Spooked investors sink Big Tech stocks

I'll tell you what, this particular Friday could not come soon enough. From American Public Media, this is MarketPlex. In Los Angeles, I'm Kyle Risdahl. It is Friday. Today, this one is the 30th of October. Good as it always is to have you along, everybody. Well, it has been a week on the Federal Reserve, GDP, inflation, and oh yeah, what is up with the stock market? We will take the first three of those with Greg Ip. He's at the Wall Street Journal. Kate Davidson is at Bloomberg. Hey, you two. Hi, guys. Kate, I guess you get to start today, and I would like to begin with Chairman Warsh and his press conference on Wednesday. Perhaps I'm being pejorative here, but I thought it was kind of a snoozer. Yeah, not too exciting. We don't always mind that, do we? No, no. Let's make the economy boring again. That's right. That's right. Yeah, no, it seems like the big news coming out of this one actually had more to do with the schedule of these meetings, right, looking ahead to next year. I mean, we heard the Fed chairman sort of do his typical, you know, avoiding giving too much of too many hints on what's happening with rates or where he thinks rates should head. He committed, you know, said the Fed's still committed to containing inflation, but he also made an announcement that he thinks. He said that the Fed plans next year to have the same number of meetings, but one fewer rate decision, and then potentially two fewer decisions in the year after that. So six rate meetings, which is a big deal to financial markets, and it's interesting. I mean, the goal, he said, was to give them some time to think about big ideas, talk about broad policy strategy, and also this would help them, he said, align better with the calendar, right? I mean, they tend to have about six weeks in between their meetings, and they don't get a ton of action. They don't get a ton of economic data in between. So the goal would be to give them potentially some more information on which to base those decisions. But, you know, markets didn't love it. Let's put it that way. Well, Greg, what do you think about the Fed taking a meeting off to have a big think? Well, Kevin Warsh has a view that the Fed should be in the news less. So if you meet less and you change interest rates less, you'll be in the news less. And as far as he's concerned, that's a good thing. But, you know, just because you're meeting less doesn't mean. Even when the economy slows down, it's still going to be throwing curveballs at us all the time. New data will come along. And the markets are going to respond to that data, and they're going to wonder what's the Fed going to do with it. And they'll have to go longer before they actually hear from the Fed about what it's going to do about it. And if the economy is moving rapidly, that means it will take longer for the Fed to respond to that. So there are downsides to this new plan for the Fed to meet less often. What do you think, though, Greg, about what are they going to be thinking about? You know? Well, actually, back when I started covering the Fed many years ago, they had two two-day meetings per year where they had big strategic discussions. And so I guess they'll go back to something like that. But, you know, they have all the time in the world to have the strategic discussions now if they wanted to. Well, that's what I was going to say. You know, what are they doing in the six weeks between meetings? Anyway, Kate, I do want to get back to the whole, you know, the chairman doesn't like forward guidance thing. And so the blackout period for Fed officials. I guess for most of them this morning and boom out the gate came three Fed officials, members of the Board of Governors or regional bank presidents with some pretty strong forward guidance about what's going to happen in December. You know, that's true. They are three of them. The Dallas Fed president, St. Louis Fed and Richmond Fed all seem to signal some support for moving again soon, some of them said, to to raise rates. They don't see. The interest rates at the level they're at right now is really restraining the economy is cooling it down, which is what you want to do if you are trying to contain inflation as they are. They're still very worried about inflation, but they sort of defended this idea or the move this week to hold interest rates steady. They said, you know, it is important right now, given some of the volatility that we are seeing in markets to go to go gradually. But that doesn't mean that, you know, the destination is not the same as as Dallas Fed President Lori Logan put it. She still thinks that the Fed. Is going to need to raise rates at least two more times, which suggests that they are on track to probably raise rates at their final meeting of the year in December. OK, Greg, let's talk data. GDP came out earlier this week. We got PCE at three point six percent. Economy's growing, but so are prices. Yep. You know, it was a great quarter for the economy. Three point four percent annual rate. Best in a year. If you actually look under the hood, there are some measures of demand growing around five percent. Best in three or four percent. Four years. It's an economy that's not just strong, but it's accelerating. But Kai, the thing that I find striking is that if you actually look at the income side of the statement, you know, where is the money going that is basically being thrown off by this fast growing economy? Real disposable income, the money that ordinary folks out there are holding on to after their taxes and everything like that. It's only growing around one and a half percent after inflation. That's half the rate of economic growth. Why the difference? Because so much of this economic growth is investment. It's AI. It's profits. It's not. It's not