Apple, Other Stocks Wobble to Start 2024. Why the Fed Determines What’s Next.

It was hard to find many clear reasons for the broader slump. It’s possible that share prices had become a bit toppy at the end of last year. After nine weeks of gains, almost three quarters of S&P 500 companies were trading more than one standard deviation above their 50-day moving average, according to FactSet data.

Another theory is that fund managers who wanted to be holding strong names at the end of the year might have used the first day of the new year to clear the slate. Maybe traders were just grumpy about returning to work.

On the other hand, there were silver linings in the selloff. While the winners of 2023 did poorly, some of the losers did well–value stocks gained as growth stocks slid. Pharmaceutical firms Moderna and Pfizer jumped. Consumer staples such as
PepsiCo
rose. The Dow Jones Industrial Average added 26 points to reach a record close.

Before getting too worked up over any first-day losses, investors may want to look at what the real catalysts are going to be this year. On a day when the Federal Reserve releases minutes of the December decision, it’s worth remembering the market’s fortune will depend on whether the much-anticipated interest-rate cuts are delivered, and how quickly.

It’s still way too early to tell whether markets have started as they mean to go on.

—Brian Swint

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Slipping iPhone Sales Are Becoming a Big Issue

Apple
stock began the new year on the back foot, falling to a seven-week low, after picking up a downgrade.

• The stock fell 3.6% Tuesday when a downgrade from Barclays and rising bond yields hit the stock and the technology sector more broadly. Strategists led by Tim Long changed their rating to Underweight from Equal Weight, noting the latest sales checks showed softness in iPhone 15 sales in China and in developed markets.

• UBS analysts said Tuesday that the iPhone lost market share in November. Sales of the device fell some 6% in China from the same period a year earlier, and dropped almost 13% in the U.S., they noted.

• Despite the share-price drop, Apple is only slightly down from its all-time closing high of $198.11 on Dec. 14 and has risen 47% over the past 12 months through Tuesday’s close.

What’s Next: The iPhone maker is contending with headwinds for the technology sector and is under pressure to show it is ready to compete in the field of artificial intelligence. Any significant announcements relating to AI could turn 2024’s tough start into just a minor blip.

—Adam Clark and Brian Swint

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China’s BYD Dethrones Tesla in Fourth-Quarter EV Deliveries

China’s
BYD
edged out U.S. rival
Tesla
as the largest seller of all-battery electric vehicles in the most recent quarter, a sign of Chinese manufacturers’ growing strength in the EV market. BYD has a broader lineup of less expensive models in China than Tesla, helping boost sales.

• BYD delivered about 526,000 fully electric vehicles in the fourth quarter, while Elon Musk’s Tesla delivered about 485,000 units in the quarter. For the year, however, Tesla was still ahead of BYD, with 1.8 million deliveries versus BYD’s 1.6 million.

• Tesla’s deliveries in the quarter rose 38%, versus 70% for BYD. Tesla’s growth rate is slowing slightly as consumer demand for fully electric vehicles wobbles amid fears about charging accessibility and high interest rates that have increased borrowing costs for buyers.

• BYD makes battery-powered vehicles and plug-in hybrids, selling its models for below $30,000, on average, though it doesn’t sell in the U.S. The price of Tesla vehicles, even after several price cuts in 2023, still averages more than $40,000.

• Fellow EV maker
  Rivian Automotive
  delivered 50,122 vehicles in 2023, which was below expectations. Deliveries in the fourth quarter of 13,972 were about 10% lower than the third quarter even though factory output rose, The Wall Street Journal reported.

What’s Next: Tesla wants to cut production costs in half for its next generation of vehicles, including an expected lower-priced model. It just began deliveries of its Cybertruck pickups, aiming to produce 250,000 by 2025, though CEO Elon Musk has warned about challenges to raising production levels and reaching profitability.

—Al Root and Janet H. Cho

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Lawmakers Enter New Year Facing a Familiar Deadline Crunch

Congress returns next week with less than 12 days before the first deadline of a two-tiered government funding bill hits on Jan. 19. Lawmakers are no closer to agreement on spending than they were before their December break, creating the potential for a partial government shutdown in the near future.

• Although House Speaker Mike Johnson (R., La.) had proposed no more short-term spending bills, or continuing resolutions, Wolfe Research analyst Tobin Marcus said it might be too late for anything other than a short-term stopgap measure to prevent a shutdown.

• The Senate returns on Monday, and the House reconvenes on Tuesday. Stifel’s chief Washington policy strategist, Brian Gardner, said a partial government shutdown starting in late January is the most likely scenario, but that the expected impact on long-term economic activity is “minimal.”

• Congress approved government funding through Jan. 19 for the Energy, Housing and Urban Development, Transportation, and Veterans Affairs departments. A second funding deadline for Commerce, Defense, Health and Human Services, Homeland Security, and Labor departments is set for Feb. 2.

