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      The Week in Business: Fox News Anchors’ Private Messages

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      Giulio BonaseraWhat’s Up? (March 5-11)Tucker Carlson’s Private TextsNew documents released last week revealed the disconnect between the Fox News anchors’ privately held opinions and those they espoused publicly — and shared with millions of viewers — on their television programs. In particular, Tucker Carlson’s views on Donald J. Trump and the outcome of the 2020 presidential race have been shown to contrast sharply with the messaging of his show, which supported Mr. Trump and promoted his unfounded belief that the election had been stolen. Yet at the same time, Mr. Carlson was sending texts to members of his staff about Mr. Trump like “I hate him passionately.” He is not the only Fox employee to be featured in the documents, which are part of the $1.6 billion defamation suit against Fox News by the voting technology company Dominion Voting Systems and include the messages of other network stars like Laura Ingraham. But Mr. Carlson’s texts include some of the starkest language about the former president and drew special attention from the White House in a statement on Wednesday criticizing Mr. Carlson for his on-air portrayal of the Jan. 6 Capitol attack as a largely peaceful event.Biden’s Budget ProposalPresident Biden on Thursday unveiled a $6.8 trillion budget that sought to increase spending on the military and a wide range of new social programs while also reducing budget deficits by nearly $3 trillion over a decade. The proposal was meant to address a partisan fight over the country’s national debt. Mr. Biden’s proposal provides for funding for an array of new programs, including billions on guaranteed paid leave for workers, free community college and an expanded child tax credit. The budget plan — which also calls for a new 25 percent minimum tax on billionaires — is widely considered dead on arrival in the Republican-controlled House. Speaker Kevin McCarthy said Mr. Biden’s proposals were “completely unserious.”Job Growth Holds StrongThe Labor Department reported on Friday that U.S. employers added 311,000 jobs in February. Forecasters had expected to see a figure around 215,000, which would have been more in line with jobs reports from the second half of 2022. But the general downward trajectory of those jobs numbers took an unexpected turn in January, when new jobs surged to 517,000. So while job growth has eased somewhat in the last month, it remains resilient in the face of the Federal Reserve’s efforts to slow the economy. This latest jobs data also suggests that employer confidence is still relatively high, even as layoffs begin to rise.Giulio BonaseraWhat’s Next? (March 12-18)Next on the Economic CalendarWhen Jerome H. Powell, the Fed chair, spoke to Congress last week, he largely avoided committing to a strategy for taming inflation. Speaking before the Senate Banking Committee on Tuesday and the House Financial Services Committee on Wednesday, Mr. Powell said he and his colleagues were prepared to take a more aggressive tack and raise rates more quickly, if needed. But much of the Fed’s decision-making depended on the inflation and jobs reports. So Fed officials will be paying close attention (as they always do) to the Consumer Price Index data that will arrive on Tuesday. The last reading showed that while overall inflation had cooled, it was only a slight change, and core inflation — which strips out volatile food and fuel costs — remained fast.Shockwaves From a Bank RunIn an ominous sign for global banking, the Federal Deposit Insurance Corporation last week seized Silicon Valley Bank, a prominent investor in tech start-ups. The bank touched off investor panic when it announced on Wednesday that it had sold off $21 billion of its most liquid investments, borrowed $15 billion and organized an emergency sale of its stock to raise cash. These were urgent and extraordinary measures that banks go to great lengths to avoid. Investors at some venture capital firms urged their clients to move their money from the bank over concerns about its financial solvency. Less than two days later, the F.D.I.C. took control of the bank and created a new one, the National Bank of Santa Clara, to hold customers’ deposits and assets. A Ruling on Gig WorkA court is expected to hand down its ruling this week on Proposition 22, a ballot measure in California that would allow gig economy companies like Lyft and Uber to continue treating drivers as independent contractors. The battle over the status of these workers in the state — who number at least one million — ramped up in 2019, when California legislators passed a law requiring these companies to give their drivers the full protections of employment. But after the ride-hail apps threatened to suspend operations in the state, an appeals court granted them a temporary reprieve and the companies poured millions into getting Prop. 22 on voters’ ballots. A majority of voters approved the measure in November 2020, but it was swiftly challenged by a coalition of ride-hail drivers and labor groups, ruled unconstitutional by a California judge and appealed through the courts.What Else?Walgreens is facing blowback after announcing that it would not dispense abortion pills in 21 states where Republican attorneys general are threatening legal action against pharmacies that distribute the medication. Roger Ng, a former Goldman Sachs banker convicted last year for his role in a money-laundering scheme known as the 1MDB scandal, was sentenced on Thursday to 10 years in prison. And JPMorgan Chase on Wednesday sued James E. Staley, a former top executive, accusing him of failing to fully inform the bank about what he knew about the convicted sex offender Jeffrey Epstein. More

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      The Fed’s Struggle With Inflation Has the Markets on Edge

