More Than 3 Million Retired Early, Research Suggests. What That Means for Interest Rates.

Market Trading EssentialsOctober 25, 2021

7 minutes read

A pedestrian walks by a Lamps Plus store on Sept. 16, 2021 in San Francisco.

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One of the big questions for policy makers and traders alike is whether the people who have left the workforce will, at some later point, jump back in.

It’s hugely important because, if these workers are just taking a temporary break while waiting for health conditions to improve, then the job market has more slack than the official unemployment rate would suggest. For the Federal Reserve, so-called hidden slack would be a reason to keep policy easier than it otherwise would, given the inflation battle it’s simultaneously facing.

New research from the St. Louis Fed puts a dent in the hidden slack argument. It argues that more than 3 million Americans retired early, out of the 5.25 million who left the labor force from the beginning of the Covid-19 pandemic.

What the research couldn’t discover is whether these early retirees left for health reasons—their vulnerability to infection and death from Covid-19—or left because the surge in the stock market and house prices made it affordable. The report also doesn’t entirely answer whether these retirees may hop back into the jobs market at some later point.

The emerging picture, however, is that the Fed is getting more worked up by the inflation element of its dual mandate than jobs. Chair Jerome Powell on Friday said it was “very possible” that the central bank would meet its full employment goal next year. If that is the case, then interest-rate hikes—plural—would certainly be on the table, which the market is already pricing.

—Steve Goldstein

*** In this week’s Barron’s Streetwise podcast, audio producer Jackson Cantrell asks what’s crypto worth? The creator of a two-year-old currency that is now worth more than American Airlines weighs in. Plus, a hedge fund manager on how to trade Bitcoin, and an MIT economist on whether it belongs in your portfolio. Listen here.

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Lawmakers Eyeing Billionaire Tax on Capital Gains, Yellen Says

Lawmakers are considering taxing the unrealized capital gains of billionaires to help raise money for President Joe Biden’s social safety net and climate change proposal, Treasury Secretary Janet Yellen told CNN’s State of the Union on Sunday. It is an idea that could affect about 700 U.S. billionaires.

Yellen said the proposal would target “an extraordinarily large part of the incomes of the wealthiest individuals” that isn’t taxed until those assets are sold. Unrealized investment gains are often how wealth is passed along to heirs tax-free, a loophole lawmakers are also eyeing.
The proposed tax would affect a narrower group of ultrarich Americans than the billionaire tax Sen. Elizabeth Warren (D, Mass.) proposed during her presidential campaign. “I think it’s likely. I’m pushing hard,” Warren told MSNBC on Sunday of raising taxes on billionaires.
Sen. Kyrsten Sinema (D., Az.) objected to increasing tax rates on corporations and wealthy individuals. That forced Democrats to search for other ways to raise the money for the package, because passing the bill through budget reconciliation means that all 50 Democrats must agree on what it includes.
Biden met Sunday with Sen. Joe Manchin (D., W.Va.) and Senate Majority Leader Chuck Schumer (D., N.Y.) to complete the details of his legislative agenda. Manchin, who represents a coal state, opposes a plan to financially penalize utilities that don’t produce clean energy.

What’s Next: House Speaker Nancy Pelosi (D., Calif.) told CNN that “we have 90% of the bill agreed to and written” on Biden’s caregiving and climate change agenda. Asked if they will reach an agreement before Biden leaves for Europe Thursday or Friday, Pelosi said: “I think we’re pretty much there now.”

—Janet H. Cho

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Facebook to Report Earnings After Snap’s Ad Woes

Facebook reports third-quarter earnings later today, after weeks of bad news, including a legal fight with the Federal Trade Commission, testimony by a whistleblower, The Wall Street Journal’s “Facebook Files” investigation, a six-hour blackout, and the departure of its longtime chief technology officer.

Social-media rival Snap took a hit from changes Apple made to its privacy for mobile advertising, asking users to opt-in to targeted ads. Investors are bracing for that decision’s effect on Facebook to see how widespread it is on companies that depend on mobile ads.
Analysts expect Facebook to report 2.92 billion monthly active users and third-quarter earnings of $3.19 a share, up from $2.71 a year ago. Revenue is expected to be $29.5 billion, up 37% from the same period last year.
Facebook faces antitrust scrutiny from lawmakers and the FTC, while executives worry about teens leaving Instagram for Snap and TikTok. “If we lose the teen foothold in the U.S. we lose the pipeline,” they said in an internal memo, the New York Times reported.
After all the publicity, Facebook is considering whether to change its name to something to align with CEO Mark Zuckerberg’s “metaverse,” according to a report by The Verge citing one anonymous source.

