ARK Doubles Down on Tesla and Other Favorite Stocks. Now Comes the Hard Part.

Nearly 90% of the stocks in ARK Innovation’s portfolio are down in 2021, including Tesla, Square, Shopify, and the rest of its top 15 holdings. That’s the opposite of the S&P 500, where almost 90% of the stocks are up this year.

But all the red ink has Wood in a buying mood. “Innovation is on sale,” Wood told Bloomberg Wednesday. Her fund has added shares of Tesla, DraftKings and Coinbase, which are down 37%, 42%, and 47%, respectively, from their 52-week highs.

Wood watchers—and tech investors—hope she hasn’t lost her Midas touch. The ARK Innovation ETF is still up 67% over the last 12 months, outpacing the S&P 500’s 39% rise. The ETF has returned about 36% a year on average for the past three years, about 20 percentage points better than the overall market.

Those kinds of returns buy any fund manager a lot of credibility, and Wood is spending hers on the stocks she believes have the highest potential returns in coming years.

Time will tell if she is right.

—Al Root

*** Join Barron’s senior managing editor Lauren R. Rublin and deputy editor Ben Levisohn Monday at noon to discuss the outlook for financial markets, industry sectors, and individual stocks. Sign up here.

***

Fed Officials Willing to at Least Discuss Tapering Bond Buying

The Federal Reserve’s latest meeting minutes hinted that policy makers are at least thinking about discussing the paring down of bond buying at a future meeting if the economy continues to strengthen as it did in March.

• The minutes related to the Federal Open Market Committee meeting at the end of April, before a weak report on the number of jobs added that month and before the April consumer-price index reported the fastest yearly increase since 2008.
• In the minutes, Fed officials noted elevated risk appetite in capital markets. “Should investor risk appetite fall, an associated drop in asset prices coupled with high business and financial leverage could have adverse implications for the real economy,” the minutes said.
• Supply chain bottlenecks and input shortages may not be resolved quickly, the minutes said, and could put upward pressure on prices.
• Fed officials have said consumer price hikes are temporary and related to economic reopening. As one example, lumber prices soared in recent months but are now down 22% from a high on May 10.

What’s Next: The minutes pointed to the importance of future labor-market data on the Fed’s analysis. Despite a 6% unemployment rate in March, meeting participants “judged that the economy was far from achieving the Committee’s broad-based and inclusive maximum employment goal” with payrolls 8.4 million below pre-pandemic levels.

—Liz Moyer

***

Pandemic-Weary Americans Prepare for a Busy Summer Travel Season

More airplane seats are becoming available as the U.S. travel industry prepares for demand from rising numbers of vaccinated Americans eager to get away this summer. Mask-wearing mandates have ended in many places though the Centers for Disease Control and Prevention is re-evaluating its travel guidelines for vaccinated passengers.

• The number of people streaming through U.S. airport checkpoints soared 715% in the first 16 days of May, compared with May 2020, including 1.85 million on Sunday. That’s more than 24 million travelers, but still down 35% from 2019 numbers, The Wall Street Journal reported.
• The average round-trip airline ticket price has risen to $408 this month, up about $71, or 21%, from tickets bought at the end of 2020. Seats to popular destinations are filling up quickly, per Airlines Reporting, the Journal reported.
• The number of seats on flights headed to vacation areas is rising. Seats to Dutch Harbor, Ala., will jump 438% in June compared to 2019, the highest among U.S. airports. June seat counts are also rising to Florida hot spots such as Key West (up 141%), Sarasota (136%), Fort Myers (62%), and Miami (35%).
• Delta, American, and United Airlines are all scrambling to hire workers and upgrade their technology to better handle the surging rebound in air travel. The three legacy carriers cut staff by 20% last year, leaving them less able to handle the uptick in travel by newly vaccinated people.

What’s Next: The CDC says passengers must still wear masks in airports and on planes and other public transportation, and federal law says passengers must comply. The Federal Aviation Administration has imposed a total of $326,500 in fines on 18 passengers for unruly behavior, especially over mask wearing.

—Janet H. Cho

***

TikTok Parent ByteDance Founder Zhang Yiming Steps Down From CEO Role

The founder of Chinese internet powerhouse ByteDance, the company behind video-streaming apps TikTok and Douyin, will resign at the end of the year and be replaced by his college friend and co-founder Liang Rubo, the company said in a statement.