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      The central bank’s success or failure will affect your wallet and, maybe, the next election, our columnist says.Clarity about the future of inflation and the stock and bond markets would be wonderful right now, but that’s just what we don’t have.What we do have are enormous quantities of inconclusive data. There is something for everyone, and for every possible interpretation.The Federal Reserve is intent on whipping inflation now — to borrow an infamous phrase from the Ford administration, which failed spectacularly to “WIN” in the 1970s. But despite a series of steep interest rate increases by the Fed, and its stated intention to raise rates further this year, inflation remains intolerably high.“We’re stuck in the messy middle,” Josh Hirt, senior economist at Vanguard, said in a note this month.It’s a muddle right now, and the lurching stock and fixed-income markets reflect investors’ uncertainty.In testimony before Congress on Tuesday and Wednesday, Jerome H. Powell, the Fed chair, made it clear that the central bank not only intends to keep raising interest rates, but will increase them even more than “previously anticipated” if it deems that necessary to squelch inflation.It’s too soon to say how effective the measures taken by the Fed have been. The economy has been generating a lot of jobs and unemployment is quite low, but corporate earnings are beginning to fall. At some point, the economy is going to slow down — Vanguard thinks that may not happen until the end of the year. We may be heading into a recession. Or we may not be. The verdict isn’t in yet.Really long-term investors can ride out the turmoil, and those who prize safety above all else have reasonably good options now, too: There are plenty of attractive, high-interest places to park your cash.But what transpires in the next few months will still be critical for consumers and investors, and may even determine the outcome of the next presidential election. Considering what’s at stake, it is worth wading a little more deeply into this morass.The Fed and InflationThe Fed finds itself in a difficult spot. It has declared that it intends to bring inflation down to its longtime 2 percent target, but prices keep rising much faster than that.Our Coverage of the Investment WorldThe decline of the stock and bond markets this year has been painful, and it remains difficult to predict what is in store for the future.Value and Growth Stocks: Eight tech giants are no longer “pure growth” stocks, while Exxon and Chevron are, according to a new study. Here is what that means for investors.2023 Predictions: There are plenty of forecasts coming for where the S&P 500 will be at the end of the year. Should you be paying attention to them?May I Speak to a Human?: Younger investors who are navigating market volatility and trying to save for retirement are finding that digital investment platforms lack the personal touch.Tips for Investors: When you invest and where matters for taxes. But a few rules of thumb can stave off some nasty surprises.That 2 percent target is an arbitrary number, without much science to it. Whether 2 percent inflation is better than, say, 1.5 or 2.5 or 3 percent inflation — and how the inflation rate should be measured — are all open for debate. Let’s save those issues for another day.For now, the Fed has drawn a red line at 2 percent, and its credibility is at stake. The Consumer Price Index in January rose at more than three times that target rate.  The Personal Consumption Expenditures price index, which the Fed favors — and which, not coincidentally, generally produces lower readings than the C.P.I. — rose at a 5.4 percent annual rate in January, which was more than in the previous month. No matter how you slice it, inflation is ugly.So the Fed has few immediate options. It will keep raising the federal funds rate, the short-term interest rate it controls, in an effort to slow the economy and squelch inflation. The only questions are how high it will go and how rapidly it will get there. Traders in the bond market, who set longer-term rates through bidding and purchases, have had trouble coming up with consistent answers.  The central bank has already raised the short-term federal funds rate substantially and quickly, to a range of 4.5 to 4.75 percent, up from near zero just a year ago. But the federal funds rate is a blunt instrument, and the economic effects of these rate increases operate with a significant lag,The Fed could easily plunge the economy into a major recession. In a misguided bet that the Fed would beat inflation quickly or that a recession would arrive so definitively that the Fed could reverse course, bond traders began moving longer-term rates lower in October. That optimism also set off a stock market rally.But lately, with inflation and the economy failing to respond as traders had expected, the outlook has turned gloomier. Treasury yields reached or exceeded 5 percent for so-called risk-free securities in the range of three months to two years. That’s an attractive proposition in comparison with the stock market, and it’s no accident that stocks have fallen.Bonds and StocksEven 10-year Treasury yields have ascended to the 4 percent range. Compared with stocks, Treasuries in a murky market are, for the moment, exceptionally attractive.Falling earnings haven’t helped the stock market, either. For the last three months of 2022, the earnings of companies in the S&P 500 declined 3.2 percent from a year earlier, according to the latest I/B/E/S data from Refinitiv. And if you exclude the windfall from the energy sector, where prices were bolstered by Russia’s war in Ukraine, earnings fell 7.4 percent, the data showed.Corporate prospects for 2023 have begun to dim a bit, too, executives and Wall Street analysts are concluding. On Feb. 21, both Home Depot and Walmart warned that consumer spending had come under strain. The S&P 500 fell 2 percent that day, the worst performance for the short year to that date, in what Howard Silverblatt, a senior analyst for S&P Dow Jones Indices, called a “turnaround point” for the stock market.Whipping InflationIt’s early yet in 2023, but so far, stock investors are maintaining a relentless focus on the Fed, whose policymakers next meet March 21 and 22 and are all but certain to raise short-term interest rates further. The only questions are by how much, and how high rates will end up before the Fed concludes that it has accomplished its objective.  But with Mr. Powell aspiring to achieve the performance of his illustrious predecessor Paul A. Volcker, who vanquished inflation in the 1980s and set off two recessions to do it, it’s a fair bet that the Fed won’t back off its rate tightening policy soon.Bring down inflation and you are likely to be remembered as a hero. Bungle the job and you may well be memorialized as officials in President Gerald R. Ford’s administration have been, for their hapless effort to “whip inflation now.” In a widely derided public relations stunt in 1974, when inflation was running above 12 percent, the Ford White House distributed buttons with the WIN acronym, but that administration never beat inflation.It wasn’t until the next president, Jimmy Carter, appointed Mr. Volcker that the Fed even began to get control of inflation — and Mr. Volcker didn’t finish the job until the Reagan administration was well underway.The 2024 ElectionThe outcome of the next presidential election could well depend on whether the Fed gets the job done this time — and whether it causes a severe recession in the process.Ray Fair, a Yale economics professor who has been predicting presidential and congressional elections for decades, points out in a succinct note on his website that the political effects of the Fed’s efforts will be large. In his work, Professor Fair relies only on economic variables — and not the customary staples of political analysis — to forecast elections. His record is excellent.He outlines two paths for the economy. Because President Biden is an incumbent, and is likely to run for re-election, good economic results would be expected to help his cause.“In the positive case for the Democrats, if inflation is 3 percent in 2023 and 2 percent in 2024,” Professor Fair wrote, and if the economy grows at 4 percent rate in 2024 before the election, his economic model says the Democratic candidate is highly likely to win the presidency.On the other hand, he said, “in the negative case for the Democrats, if inflation is 5 percent in 2023 and 4 percent in 2024” and if the economy shrinks 2 percent in 2024 — in a recession — a Republican is highly likely to be the next president. He added, “Somewhere in between regarding the economy will mean a close election.”These statements assume that only the two main political parties mount credible campaigns. A well run third-party candidacy would complicate matters considerably.I’m not making any bets, either on politics or on the economy.  It’s all too complex and confused now.As always, for investments of at least a decade and, preferably, longer, low-cost index funds that mirror the entire markets are a good choice.Bonds are a safe and well-paying option right now. So is cash, held in money market funds or high-yield bank savings accounts.We may well be at a turning point, but taking us where, exactly? Unless you somehow know, it may be wise to play it safe for a while. More

