HOT AIR BALLOON FLIGHT

By Julia Horowitz • Tuesday, February 1

Good morning. In today's newsletter: The worst start to the year for stocks in more than a decade. Plus, the New York Times is buying Wordle, and why Netflix and Spotify shares just rallied.

 

US stock futures are down slightly. Markets in Europe gained in early trading, while Japan's Nikkei 225 rose 0.3%. Most other markets in Asia are closed for the Lunar New Year holiday.

 

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MARKET FLASH

The worst start to the year for stocks since 2009

Stocks haven't experienced a start to the year this rough in a very long time.

 

What's happening: After rallying almost 27% in 2021, the S&P 500 finished January down 5.3%. It was the index's worst January since 2009.

 

The tech-heavy Nasdaq Composite shed 9%, its worst kickoff since 2008. It's still in a correction, down more than 10% from its November peak.

The sell-off was powered by the looming shift among central banks like the Federal Reserve, which signaled clearly last month that it will soon begin hiking interest rates from rock-bottom levels to rein in inflation.

 

"Undoubtedly the main theme in January was the continued hawkish pivot by a number of central banks in light of continued and persistent inflationary pressures, which led investors to price in a much more rapid hiking cycle over the months ahead," Deutsche Bank analysts said in a note to clients on Tuesday.

 

Big tech companies, which drove the pandemic recovery rally, and flashy startups, which look more appealing when borrowing costs are low, took the heat. Amazon dropped 10% in January, while Facebook and Google's Alphabet both fell about 7%. Trading app Robinhood and crypto platform Coinbase, both of which went public last year, plunged 20% and 25%, respectively.

 

Smaller companies whose fate is closely tied to the health of the US economy struggled, too. The Russell 2000 index, which is made up of such firms, shed 9.7% in January. It's almost 17% below its November high.

 

The big unknown: Is the turbulence here to stay?

 

Recent days have looked better. The Dow closed up 1.2% on Monday, while the S&P 500 rose 1.9% and the Nasdaq leaped 3.4%.

 

Still, the overall picture looks much the same, leaving investors on edge. The CNN Business Fear & Greed Index remains in "fear" territory.

 

Atlanta Fed President Raphael Bostic on Monday walked back his comments that the central bank could hike interest rates by 0.5 percentage points instead of half that. Yet any hawkish remarks from policymakers over the next few weeks could spark a sharp response from jittery traders.

 

"Good riddance to January, but this month's investment themes will linger," Nicholas Colas, cofounder of DataTrek Research, wrote Tuesday. Fed policy, he added, "remains the biggest wildcard."

VOICES

Rio Tinto culture review is damning for mining giant

"I feel shame and enormous regret to have learned the extent to which bullying, sexual harassment and racism are happening at Rio Tinto."

 

CEO JAKOB STAUSHOLM

 

Read more from CNN Business.

DEAL MONITOR

The New York Times joins the gaming deal frenzy

We said there was a consolidation spree in gaming, didn't we?

 

This just in: The New York Times has struck a deal to acquire Wordle, the hugely popular game that gives players six chances to guess a five-letter word daily.

 

The Times, which announced the purchase on Monday, is looking to grow its portfolio of games, which also includes the crossword and Spelling Bee.

 

"The Times remains focused on becoming the essential subscription for every English-speaking person seeking to understand and engage with the world," the company said in a statement, adding that games "are a key part of that strategy."

 

At the end of last year, the company had over 1 million subscriptions to its Games platform.

 

The New York Times said that the cost of the deal was "in the low seven figures," and that Wordle will initially remain free to new and existing players.

 

Step back: Josh Wardle, a Brooklyn-based software engineer, released the game in October 2021. It quickly became a cultural phenomenon. Millions of people now play Wordle every day, according to the Times.

 

The deal is just the latest (and okay, maybe the nerdiest) in a string of gaming industry tie-ups as tech, news media and entertainment companies compete for eyeballs and engagement time.

 

Sony also announced Monday that it's buying Bungie, the video game studio that created hit franchises like "Halo." Last month, Microsoft said it was acquiring Activision Blizzard, the company behind "Call of Duty" and "World of Warcraft," and Take-Two Interactive snapped up "FarmVille" maker Zynga.

UP NEXT

ExxonMobil, PulteGroup and UPS report results before US markets open. Google's Alphabet, Electronic Arts, General Motors, Match Group, PayPal and Starbucks follow after the close.

Also today: The ISM Manufacturing Index for January posts at 10 a.m ET.

 

Coming tomorrow: Earnings from Qualcomm and Spotify.

WHAT WE'RE READING AND WATCHING

▸ India wants to launch a digital rupee and tax crypto (CNN Business)
▸ Spotify's Joe Rogan problem isn't going away (NYT)
▸ Bill Ackman scored on the Covid shutdown and bounce back (WSJ)
▸ George Soros warns of economic crisis in China (CNN Business)
▸ United opens flight school to combat pilot shortage (CNN Business)
▸ UBS just booked its best annual profit since 2006 (Reuters)

FINAL WORD

Why Netflix and Spotify shares just popped

Shares of Netflix and Spotify have faced huge selling pressure this year as investors reshuffle their portfolios in anticipation of rising interest rates.

 

But analysts at Citi see the pullback as a buying opportunity. They upgraded both stocks to a "buy" recommendation on Monday.

 

The analysts think that Netflix has "ample pricing power." The video streaming service recently said it would raise prices in the United States and Canada. They also believe that Spotify can "improve ad-supported monetization."

 

The report helped send Netflix's stock up 11% on Monday, while Spotify jumped 13.5%.

 

Spotify's rally also came after comedian Joe Rogan responded to backlash from artists like Neil Young over Covid-19 misinformation on his popular podcast, which is exclusively hosted on the music streaming platform. Rogan said Sunday he is "happy" with Spotify's decision to add advisories before podcasts that tackle the pandemic.

 

"I want to thank Spotify for being so supportive during this time," he said. "And I'm very sorry that this is happening to them, and that they're taking so much heat from it."

 

On the radar: That doesn't mean the controversy is resolved. What will the Spotify do if more artists announce plans to boycott? It's a question the company should prepare for on Wednesday, when it reports results for its most recent quarter.