will look for signs of whether recent hits such as the movie “Don’t Look Up” and the show “The Witcher” helped the company with subscriber growth.

  • Unilever said on Monday that it remained interested in buying the maker of Advil, ChapStick and Tums, a joint venture of GlaxoSmithKline and Pfizer, after its previous takeover bids had been rejected. The announcement was effectively a signal of intent that Unilever was willing to pursue one of the costliest takeover fights in the consumer health business in recent years. On Saturday, GlaxoSmithKline said it had rejected Unilever’s three previous takeover bids — the most recent of which was 50 billion pounds, or $68 billion — for “fundamentally” undervaluing the business.

  • Europeans bought more electric cars than diesels in December, a stunning illustration of the growing popularity of battery power and the decline of diesel, which was once the most popular engine option in Europe. More than 20 percent of new cars sold in Europe and Britain in December were powered solely by electricity, according to data compiled by Matthias Schmidt, an analyst in Berlin who tracks electric vehicles sales. Sales of diesel vehicles, which as recently as 2015 accounted for more than half of the new cars in the European Union, slipped below 19 percent.

  • One America News Network — which has spread conspiracy theories about the 2020 election, the Jan. 6 Capitol riot and the safety of coronavirus vaccines — will be dropped by DirecTV, the satellite and streaming network that is one of OAN’s major distributors. The decision by DirectTV, which has about 15 million subscribers, is a significant setback for OAN and its owners, the Herring family.