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      Investors Bet on Midterm Bounce for Stock Market

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      Stocks were steady on Tuesday morning as voters in the United States headed to the polls and investors bet on Republicans flipping at least one chamber of Congress in the midterm elections.Futures on the S&P 500 stock index rose slightly on Tuesday morning in premarket trading. On Monday, the index recorded a 1 percent gain.Many analysts and investors expect the midterms to provide a tailwind for the stock market if the result is gridlocked government, in part because it implies a lower likelihood of major legislative changes that could affect company valuations.Analysts at Morgan Stanley said on Monday that Republicans taking control of the House or Senate could restrict the spending plans of President Biden and Democrats, potentially lowering Treasury yields and raising stock prices.“The markets prefer a more divided government,” said Eric P. Beiley, the executive managing director of Steward Partners, a wealth management firm. “If the Democrats hold I think you could see markets decline,” he added.But the data on past market performance around the midterms isn’t always so clear.According to Sam Stovall, the chief investment strategist at CFRA, a research firm, the S&P 500 has risen by an average of 0.6 percent the day after midterm results are announced, for data going back to 1970. The largest recent jump came in 2018, when the index rose more than 2 percent after Democrats flipped the House during President Donald J. Trump’s term.However, analysts at the research and indexing firm MSCI looked at the performance of U.S. stocks in the three months before and after midterms since 1978, and found that investors seemed to prefer the status quo — whatever it was at the time — versus a change in control.“The status quo generally translates into continued stability of the policy and economic road map with the reigning political party maintaining similar levels of control in terms of achieving its mandate,” the MSCI analysts wrote.Taking a longer view, Megan Horneman, the chief investment officer at Verdence Capital Advisors, noted that of the potential outcomes after the midterms — Democrats retain control, Republicans sweep or control of the House and Senate is split — the average annual return of the S&P 500 in each case was over 10 percent, going back to 1929.“The main thing to remember is that the markets tend to rally postelection only because markets don’t like uncertainty,” said Patrick Fruzzetti, a managing director at Rose Advisors. For many investors, it could be that the clarity they are seeking is simply the result, whatever it is. Beyond the potential shifts in the political balance of power, investors are grappling with the effects of high inflation, rising interest rates and recession worries.And there is another potential outcome in the 2022 midterms that officials are increasingly worried about; that some of the results could be contested. But in 2020 when the Trump campaign made false claims of corrupted elections and filed lawsuits, the S&P 500 rose more than 11 percent from when the results were announced through the end of the year. More

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      The Market Usually Rises After the Midterms. Will This Time Be Different?