trickling down to ordinary workers. And I think that explains why people are so unhappy about the economy now, even though the numbers tell us it's doing really well. Yeah. All right. So we'll get the AI in just a second. Kate, I did want to talk for a second about something the chairman mentioned a couple of three or four times in his, you know, 32-ish minutes of the press conference. Talked a lot about financial conditions and how, you know, it's tightening a little bit. And I wonder, I guess, if the Fed is waiting for the market to do its work for them, right? Making money tougher to get. To hold up. Right. There had been that idea sort of out there. And that's something that's been talked about in the past. You know, when we have seen a run-up in yields, as we've seen this year, Fed officials have at times previously said, well, this is helpful to us. And they might have broached, a couple of them might have broached that idea a few months ago. But I think, as we saw again from Lori Logan at the Dallas Fed, who, by the way, used to be at the New York Fed, knows markets really, really well, seems to be suggesting that, first of all, she said, financial conditions are still a tailwind for the economy. And they're pushing back on this idea, really, that they can just allow markets to do their work for them. I think that's the implication there. As I said, they don't see, they see this run-up as really reflecting more this strong economic growth and the idea that the Fed still has more work to do. So there's this expectation that the Fed is going to raise rates higher. And so they seem pretty intent on delivering that. Just so the listeners are clear. Financial conditions being a tailwind means they are not restrictive enough, right? They're not holding back economic activity. That's right. And what the Fed wants to do is raise borrowing costs to make it more expensive, as you said, for people to borrow money, to use their credit card, to get a new car, to buy homes, to try to cool things down. Right. Greg, we got a minute. Let's talk about artificial intelligence. We've got Kaylee Wells coming up on technology stocks. But AI is kind of driving this economy. It's driving part of what's going on in inflation. And the markets now are getting a little bit uneasy. It sure seems like. Yeah, I think there's a genuine concern out there that the companies have gotten ahead of themselves with the massive amounts of investment that they're promising without a strong timeline as to when the revenue, the profit will fall in place to actually make it worthwhile. Google, for example, we saw that even though they're still growing very rapidly in terms of their revenue, their search revenue from ads is slowing down. So people are saying, hmm, is the money they make from ads going to be going to be going from AI going to really going to make up for whatever they lose on search ads and so forth? And I think that question propagates across all these companies. And you're seeing investors who are not really asking questions about the enormous prices they were willing to pay for those companies now asking questions. We're seeing Intel down. We're seeing like Google down. We're seeing, in fact, most of the big stocks that we associate with AI are actually kind of struggling this year. Greg, you're up at The Wall Street Journal. Kate Davidson of Bloomberg on a Friday. Thanks, you two. Thanks, Guy. Thank you. Have a great weekend. Wall Street to end the week. Greg kind of alluded to it. Do you really, really want to know? We'll have the details nonetheless when we do the numbers. Stocks, technology, technology stocks in particular. Intel shares today, Greg alluded to this, off 29 percent, 28.58 if you want to be particular about it. Meta, Microsoft, NVIDIA, AMD, you name it, it fell. Marketplace's Kelly Wells has more on this very bad week for very big tech. What struck Daniel Newman was just how fast these companies took a turn for the worse. Monday, Tuesday, everyone was smiling. Wednesday, Thursday, Friday, everybody was crying. He's CEO of the Futurum Group. He says all these companies invest a lot in AI, but that wasn't the problem. SpaceX, Meta, Google, Amazon, Microsoft all actually performed extremely well inside their cloud businesses. But interestingly enough, we started to see some cracks inside other parts of the businesses. Google's ad revenue isn't working as well. Amazon's e-commerce still doesn't stand on its own. Microsoft is selling bonds to bankroll its spending. Intel isn't selling enough PC components. They're kind of reaching their limit to being able to finance their growth and Investors are getting impatient for a payoff. Peter Cohen teaches strategy and entrepreneurship at Babson College. He says tech companies have been using their legacy businesses to pay for all their AI investment for a while, promising a big payout. There's a lot of jitters about how much money people are spending, companies are spending on AI capital expenditures and not necessarily generating a clear return on investment. At first blush, it looks similar to the old dot-com bubble. Companies invested a lot, then failed to meet expectations, then said it would pay off, and then it didn't pay off. This time around, we're not seeing that. Matt Bryson is the managing director of equity research at Wedbush Securities. He says back then, the demand for more tech started to soften. And now. No one is halting spend or slowing spend, right? The problem is people keep on spending more and keep on telling investors that they're going to spend more. And with endless demand. And with endless demand for more AI, the tech companies just keep looking for more ways to up their supply. I'm Kaylee Wells for Marketplace. It takes a lot to change gears. In this economy. First, you've got to make the