HOT AIR BALLOON FLIGHT

By Julia Horowitz • Tuesday, January 25

Good morning. In today's newsletter: Market volatility has returned. Plus, why Kohl's, Peloton and Unilever are on guard, and another music superstar scores a huge deal.

 

US stock futures are down sharply on Tuesday, pointing to another rocky session. Markets in Europe managed to gain ground in early trading, but stocks in Asia dropped.

 

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MARKET FLASH

Have you missed volatility? It's here again

After a long period of calm, market volatility has returned in dramatic fashion.

 

What's happening: US stock markets went on a rollercoaster ride Monday, plunging and then rallying all within the span of a single trading session. The S&P 500 index, at one point down almost 4%, finished the day 0.3% higher.

 

Markets remain nervy on Tuesday. The Cboe Volatility Index, a gauge of turbulence, has jumped to its highest level in almost a year.

 

"It's still looking quite fragile," David Madden, a market analyst at Equiti Capital, told me.

Selling pressure on US stocks has been growing for weeks as investors digest the options available to the Federal Reserve, which kicks off its latest meeting Tuesday.

 

After unleashing huge amounts of easy money to stimulate the economy during the pandemic, inflation is soaring. That's raised the prospect that the central bank will need to aggressively hike interest rates this year to get prices under control.

 

Investors have been selling bonds and stocks of companies that benefited from the Fed's crisis-era policies as they come to terms with this possibility. Uncertainty about whether Russia will invade Ukraine is augmenting concerns about where the market goes next.

 

"In late December, the US stock market was still comfortable with the idea of three rate hikes in 2022 and okay with that," Madden said. "Once [speculation] tipped over into four, that's where things seemed to get fairly ugly."

 

Investors ultimately decided that Monday's drawdown was too harsh, and some snapped up stocks at a discount.

 

"The bounce back in US equities in the afternoon likely reflected oversold conditions as some investors stepped in to buy," Mark Haefele, chief investment officer at UBS Global Wealth Management, told clients.

 

But volatility might stick around. Fed Chair Jerome Powell could provide helpful guidance to investors when the central bank wraps up its meeting on Wednesday, but he's likely to acknowledge that lingering unknowns make it difficult to precisely forecast future moves.

 

Have a case of vertigo? That's probably because markets, satisfied with trillions of dollars in stimulus money, have been extremely calm for a long time. At the start of 2022, the S&P 500 was more than double its pandemic low in March 2020.

 

"We haven't seen proper volatility in about two years," Madden said.

 

That's poised to change as the Fed tries to unwind its unprecedented intervention. The ongoing pandemic and supply chain problems, as well as geopolitical tensions and the upcoming US midterm elections, could also fuel a bumpier ride.

 

"The S&P 500 has averaged three pullbacks of 5% or more per year and one correction of at least 10% per year over its long history," said LPL Financial strategist Jeff Buchbinder. "After just one 5% dip last year, and huge gains off the 2020 lows, we were due for a dip."

VOICES

Abigail Disney targets the family business with new movie

"I don't think people think about workers at 'the happiest place on earth' going without food."

 

Read more from CNN Business.

CORPORATE MONITOR

Kohl's, Peloton and Unilever have to watch their backs

Forget about the boardroom intrigue on "Succession" and "Billions." Real-life companies are dealing with plenty of drama. 

 

Activist shareholders are descending on struggling companies, building up stakes and pressuring executives to make big changes, my CNN Business colleague Paul R. La Monica reports.

 

Blackwells Capital wants Peloton to dump its CEO and try and sell itself as the company's PR woes spin out of control and the stock price plummets. 

 

Shares of Peloton rose almost 10% on Monday even as the broader market stuttered.

 

Kohl's, also under fire from activists, has reportedly received a buyout bid from a group led by Starboard Value, the hedge fund famous for shaking up management at Olive Garden owner Darden Restaurants a few years ago.

 

Kohl's stock surged 36% on the news Monday.

 

And shares of Unilever soared 7% Monday following reports that Nelson Peltz, the Wendy's chairman and legendary activist investor known for targeting Oreo maker Mondelez and Procter & Gamble, is building a stake in the company.

 

All three firms have problems that make them attractive to activists lobbying for strategic overhauls.

 

Peloton's stock has plunged due to concerns that demand for its expensive bikes and treadmills has dried up. Kohl's is trying to outrun the problems plaguing department stores, while Unilever is struggling to find new areas of growth. Last week, it was revealed that the consumer goods giant made three failed bids to buy the consumer healthcare unit of GlaxoSmithKline.

 

This just in: Unilever's pivot is already underway. The company announced Tuesday that it's planning to cut about 1,500 management jobs as part of a reorganization. 

 

"The management team clearly want to show they are getting the house in order," Hargreaves Lansdown analyst Susannah Streeter told clients.

UP NEXT

3M, American Express, Ericsson, Johnson & Johnson, Lockheed Martin, Verizon and Xerox report results before US markets open. Capital One, Microsoft and Texas Instruments follow after the close.

Also today: US consumer confidence data for January posts at 10 a.m. ET.

 

Coming tomorrow: Earnings from AT&T, Boeing, Intel, Levi Strauss and Tesla.

WHAT WE'RE READING AND WATCHING

▸ Evergrande asks international creditors for more time (CNN Business)
▸ How Putin's $11 billion pipeline split NATO (CNN Business)
▸ These 4 states have overcome pandemic job losses (CNN Business)
▸ Facebook's pledge of free internet for poor countries fell short (WSJ)
▸ How Citadel Securities became the 'Amazon of financial markets' (FT)
▸ Facebook's Meta is building an AI supercomputer (CNN Business)

FINAL WORD

The music superstars scoring huge deals

If you're a high-profile recording artist, this is the moment to turn your life's work into a major financial windfall.

 

Bob Dylan — famous for tracks "The Times They Are a-Changin'," "Like a Rolling Stone" and "Mr. Tambourine Man" — has sold his entire catalog of recorded music, which Billboard magazine estimates is worth about $200 million, to Sony Music.

 

Big picture: Music stars have been cutting plenty of big deals recently. Neil Young sold a 50% stake in his song catalog to investment firm Hipgnosis for an estimated $150 million. Bruce Springsteen sold the rights to his music catalog, which is valued at north of $500 million, to Sony Music.

 

One factor driving the boom is the popularity of streaming services, which let fans rediscover older music (and generate fresh revenue) long after its initial release. The International Federation of the Phonographic Industry, a trade group, estimates that streaming accounted for more than 62% of global recorded music revenues in 2020.

 

That's catching the attention of investors eager to discover new asset classes as they hunt for higher returns.