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      If you have money in stocks during this bear market, you are probably having a rough year. The bond market has been miserable, too. There have been few bright spots for investors.Yet there is one positive portent right now: the calendar.With a surprising degree of consistency over the past 100 years or so, stocks have followed a broad pattern that coincides with presidential terms. The months leading up to midterm elections have generally been the worst in what is known as the four-year presidential election cycle. But the stock market is about to enter a sweet spot. Stocks have usually rallied in the year after the midterms — no matter which side wins.Market veterans take these patterns seriously but aren’t counting on them in an economy plagued by soaring inflation, rising interest rates and fears of a recession.“We’ve studied the presidential cycle carefully, and there’s something to it,” said Philip Orlando, the chief equity market strategist for Federated Hermes, a global asset manager based in Pittsburgh. “But it’s possible that this year we will need to invoke the four most dangerous words in investors’ lexicon: ‘This time is different.’”Gloom in the MarketsConsider, first, the overall pessimism in the markets.In the current climate, this comment, from Mark Hackett, the chief of investment research at Nationwide, counts as fairly upbeat. “We are now entering a stage where all signs point to a recession — assuming we aren’t already in one,” Mr. Hackett said. But, he added, “the recession may already be priced into the markets, in which case the next bull run may be faster and come earlier than many investors expect,” he said.The latest government figures show that the economy grew at a 2.6 percent annual rate in the third quarter. But the Federal Reserve says interest rates need to rise and stay high until the inflation numbers come down. The Fed’s monetary tightening is aimed at slowing the U.S. economy. Whether the consequences for working people will be mild or savage isn’t clear.In the meantime, the coronavirus pandemic festers, the death toll from Russia’s war in Ukraine mounts, interest rates are rising elsewhere around the world, global energy costs remain elevated and U.S. relations with China are fracturing. All these concerns are weighing on the markets.The State of the 2022 Midterm ElectionsElection Day is Tuesday, Nov. 8.Bracing for a Red Wave: Republicans were already favored to flip the House. Now they are looking to run up the score by vying for seats in deep-blue states.Pennsylvania Senate Race: The debate performance by Lt. Gov. John Fetterman, who is still recovering from a stroke, has thrust questions of health to the center of the pivotal race and raised Democratic anxieties.G.O.P. Inflation Plans: Republicans are riding a wave of anger over inflation as they seek to recapture Congress, but few economists expect their proposals to bring down rising prices.Polling Analysis: If these poll results keep up, everything from a Democratic hold in the Senate and a narrow House majority to a total G.O.P. rout becomes imaginable, writes Nate Cohn, The Times’s chief political analyst.The Presidential CycleThe party of a sitting president tends to lose seats in Congress in midterm elections, and high inflation makes matters worse for incumbents. Those are key findings of Ray Fair, a Yale economist whose long-running election model relies only on economic factors and shows the Democratic Party in an uphill climb this year.His model, along with the polls, the prediction markets and many forecasters, suggests that Republicans are likely to win control of the House of Representatives. The Senate is up for grabs.The issues in this election are enormous, and the vast differences between the two political parties are well chronicled. .css-1v2n82w{max-width:600px;width:calc(100% – 40px);margin-top:20px;margin-bottom:25px;height:auto;margin-left:auto;margin-right:auto;font-family:nyt-franklin;color:var(–color-content-secondary,#363636);}@media only screen and (max-width:480px){.css-1v2n82w{margin-left:20px;margin-right:20px;}}@media only screen and (min-width:1024px){.css-1v2n82w{width:600px;}}.css-161d8zr{width:40px;margin-bottom:18px;text-align:left;margin-left:0;color:var(–color-content-primary,#121212);border:1px solid var(–color-content-primary,#121212);}@media only screen and (max-width:480px){.css-161d8zr{width:30px;margin-bottom:15px;}}.css-tjtq43{line-height:25px;}@media only screen and (max-width:480px){.css-tjtq43{line-height:24px;}}.css-x1k33h{font-family:nyt-cheltenham;font-size:19px;font-weight:700;line-height:25px;}.css-1hvpcve{font-size:17px;font-weight:300;line-height:25px;}.css-1hvpcve em{font-style:italic;}.css-1hvpcve strong{font-weight:bold;}.css-1hvpcve a{font-weight:500;color:var(–color-content-secondary,#363636);}.css-1c013uz{margin-top:18px;margin-bottom:22px;}@media only screen and (max-width:480px){.css-1c013uz{font-size:14px;margin-top:15px;margin-bottom:20px;}}.css-1c013uz a{color:var(–color-signal-editorial,#326891);-webkit-text-decoration:underline;text-decoration:underline;font-weight:500;font-size:16px;}@media only screen and (max-width:480px){.css-1c013uz a{font-size:13px;}}.css-1c013uz a:hover{-webkit-text-decoration:none;text-decoration:none;}How Times reporters cover politics. We rely on our journalists to be independent observers. So while Times staff members may vote, they are not allowed to endorse or campaign for candidates or political causes. This includes participating in marches or rallies in support of a movement or giving money to, or raising money for, any political candidate or election cause.Learn more about our process.Yet, for the stock market, history suggests that the outcome of the elections may not matter much. Shocking though this may be, since 1950, the midterm elections have brought an upturn for stocks, no matter which party has won, and no matter the issues.The market has generally flagged in the months before the midterms and prospered after them. And it has often excelled in the year after the midterms, typically the best of the four-year presidential cycle.Ned Davis Research, an independent investment research firm, compared stock returns for 1948 through 2021, broken down by the four years of a standard presidential term. It used the S&P 500 and a predecessor index:12.9 percent for Year 1.6.2 percent for Year 2, the year of the midterms.16.7 percent for Year 3, the year after the midterms.7.3 percent for Year 4.The data was similar for the Dow Jones industrial average going back to 1900.But why? There is no certain answer — and it could even be a series of coincidences — though there are plenty of explanations. The one I prefer is that presidents are politicians who try to stimulate the economy — and, indirectly, bolster stocks — for maximum effect in presidential elections.Their first year in office is the best time to make politically painful moves, which often lead to weak markets by the time the midterms come around. After losses in the midterms, though, presidents try to give the economy a surge through expansionary fiscal and monetary policy, setting themselves (or their successors) up well for the election.Is This an Exception?Two powerful factors — the negative effect of a slowing economy and the beneficial influence of the midterm elections — may be in conflict, Ed Clissold, the chief U.S. strategist of Ned Davis Research, said in an interview.On the positive side for stocks, Wall Street usually responds well to gridlock — the stasis that can grip Washington when power is divided — and such a division is the consensus expectation for the midterms. But, over the last century, when bear markets have been associated with recessions, no bear market has ever ended before a recession started, Mr. Clissold has found. The last time there was a recession in the year following the midterms occurred after the 1930 elections, during the Great Depression, a terrible era for stocks and the economy.“A recession would be expected to be more important than the election cycle,” he said.Practical StepsThere are many ways of making bets on specific election outcomes, though they entail risk that I don’t favor.For example, if Democrats defy the odds and hold onto both houses of Congress, infrastructure spending will be expected to increase. Matthew J. Bartolini, the head of exchange-traded fund research at State Street Global Advisors, said, to bet that way, you might try SPDR S&P Kensho Intelligent Structures ETF. It includes “intelligent infrastructure” companies — like Badger Meter, which supplies utilities with water-metering equipment, and Stem, which provides software and engineering for green energy storage.If you want to bet on gridlock, you may assume that a split government will be bullish for the overall market. Then again, the need to raise the federal debt ceiling in 2023 could become a market crisis. Republicans have vowed to use the issue as leverage, forcing President Biden to cut federal spending. Similar maneuvering in 2011 led to the downgrading of U.S. Treasuries by Standard & Poor’s, sending tremors through global markets.Tactical bets on election or economic outcomes are unreliable. That’s why what makes sense to me, regardless of the immediate future, is long-term investing in diversified stocks and bonds using low-cost index funds that track the entire market. This approach requires a steady hand, a horizon of at least a decade and enough money to safely pay the bills.Short term, try to fortify your portfolio and build up your cash so you can handle any economic or electoral outcome.My only specific political advice in this financial column is this: Make your voice heard. However the stock market behaves, this is an important election.Vote. More