decision, which can be hard. You need the opportunity and a support system and lots and lots of nose to the grindstone. Here's today's installment of our series, Clocked Out. My name is MJ Andrews. I am 51 years old and I am a former bartender of 20 years. After I got divorced, after being a 10-year stay-at-home mother, the only job I could find was at this mom. mom-and-pop sports bar outside of Pittsburgh. It definitely provided me with enough money to pay the bills, make sure nobody was starving, and I loved bartending. Never felt like I was working. When my youngest was a senior in high school, my partner, I had kind of just talked about like, yeah, you know, someday I want to go back to school. And we were at dinner one night and he's like, why don't you go back to school? Like, I'll pay the bills. This was during lockdown, during COVID. And my mother is a nurse practitioner, family members are nurses. And I really saw how just everybody, including our family, were affected by COVID. And I really wanted to do something to help people. And I thought, you know what? I'll be good at nursing. I've absorbed so much over these years from having parents who were nurses. This should be easy. Initially, I decided that I was going to work while going to school. And I did that for the first semester. It was a lot of work. So much more work than I thought it was going to be. After the first semester, I told my bar, I was lucky enough to have the support of my family in order to not work and do this program. There's no way I could have done this without my family. MJ Andrews in Salt Lake City. If you've got a story about how you left the labor force, whether you're burned out or going to school, whatever it is, tell us about it, would you? Marketplace. Marketplace.org slash clocked out is where you can do that. Coming up. We have some great cars from the past, but I wasn't seeing a lot from the future. Problem is, that's where the money is. First, though, let's do the numbers. Yeah, the Wawa's. Dow Industrials down 572 points on the day, They won in a tenth percent, 51,770. The NASDAQ dove 747 points, two and nine-tenths percent, 25,437. The S&P 500 lost almost 140 points. That's one and eight-tenths percent, 75 and 80. For the five days gone by, the Dow, the blue chips off nine-tenths percent. The NASDAQ down two percent. S&P 500 slipped six-tenths of one percent. Some decidedly gloomy numbers for technology stocks. Microsoft and Meta down 1.5% apiece. Amazon and Alphabet each gave back about 1.4% of 1%. Hershey, I'll tell you what, is hoping for a lot of last-minute Halloween spending. Here's the CEO yesterday on their call. This is a quote. We really need consumers to show up. Hershey today sweetened 3.3%. Bond prices went up. The yield on the 10-year T-note went down 4.93%. You're listening to Marketplace. This is Marketplace. I'm Kai Risdahl. We are in, as you well know, a low-hire, low-fire labor market. What we are not in is a low-hire, low-voluntary buyout labor market. See also Microsoft earlier this week. It's going to offer buyouts to 60,000 people, about a quarter of its workforce, in part to cut costs and in other part to offset all that AI spending. Skydance, as you might have heard, the newish acquirer of both Paramount and Warner Brothers Discovery, also announced voluntary layoffs earlier this month. Marketplace's Kristen Schwab has more now on the pros and the cons of how companies ask people to leave. In the late 90s, during the dot-com bubble, Nita Chinzer was working for a major telecommunications company, and the firm went through multiple rounds of voluntary layoffs. And I would keep putting my hand up, and I was like, can I please get the layoff? For Chinzer, the timing was right. She wanted to go back to school. And I did not get selected until I was finally in a small office where there was only four of us physically there in a building or a section that held 160 people. Yeah, the vibes were weird. But Chinzer, who's a professor of organizational management at the University of Guelph near Toronto, says when voluntary layoffs are executed thoughtfully, everyone feels a little less bad. If we allow people to opt in, it's almost like we're shifting the responsibility, saying we didn't pick you, you picked to be unemployed. Letting employees choose their fate comes with some risks, though. Anthony Nyberg is a management professor at the University of South Carolina. If you offer it, you give up a little bit of control over who's taking it. Those who can actually go out and find something else to do might be more inclined to take those buyouts. Top talent tends to leave, especially if they think more cuts are coming. There is one group who prefers forced layoffs—investors. They like to see more immediate and measurable savings. But Nyberg says regular layoffs can cost more in the end. Layoffs are more likely to be followed by unintended turnover among your higher performers after the layoff. Nita Chinzer at the University of Guelph says she's seen buyouts become the more popular choice in the last handful of years. So that tells me that companies are actually forecasting and looking forward six months or a year. She says firms are being more proactive about preparing for any storms or planned investments that are coming ahead. I'm Kristen Schwab for Marketplace. tough day for tech as we've heard throughout the program today we've been talking obviously wall street mostly in ai now though we're going to talk automotive specifically electric vehicle automotive, even more particularly Chinese electric vehicle automotive. They are often, Chinese EVs, nicer and most often cheaper than EVs you can buy in the United States. And yet they are just out of reach, geographically speaking. Michael Koren is a columnist at the Washington Post. He went down