• Lawmakers also remain deadlocked over a $110 billion supplemental spending package that would provide wartime aid for Israel and Ukraine, money for southern U.S. border security, and immigration reform, MarketWatch reported. Immigration policy is a “famously challenging issue for Congress,” Marcus said.

What’s Next: Meanwhile, the 2024 Republican presidential race is moving into high gear, with the Iowa caucuses on Jan. 15, and New Hampshire’s primary on Jan. 23. With another House Republican resigning as of Jan. 21, the GOP’s majority narrows to 219, meaning the party can only afford to lose two votes.

—Janet H. Cho and MarketWatch

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Maersk Again Halting Service Through Red Sea After Attack

Danish shipping company
Maersk
suspended operations through the Red Sea and Gulf of Aden region until further notice after Yemeni rebels attacked one of its merchant ships on Saturday. In cases where it makes sense, it said vessels will be rerouted around South Africa’s Cape of Good Hope.

• The Maersk Hangzhou, a Singapore-flagged, Denmark-owned-and-operated vessel headed to Egypt’s Port Suez, was struck by a missile in the Bab al-Mandeb Strait. It was then attacked by four ships operated by Yemen’s Iran-backed Houthi rebels, which “engaged fire in an expected attempt to board the vessel,” Maersk said.

• The U.S. military said Navy helicopters sank three of the ships, but the fourth fled. Maersk announced on Sunday that it would immediately stop using the route until Jan. 2, and Tuesday’s announcement extends that. The company is still investigating the incident.

• Maersk, the world’s second-largest container ship owner, and other companies halted shipping through the strait in mid-December and then resumed operations after another carrier was attacked by Houthi rebels in Yemen.

• The International Chamber of Shipping said 12% of the world’s trade passes through the Red Sea, a “crucial waterway” linking the Mediterranean to the Indian Ocean. The Houthis have repeatedly targeted vessels linked to Israel for bombing Palestinians in Gaza.

What’s Next: Maersk said it remains committed to minimizing the impact on its customers’ supply chains and will continue updating the situation. Maersk is the second container shipowner to pause operations through the Red Sea, after Germany’s
Hapag-Lloyd
said it also would avoid the route until Jan. 9.

—Janet H. Cho

***

Outback Owner Bloomin’ Brands Strikes Agreement With Activist Starboard

Outback Steakhouse owner
Bloomin’ Brands
has an agreement with activist shareholder Starboard Value in which it added two directors to its board and named them to a newly formed board operating committee that is tasked with finding and recommending new opportunities to improve operations.

• Bloomin’ named former
  Darden Restaurants
  operating chief Dave George and Starboard partner Jon Sagal to its board as of Tuesday. They will be nominated for reelection at the 2024 shareholder meeting. George will chair the operating committee, which includes Sagal and two other directors.

• Starboard has a 9.6% stake in Bloomin’, first disclosed in August. It says the restaurant chain operator is significantly undervalued relative to rivals such as
  Texas Roadhouse
  and Darden Restaurants, the LongHorn Steakhouse and Olive Garden owner that was the subject of a 2014 Starboard campaign.

• The activist said in a presentation that the opportunities to improve are at Outback, where a rebranding effort should focus on fun. Outback’s Brazil operations have been a “gem” overlooked by U.S. investors, it said, and Bloomin’s Italian chain Carrabba’s could become a clear second behind Olive Garden.

• Activism has been a hot area of investing amid an otherwise lackluster deal environment, with large companies taking an increasing share of the attention, Goldman Sachs said. Large companies made up as much as 35% of 2023 activist campaigns, and Goldman expects that to continue in 2024.

What’s Next: Bloomin’ is set to report year-end 2023 earnings in February. Analysts expect adjusted profit to rise 13% from the year before, and sales to rise nearly 6% for the year. But same-store sales are expected to rise 1.8%, a slower pace than 2022’s 4% gain.

—Liz Moyer

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Dear Quentin,

I’m in a home-renovation nightmare. My interior designer accepted $100,000 in payments for appliances, cabinets, flooring, fixtures, and hardware but never paid the vendors for those items. When confronted he broke down in tears, and confessed that he needed to use the money on other business expenses.

Meanwhile, my project is at a standstill and I’m left living in expensive short-term rentals. I could go to the police and have him arrested for embezzlement, post warnings on social media, and/or sue him for the money but it’s apparent that he doesn’t have the money to repay me unless he can somehow stay in business.

My dilemma is do I stay quiet and continue dogging him for money until he pays me back, or report him and put him out of business thereby protecting others from a similar fate?

—Looking for Justice in a Californian Desert City

Read the Moneyist’s response here.

—Quentin Fottrell

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—Newsletter edited by Liz Moyer, Patrick O’Donnell, Callum Keown