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      Big Tech and the Fed

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      Some tech companies’ earnings are flagging, in what could be a positive sign for the Federal Reserve.Still big.Noah Berger/Agence France-Presse — Getty ImagesWhat tech earnings say about the economy The long-booming bottom lines of major tech companies are all of a sudden smaller than expected. That might be a good thing. Big Tech sailed through the pandemic with its profits mostly intact. The fact that some firms’ results are now flagging could be a positive sign for the Federal Reserve, which is trying to engineer a slowdown as it fights the nation’s worst bout of inflation in four decades.The big question for investors, and perhaps the Fed, is whether the profits of Apple, Alphabet, Amazon and the other tech giants, along with corporate America in general, have fallen enough.Microsoft and Alphabet, Google’s parent company, kicked off what appears to be a disappointing round of quarterly reports for the U.S.’s largest tech companies yesterday. Meta will release its results this afternoon, with Apple and Amazon rounding out Big Tech’s earnings announcements tomorrow.Microsoft’s profits, while below expectations, were still up. Sales of its signature software products, like Office, rose 13 percent. Its cloud services were up 40 percent. And LinkedIn, the professional social network Microsoft bought in 2016, grew 26 percent from a year ago, continuing to benefit from the tightest job market in decades.Alphabet’s sales rose 13 percent. In another good sign for the economy, the jump was driven by better-than-expected sales in its core Google search engine business, while results were mixed elsewhere. A jump in expenses and an exit from its Russian-related businesses caused profits to slump 14 percent.The results were positive enough for investors. Alphabet’s shares rose nearly 5 percent on the earnings news to $110. Microsoft’s shares jumped $10, or nearly 4 percent, to $262. Executives at both companies said they saw evidence of a weaker economy. “We are not immune to what is happening in the macro broadly,” Satya Nadella, Microsoft’s chief executive, said on a call with analysts. Alphabet’s chief financial officer, Ruth Porat, told analysts that a pullback in spending by some advertisers reflected “uncertainty about a number of factors.”Few are betting that the earnings reports will change the Fed’s approach. Its policymakers are meeting this week, and they are widely expected to continue raising benchmark interest rates. While central bankers “will likely acknowledge a recent weakening in economic momentum, the Fed will likely feel the need to appear resolute in battling inflation until there are clear signs that it is abating,” wrote David Kelly, the chief global strategist of J.P. Morgan Asset Management, in a note to clients earlier this week.HERE’S WHAT’S HAPPENING Kraken, the crypto exchange, is under investigation for possible sanctions violations. The Treasury Department is looking into whether Kraken illegally allowed users in Iran and elsewhere to buy and sell digital tokens. Shares of Coinbase, a larger crypto exchange, plunged yesterday after reports that the S.E.C. was investigating whether it allowed trading in unregistered securities. Cathie Wood’s Ark funds reportedly dumped Coinbase shares yesterday for the first time this year.Antitrust legislation aimed at Big Tech may be off the table for now. Chuck Schumer, the Senate majority leader, told donors at a Capitol Hill fund-raiser yesterday that the American Innovation and Choice Online Act, which he had promised to bring to a vote this summer, lacks the support needed to get it to the Senate floor, Bloomberg reported. The bill’s bipartisan backers have been pressuring Schumer to act fast, before midterm elections that could change the balance of power in Congress.One America News, once a dependable Trump promoter, is struggling to survive. The network is being dropped by major carriers and faces a wave of defamation lawsuits for its outlandish stories about the 2020 election. OAN’s most recent blow is from Verizon, which will stop carrying the network on its Fios television service this week. It is now available to only a few thousand people who subscribe to regional cable providers.Teva Pharmaceuticals reaches a tentative $4.25 billion settlement over opioids. The proposed settlement, which is with some 2,500 local governments, states and tribes, would end thousands of lawsuits against one of the largest producers of the painkillers during the height of the opioid epidemic.Florida’s largest utility secretly funded a website that attacked its critics. Florida Power & Light bankrolled and controlled The Capitolist, a news site aimed at Florida lawmakers, through intermediaries from an Alabama consulting firm, an investigation by The Miami Herald found. The site claimed to be independent, but it advocated rate hikes and legislative favors in efforts that were directed by top executives at the utility.BlackRock downshifts on E.S.G. BlackRock, the world’s largest asset manager, slashed its support for shareholder proposals on environmental and social issues this year, backing only 24 percent of such resolutions in the proxy season that ended in June, down from 43 percent in the previous period. The firm, which has long led the conscious investing movement, said this year’s proposals were “less supportable” and cited new regulatory guidance that opened the door to a broader range of policy-related proposals.The firm has criticized overly “prescriptive” resolutions. In a May memo, BlackRock signaled that Russia’s war in Ukraine was straining global energy supplies and shifting its calculations. “Many climate-related shareholder proposals sought to dictate the pace of companies’ energy transition plans despite continued consumer demand,” wrote the firm’s global head of investment stewardship, Sandy Boss. She noted that shareholders generally supported fewer environmental and social proposals this year as well, voting for 27 percent of resolutions, down from 36 percent in the previous proxy period.Opposition to E.S.G. is mounting. The environmental, social and governance investment push has been labeled “woke capitalism” by critics and is under fire from executives like Tesla’s Elon Musk, major investors like Bill Ackman and Republican politicians. In a speech yesterday, former Vice President Mike Pence, a possible 2024 hopeful, said that big government and big business were together advancing a “pernicious woke agenda.”E.S.G. supporters say critics may have a point. Andrew Behar, C.E.O. of the shareholder advocacy group As You Sow, agrees that many supposed E.S.G. investments don’t reflect true sustainability — with ever more capital directed toward the idea and many funds failing to live up to their promises. Behar argued that more corporate disclosures — which anti-E.S.G. groups oppose — would help to ensure that green investing actually works. He argues that critics also ignore a key financial incentive driving investor interest: knowing and lowering the costs of environmental issues throughout company operations, including risks from changing weather and the transition to more sustainable models. “We don’t have an E.S.G. problem,” Behar told DealBook. “We have a naming problem.”“I quit Starbucks. I had to. I just didn’t feel like that was justifiable. It’s like a small car payment.” — Fontaine Weyman, a 43-year-old songwriter from Charleston, S.C., on changing her coffee habits. Many Americans are dealing with the fastest inflation of their adult lives across a broad range of goods and services.Instagram tries to explain itself Instagram responded yesterday to criticism from some of its most popular users, including Kylie Jenner, about new features that made it more like its top rival, TikTok, the fast-growing video app owned by the Chinese company ByteDance.Adam Mosseri, Instagram’s head, said that it was experimenting with several changes, and that he knew users were unhappy. “It’s not yet good,” he said of some of the tweaks in a video post. He stressed Instagram’s commitment to photos, the app’s original focus, but said, “I’m going to be honest, I do believe that more and more of Instagram is going to become video over time.”Reels, a short-video product, is one of the six main investment priorities at Meta, which owns Facebook and Instagram, according to an internal memo last month from Chris Cox, the company’s chief product officer. Cox said that users had doubled the amount of time they spent on Reels year over year, and that Meta would prioritize boosting ads in Reels “as quickly as possible.” Last week, Instagram announced that almost all videos in the app would be posted as Reels.The changes come as Meta heads into a new phase. Mark Zuckerberg, its founder and chief executive, has cut costs, reshuffled his leadership team and made clear that low-performing employees will be let go, writes The Times’s Mike Isaac. “Realistically, there are probably a bunch of people at the company who shouldn’t be here,” Zuckerberg said on a call late last month. In recent months, profit at Meta has fallen and revenue has slowed as the company has spent lavishly on augmented and virtual reality projects, and as the economic slowdown has hurt its advertising business.The high-profile complaints about Instagram’s revamp started in recent days, when Kylie Jenner, the beauty mogul with 361 million Instagram followers, shared an image on the site that read: “Make Instagram Instagram again. (stop trying to be tiktok i just want to see cute photos of my friends.) Sincerely, everyone.”“PRETTY PLEASE,” Kim Kardashian, Jenner’s half sister and the seventh-most-followed Instagram user, echoed in a later post. Yesterday, Chrissy Teigen, a model and author with 39 million followers, responded to Mosseri in a tweet, saying, “we don’t wanna make videos Adam lol.”Companies have reason to listen when social media stars speak up, writes The Times’s Kalley Huang. In 2018, after Snapchat overhauled its interface, Jenner tweeted: “sooo does anyone else not open Snapchat anymore? Or is it just me….” Within a week, Snap, the app’s parent company, had lost $1.3 billion in market value.THE SPEED READ DealsThe activist investor Elliott Management reportedly has a stake in Paypal and is pushing it to cut costs faster. (WSJ, Bloomberg)Twitter shareholders will be asked to vote on Elon Musk’s potential acquisition in September. (Bloomberg)PolicyThe Senate advanced an industrial policy bill that includes more than $52 billion in subsidies for chip makers building U.S. plants. (NYT)The short seller Carson Block is being sued over a $14 million award from the S.E.C. that raised questions about the agency’s whistle-blower program. (Bloomberg)After Apple launched a “buy now, pay later” service, the top U.S. consumer finance regulator warned Big Tech about undermining competition in the sector. (FT)A federal judge ruled that Uber doesn’t have to offer wheelchair-accessible cars in every city. (The Verge)Best of the restCredit Suisse, which reported larger second-quarter losses than expected, replaced its C.E.O. (FT)Customers are paying billions of dollars in fees for “free” checking. (Bloomberg)The default settings in Apple, Google, Amazon and Microsoft products that you should turn off right away. (NYT)This man sells mud to Major League Baseball. (NYT)“The Case of the $5,000 Springsteen Tickets” (NYT)R.I.P., Choco Taco. (NYT)We’d like your feedback! Please email thoughts and suggestions to dealbook@nytimes.com. More