to Mexico to test drive a bunch of Chinese EVs. Michael, welcome to the program. Good to have you on. Glad to be here. Thank you. Why go to Mexico? It's a beautiful country. And it also has some amazing cars that we cannot have in the United States. So I was going to go to Tijuana. It was the closest. But Mexico City is really the epicenter of where Chinese vehicles have entered the country and just taken over in a matter of years. So that's where I decided to go. Great line in the lead to this piece. You went to test drive the future. Before we get to the future, what is the automotive like present in Mexico right now? Yeah, well, you know, it's obviously still a lot of American and European cars. And when I sit on a street corner and I watch them go by, I would count them. And, you know, within about five or 10 minutes, I would see five, 10, 15 or more Chinese vehicles. But every year. more Chinese vehicles, but every year, year, that's getting much larger. And so Mexico is really this sort of natural experiment about what happens when Chinese EVs go head-to-head with American cars. Spoiler alert, I suppose, is warranted here, but how are Americans doing against the Chinese in the electric car market? Well, you know, we have some great cars from the past, but I wasn't seeing a lot from the future. About 15% of the cars now being sold in Mexico are actually Chinese brands. And Chinese brands have about a 90% share of the EVs in the country. And so Americans are just not really making the cars that Mexicans are buying in terms of electric vehicles and even increasingly just conventional vehicles. Let's talk qualitative here. You drove a bunch of them. Generally speaking, what'd you think? So what's fascinating is that there are Chinese vehicles at every price point, from the very lowest, around $20,000, you know, almost all the way up. And what I think they are selling is a four-wheel drive. And that's a four-wheel drive. So even at the lowest price point, you're getting sort of features and quality that you really don't see at cars that might cost a third more, sometimes twice as much. And so overall, I was very impressed. It's not that they have magic cars. It's just that they're delivering so much value. Let's talk about Detroit here for a second, because they started in on EVs, and then the Trump administration came in and got rid of a lot of incentives and changed its overall policy. And now, you know, they're backing away like it's on fire. Yeah, that's right. I mean, so, you know, the big three and American carmakers in general were making a huge bet. And the bet was that the world is going to electrify, and we need to be in that race. Now, unfortunately, they were right about the bet. It is electrifying. In fact, the first half of this year was the first year which a minority of new car sales were gasoline-only vehicles. The problem is that when the car sales were going to be electrified, it was going to be incentives and sort of the policy support for that transition evaporated. They pulled back, I think, riding off around more than $50 billion in investments. And so the conundrum they face is that they're now having to sell to two markets. One is the rest of the world that is quickly electrifying, and then one is the United States that is one of the only countries to sort of hit a 6% or 10% market share of EVs and then decline. Now it's recovering, but we don't see a fast recovery in the near future. You had to go to Mexico to write this piece because you can't get a Chinese-made EV in this country. That can't possibly stand, right? I mean, it's going to happen that they're going to come into this country somehow. Everyone I talked to said that. And in fact, there are a few Chinese-made EVs here, but they tend to be made by American companies and shipped over. However, there are several laws that are under consideration in Congress that would actually reverse the ability of even American car companies to partner with Chinese automakers. And typically, that's how you gain the expertise. And at this point, the center of the car manufacturing is in China. They can make a car in 18 months, where it takes three to five years or longer for most U.S. brands. And so if they are truly shut out of the United States, it would be probably unprecedented that the largest market economy in the world would also not be able to buy cars from the largest car companies in the world. But there are national security concerns. There are concerns about our own industry. And so it's a real dilemma. Michael Korn, this is The Washington Post. Fascinating piece, Michael. Thanks for your time. Thank you. This final note on the way out, the day in which Starbucks, man, I don't know. The company said on its earnings call yesterday they made plenty of money. Same store sales up 7% in the United States. But the company also said it is working on a new AI function that is going to recognize customers when they arrive and offer them personalized digital menus. I don't know. I don't know. Our theme music was composed by B.J. Liederman. Marketplace's executive producer is Nancy Fargali. Joanne Griffith is the chief content officer. Neal Scarborough is the vice president and general manager. And we say goodbye today to a guy who has been at our parent company for a month. He's been at Marketplace for almost 40 years, here at Marketplace for a bit more than a decade. John Gordon would not, I think, object to being called, lovingly, a curmudgeon. He's crusty, but soft on the inside. He can edit with the best of them. He can produce a show when he has to. And he understands what it means to help his reporters grow and learn. He also understands what makes Marketplace Marketplace. And I hope he knows he's going to be missed more than he understands. We'll see you Monday. This is APN.