What’s Next: Zuckerberg will speak during the company’s Facebook Connect virtual event on Oct. 28. He is slated to talk about the company’s interest in the metaverse, which is what people are calling the next-generation internet where users socialize, shop, and find entertainment in virtual worlds.

—Janet H. Cho

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PayPal Says It Isn’t Pursuing Pinterest ‘at This Time’

PayPal Holdings said Sunday it isn’t pursuing an acquisition of digital pinboard site Pinterest “at this time,” following reports it was in discussions.

Bloomberg reported last week that the payment company had approached Pinterest about a potential deal, based on a $70 a share valuation for the social network, which would have given it a $45 billion market capitalization.
PayPal shares were up 5.6% in early trading Monday, with Pinterest shares down 10% to $52 after spiking at $63 last week on news of the potential deal.
The acquisition would have been the largest ever for a social-media company, trumping Microsoft ’s $26 billion purchase of LinkedIn five years ago. It would have brought PayPal control of a key social-media site that influences shoppers’ behavior, as well as new advertising revenue.

What’s Next: PayPal stock is up 150% since January 2020, on the back of the online shopping boom, giving the company a $280 billion market capitalization. That gives CEO Dan Schulman the firepower he needs to extend the company’s footprint in all things related to shopping and finance.

—Pierre Briançon

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Focus on Carbon Offset Market as Climate Summit Nears

Countries preparing for the COP26 climate summit in Glasgow, Scotland, later this week are working toward creating a global carbon offset market overseen by the United Nations, and now Brazil appears willing to compromise on rules around it, according to Bloomberg.

Brazil, home to the Amazon rainforest, is softening on Article 6 of the Paris agreement, Bloomberg reported. The article lays out the framework for countries to meet climate goals by trading carbon credits. Brazilian government officials didn’t respond to Bloomberg, the report said.
Brazil’s inability to compromise with the European Union at 2019 talks in Madrid deadlocked the talks. A letter from 100 large-company CEOs put pressure on Brazilian President Jair Bolsonaro to clarify the country’s stance.
The Glasgow conference starts Oct. 31, aiming for a deal for the world to go carbon neutral by 2050. Finance ministers are making pledges to cut carbon emissions dramatically by 2030, and businesses like General Motors are betting the future on clean technology like electric cars.
One of U.S. climate envoy John Kerry’s top priorities has been to pressure China to cut its carbon emissions. China, the biggest greenhouse-gas emitter, has pointed to heightened tensions with the U.S. for resisting.

What’s Next: Going green is going to cost trillions of dollars in investment in new technology. Just generating all of the U.S.’s electricity from renewable energy sources could cost $7.8 trillion to $13.9 trillion over the next 30 years, said Princeton University researchers.

—Liz Moyer

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Nearly One-Third of S&P 500 Reports Earnings This Week

This week’s earnings calendar includes 151 S&P 500 companies, including some of the biggest technology companies. Roughly one-third of the companies in the S&P 500 and the Dow Jones Industrial Average are slated to report, making it the busiest week yet this season.

Five of the largest U.S. tech companies report earnings this week, including Facebook on Monday, Microsoft and Google’s parent, Alphabet , on Tuesday, and Apple and Amazon.com on Thursday. Together, their combined market cap is more than $8 trillion.
Even so, investors will be listening to Apple and Amazon for any word about supply chains, something that has pinched other industries. Apple could provide an update on iPhone deliveries in time for the holidays, while Amazon could update on its logistics network.
After Chipotle Mexican Grill trounced expectations, reporting more than $200 million in third-quarter profit and nearly $2 billion in revenue, investors will be scrutinizing McDonald’s on Wednesday, and Yum! Brands (KFC, Pizza Hut, and Taco Bell) on Thursday.
Chevron and Exxon Mobil on Friday will offer investors insight into the energy sector’s performance this year. The energy sector is expected to post collective profit around $23 billion, up from a loss last year, according to FactSet senior earnings analyst John Butters.

What’s Next: Tuesday’s United Parcel Service earnings could reveal what deliveries will look like for the holiday shopping season, from supply-chain and trucking issues to staffing shortages and inflation.

—Janet H. Cho