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      California Has Record Budget Surplus as Rich Taxpayers Prosper

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      SACRAMENTO — Buoyed by the pandemic prosperity of its richest taxpayers, California expects a record $97.5 billion surplus, Gov. Gavin Newsom said Friday, as he proposed a $300.6 billion state budget that also was a historic mark.“No other state in American history has ever experienced a surplus as large as this,” Mr. Newsom said, outlining revisions to spending he first proposed in January for the 12 months starting in July.Once again, as California heads into a gubernatorial election, the massive surplus allows Mr. Newsom to sprinkle cash across the state. Among the governor’s proposals: rebates for nearly all Californians to offset the effects of inflation, which is expected to exceed 7 percent in the state next year; retention bonuses of up to $1,500 for health care workers; expanded health care, in particular for women seeking abortions; three months of free public transit; and record per-pupil school funding. California also had a substantial surplus last year as the governor fended off a Republican-led recall.Mr. Newsom warned, however, that state budget planners have been “deeply mindful” of the potential for an economic downturn. California’s progressive tax system is famously volatile because of its reliance on the taxation of capital gains on investment income.“What more caution do we need in terms of evidence than the last two weeks?” the governor asked. The S&P 500, the benchmark U.S. stock index, has been nearing a drop of 20 percent since January, a threshold known as a bear market. Some other measures, including the Nasdaq composite, which is weighted heavily toward tech stocks, have already passed that marker.A little more than half of the surplus would go to an assortment of budgetary reserves and debt repayments, with almost all of the additional spending devoted to one-time outlays under the governor’s plan, which still needs to be approved by lawmakers.Legislative leaders have generally supported the notion of inflation relief, although the method remains a matter for negotiations. Some lawmakers are pushing for income-based cash rebates, while the governor is proposing to tie the relief to vehicle ownership because he says it would be faster and would cover residents whose federal aid is untaxed. Mr. Newsom’s fellow Democrats control the Legislature.“People are feeling deep stress, deep anxiety,” Mr. Newsom said. “You see that reflected in recent gas prices now beginning to go back up.”In a statement, the president pro tempore of the State Senate, Toni G. Atkins, and the chair of the committee that oversees budgeting in the chamber, Senator Nancy Skinner, noted that the plan for abortion funding, in particular, was in line with Democrats’ legislative agenda and called the governor’s proposals “encouraging.” More

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      Why Midterm Election Years Are Tough for the Stock Market