• Zhang, 38, who launched ByteDance 10 years ago, is the latest high-profile Chinese internet billionaire founder to resign.
• Zhang wrote in a memo to employees that he “lacked some of the skills that make an ideal manager,” saying that he was “not social” and “preferred solitary activities.” He added that he will focus on “longer-term initiatives” to “help drive innovation.”
• The ByteDance chief managed the company through difficult times in the U.S. last year, when then-president Donald Trump sought to either ban TikTok or force ByteDance to sell its U.S. business to companies such as Microsoft, Oracle or Walmart. The plans were shelved after Joe Biden’s election.
• Reuters reported in March that the company was planning to list at least parts of its businesses in Hong Kong or New York, although the Chinese group said it has no imminent plans for an IPO. The company was valued at $180 billion in a round of funding last December.

What’s Next: Chinese regulators keep pushing their demands—on competition and lending practices, data secrecy, or “improper” content—on internet giants that have become major players on foreign markets. Recent resignations and jumbo fines shows that the government is determined to bring them into line, however global they have become.

—Pierre Briançon

***

Under Armour Joins Employers Offering $15 an Hour to Attract New Workers

More companies are raising hourly pay to a minimum of $15 or more as they scramble to hire workers amid elevated unemployment. On Wednesday, athletic apparel brand Under Armour joined Chipotle, Amazon, Target, Best Buy and Costco in raising pay.

• Under Armour’s hourly pay is jumping as much as 50% for more than 8,000 full- and part-time retail workers in the U.S. and Canada, about 90% of its retail and distribution workforce. The company wants to fill more than 3,000 jobs.
• “We needed to make a strategic decision on our hourly wages to be a competitive employer in the retail space,” and acknowledge the work of frontline employees during the pandemic, Stephanie Pugliese, Under Armour’s president of the Americas said in a statement.
• Bank of America is raising its U.S. minimum wage to $25 an hour by 2025, from the current $20 an hour minimum, to help attract new workers. The nation’s second-largest lender is also requiring all of its U.S. vendors to pay employees who work with the bank at least $15 an hour.

What’s Next: Texas, Indiana and Oklahoma have joined 18 other states that will cut off $300-a-week extra federal unemployment benefits starting next month, ending payments for more than 3.4 million people in those states, according to Oxford Economics. The benefits had been scheduled to last through Sept. 6.

—Janet H. Cho

***

Cisco Cites Supply Chain Issues in Earnings Report

Cisco Systems beat earnings expectations during its April quarter, but talk of supply chain challenges may have spooked investors.

• Cisco’s fiscal third-quarter adjusted earnings of 83 cents a share beat analysts’ expectations by a penny, while sales of $12.8 billion edged out estimates at $12.58 billion.
• The company said it expects non-GAAP gross margin in the fourth quarter of between 64% to 65%, down from 66% in the third quarter. The company said it is seeing pressure driven by “supply chain challenges.” The stock fell more than 5% following the report.
• CEO Chuck Robbins said in the company’s earnings call that Cisco expects supply chain issues to last at least through the end of the year as tech companies face a chip shortage. He said Cisco has raised prices on some products in response, but its focus has been on protecting shipments to customers.

What’s Next: Hewlett Packard Enterprise, the computer and storage hardware company spun off from Hewlett-Packard, reports results after the close of trading Thursday.

—Connor Smith and Eric J. Savitz

***

Are withdrawals from 529 college savings plans taxable? Sometimes. Here’s how to avoid an unpleasant surprise.

Are you among the many who have invested in a tax-favored Section 529 college savings plan for the benefit of a child or grandchild? If you did, it may finally be time to withdraw some money to pay for the account beneficiary’s college expenses.

Qualified withdrawals, as defined by our beloved Internal Revenue Code, are always federal-income-tax-free. And usually state-income-tax-free too.

However, not all withdrawals are qualified withdrawals. So, there can be unexpected tax consequences.

Here are the most important things to know about 529 account withdrawals, including the federal income tax angles.

Read more here.

—Bill Bischoff

***

—Newsletter edited by Liz Moyer, Stacy Ozol, Mary Romano, Matt Bemer, Ben Levisohn