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      These months are historically the weakest for the market in a presidential term. Aside from coincidence, there are several possible explanations.The stock market’s decline and the tightening of financial conditions that have accompanied it since the start of the year are unique to 2022.The effects of the coronavirus pandemic, roaring inflation and Russia’s invasion of Ukraine are emphatically different from anything that had come before.Yet for stock market mavens who have read up on the four-year presidential election cycle, what is occurring in the markets looks quite familiar. This is a midterm election year, after all, and numbers going back more than a century show that the second year has generally been the weakest for the stock market in a president’s term.“Investors may take solace in the fact that the market has been here many times before,” Ed Clissold and Than Nguyen, two analysts for Ned Davis Research, an independent financial research firm, wrote in a recent report on the presidential cycle.The NumbersThe market soared early in Donald J. Trump’s presidency, but it hit a wall in 2018 — the midterm year — and at one point gave up 18.8 percent of its gains, according to Ned Davis Research’s tabulation of Dow Jones industrial average data.Similarly, the Dow rose smartly early in President Biden’s term, only to decline more than 12 percent at its trough so far this year, again according to Dow data.This rough pattern isn’t a constant throughout history, but it has occurred quite frequently in presidencies going back to 1900. After a weak stretch in the midterm year, the stock market has usually rallied.Consider the numbers. These are the median annualized returns from 1900 through 2021, freshly tabulated by Ned Davis Research for the different years of a presidential term, using the Dow:12.7 percent for Year 1.3.1 percent for Year 2, the midterm year.14.8 percent for Year 3, the pre-election year.7.4 percent for Year 4, the election year.The market soared early in President Donald J. Trump’s presidency, but it hit a wall in 2018.Doug Mills/The New York TimesNed Davis Research ran the numbers a second time, for 1948 through 2021, using the S&P 500 and a predecessor index. The S&P 500 is a broader proxy for the overall U.S. stock market than the Dow, but it has a shorter history. While the details were different, the pattern remained the same:12.9 percent for Year 1.6.2 percent for Year 2.16.7 percent for Year 3.7.3 percent for Year 4.But Why?Why the midterm year — and, in particular, the first half of the year — is often a weak period for stocks is unclear. It could be a series of coincidences; establishing cause rather than correlation, especially over such a long period, is impossible.Yet many researchers in the academic world and on Wall Street have examined the numbers and concluded that the pattern of midterm year weakness, and greater strength for stocks later in the presidential cycle, is fascinating enough to merit further study. “The pattern is hard to ignore,” Roger D. Huang wrote in a 1985 paper in the Financial Analysts Journal.A Guide to the 2022 Midterm ElectionsMidterms Begin: The Texas primaries officially opened the 2022 election season. See the full primary calendar.In the Senate: Democrats have a razor-thin margin that could be upended with a single loss. Here are the four incumbents most at risk.In the House: Republicans and Democrats are seeking to gain an edge through redistricting and gerrymandering, though this year’s map is poised to be surprisingly fairGovernors’ Races: Georgia’s contest will be at the center of the political universe, but there are several important races across the country.Key Issues: Inflation, the pandemic, abortion and voting rights are expected to be among this election cycle’s defining topics.He noted another puzzling fact. Although Republicans tend to be portrayed as the party of business, the stock market generally prefers Democrats — an affinity sustained for a long time. From 1901 through February, for example, and adjusted for inflation, the Dow returned 3.8 percent annualized under Democratic presidents, versus 1.4 percent under Republicans, Ned Davis Research found.Furthermore, based on the historical data, the best political alignment for the stock market is one that could arise this November if the Democratic Party has a major setback. Since 1901, a Democratic president combined with Republican control of both houses of Congress has produced annualized real stock returns of 8 percent, using the Dow.Aside from sheer coincidence, there are several possible explanations for the presidential cycle and, specifically, for the typical midterm swoon and recovery in the last half of a presidential term.Presidents as PoliticiansIn an interview, Mr. Clissold, the chief U.S. strategist for Ned Davis Research, noted that the stock market abhors uncertainty. It is well understood that most often, the president’s party loses ground in midterm congressional elections. But that limited insight early in a president’s second year only makes it harder to make bets on the direction of policymaking in Washington.“That could all be weighing on the market in a cyclical pattern,” he said.There is another common theory, one that I find appealing because it does not flatter the political establishment. Yale Hirsch, who began describing the presidential cycle in the annual Stock Trader’s Almanac in 1968, explained it to me more than a decade ago.The theory starts with the premise that even the best presidents are, first and foremost, politicians. As such, they use all available levers to ensure that they — or their designated successors — are elected.The Dow gained 89.2 percent during the first half of President Franklin D. Roosevelt’s first term.Corbis, via Getty ImagesThese efforts often contribute to strong stock market returns leading up to presidential elections, when it is in presidents’ greatest interest to stimulate the economy.In the first half of a presidential term, however, when the White House and Congress get down to the mundane business of governing, there is frequently a compelling need to pare down government spending or to encourage (substitute “pressure,” if you prefer) the nominally independent Federal Reserve to raise interest rates and restrict economic growth. The best time to inflict pain is when a presidential election is still a few years away, or so the theory goes.As Mr. Hirsch told me back then, it’s good politics “to get rid of the dirty stuff in the economy as quickly as possible,” an exercise in fiscal and monetary restraint that tends to depress stock market returns in the second year of a presidential cycle.That would be where we are now.Where Biden StandsThrough March, despite the bad stretch in the market this year, stock returns have been comparatively good during the Biden presidency, with a cumulative gain in the Dow of 12.1 percent, well above the median of 8.1 percent since 1901. In the equivalent period, the Dow under Mr. Trump gained 22.2 percent.Both performances were vastly behind those of the leaders, according to Ned Davis Research. The top three, from inauguration through March 31 of their second year in office, were:Franklin D. Roosevelt in his first term, 89.2 percent.Ronald Reagan in his second term, 48.2 percent.Barack Obama in his first term, 31.1 percent.What are we to make of all this?Well, the pattern of the presidential cycle suggests that the market will begin to rebound late this year and rally next year — the best one, historically. That result is unlikely, though, if the Federal Reserve’s fight against inflation plunges the economy into a recession, as some forecasters, including those at Deutsche Bank, are predicting.I wouldn’t count on any of these predictions or patterns. As an investor, I’m doing my usual thing, buying low-cost index funds that mirror the broad market and hanging on for the long term.But I’ll keep looking for patterns anyway. The pageantry of American politics and stock market returns is a compelling spectacle, even when none of the expected outcomes come true. More

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      The Stock Market Loves Biden More Than Trump. So Far, at Least.

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      Stocks have soared under the new president, and the Dow has generally preferred Democrats since 1901. But don’t count on that for the future.From the moment he was elected president in 2016 through his failed campaign for re-election, Donald J. Trump invoked the stock market as a report card on the presidency.The market loved him, Mr. Trump said, and it hated Democrats, particularly his opponent, Joseph R. Biden Jr. During the presidential debate in October, Mr. Trump warned of Mr. Biden: “If he’s elected, the market will crash.” In a variety of settings, he said that Democrats would be a disaster and that a victory for them would set off “a depression,” which would make the stock market “disintegrate.”So far, it hasn’t turned out that way.To the extent that the Dow Jones industrial average measures the stock market’s affection for a president, its early report card says the market loves President Biden’s first days in office considerably more than it loved those of President Trump.Mr. Biden would get an A for this early period; Mr. Trump would receive a B for the market performance during his first days as president, though he would get a higher mark for much of the rest of his term.From Election Day through Thursday, the Dow rose about 26 percent, compared with 14 percent for the same period four years ago. Amid signs that the United States is recovering briskly from the pandemic, early returns for Mr. Biden’s actual time in office have also been exceptional. The stock market’s rise from its close on Inauguration Day to its close on Thursday marked the best start for any presidency since that of another Democrat, Lyndon B. Johnson.For those too young to remember the awful day of Nov. 22, 1963, Johnson, the vice president, was sworn in as president that afternoon after President John F. Kennedy was assassinated in Dallas. Measuring stock market performance from the end of the day they were all sworn into office allows us to include Johnson as well as Theodore Roosevelt, who became president on Sept. 14, 1901, after President William McKinley died of gunshot wounds.The Republican Party has long claimed that it is the party of business, and that Republican rule is better for stocks. But the historical record demonstrates that the market has generally performed better under Democratic presidents since the start of the 20th century.Over all, the market under President Biden ranks third for all presidents during a comparable time in office since 1901, according to a tally through Thursday (the Biden administration’s 109th day) by Paul Hickey, co-founder of Bespoke Investment Group.These are the top performers:Franklin D. Roosevelt, inaugurated March 4, 1933: 78.1 percent.Johnson, inaugurated Nov. 22, 1963: 13.8 percent.Mr. Biden, inaugurated Jan. 20, 2021: 10.8 percent.William H. Taft, inaugurated March 4, 1909: 9.6 percent.Note that three of the top four — Roosevelt, Johnson and Mr. Biden — were Democrats. That fits an apparent pattern. Since 1900, the median stock market gain for Democrats for the start of their presidencies is 7.9 percent; for Republicans, only 2.7 percent.By contrast, the Dow gained 5.8 percent in Mr. Trump’s first days as president. That was a strong return for a Republican, but not quite up to snuff for a Democrat.Now consider longer-term returns — how the Dow performed over the duration of all presidencies, starting in 1901. Again, the market did better under Democrats, with a 6.7 percent gain, annualized, compared with 3.5 percent under Republicans.Using this metric, the Trump administration looks much better, placing fourth among all presidencies.These are the annualized returns for the top-ranking presidents:25.5 percent under Calvin Coolidge, a Republican, in the Roaring Twenties.15.9 percent under Bill Clinton, a Democrat.12.1 percent under Barack Obama, a Democrat.12.0 percent under President Trump.That’s an extraordinarily good market performance under Mr. Trump, when you recall that it includes the stock market collapse of late February and March last year as the world reeled from the coronavirus.The market recovered rapidly once the Federal Reserve jumped in on March 23, 2020, and in response to emergency aid programs enacted by Congress. But neither the market, nor the economy, nor the pandemic improved sufficiently in 2020 to win President Trump another term.As for President Biden, he is undoubtedly benefiting from the upward trajectory in the economy and the markets that started under his predecessor — much as President Trump benefited from the growing economy bequeathed him by President Obama.It doesn’t always work that way. In the Great Depression, the market roared in Franklin Roosevelt’s first 100 days. He offered a hopeful contrast — and a stark break — with his immediate predecessor, Herbert Hoover, who presided over what was then the worst stock market crash in modern history. During Hoover’s four years in office, the Dow lost 35.6 percent annualized, by far the worst performance of any president.The market’s recent boom can be easily explained. Back in July, I cited an investment analysis that suggested the stock market might perform quite well in a Biden presidency, despite Mr. Trump’s claims to the contrary. Those factors included more vigorous and efficient management of the coronavirus crisis, which would promote economic recovery and corporate profits; generous fiscal stimulus programs, with the possibility of colossal infrastructure-building; a return to international engagement accompanied by a reduction in trade friction; and a renewal of America’s global climate-change commitments.So far, that analysis is holding up. But will it lead to strong returns through the Biden administration?I have no idea. Alas, none of this tells us where the stock market is heading. All we know is that it has risen more than it has fallen over the long run, but has moved fairly randomly, day to day, and has sometimes veered into long declines. Another decline could happen at any time, regardless of what any president does.The only approach to investing I’d actively embrace is passive: using low-cost stock and bond index funds to build a well-diversified portfolio and hang on for the long run. And I’d try to ignore the exhortations of politicians, especially those who would tie their own electoral fortunes to the performance of the stock market. More