The current sell-off may end up emboldening the bulls, if the last tech bubble is a guide


The bubble isn’t burst yet.


Justin Edmonds/Getty Images

Traders at the moment seem to have as much patience with tech stocks as Kansas City Chiefs fans do for a moment of unity.

Thursday was the fourth ugly finish in five sessions, with the Nasdaq Composite
COMP,
-1.99%

skidding 2%, and the other major indexes backtracking as well.

Andrea Cicione, head of strategy at independent investment research firm TS Lombard, said excessive leverage in the market really began in earnest in July. Cicione added that was occurring in U.S. stocks wasn’t happening anywhere else in the world.

And while he’s seeing signs of a bubble, he thinks if the selling doesn’t intensify, the bubble may reflate soon.

“The leverage accumulation so far may not be enough to burst the bubble just yet,” he writes. “If the recent selloff does not intensify further, the whole episode may end up simply emboldening the bulls to buy the dip and take even more risk.”

Between 1997 and 1998, the Nasdaq experienced three sell-offs of at least 17%, only to emerge stronger and rise four-fold to the 2000 peak. “Leverage is a key characteristic of all bubbles, and almost invariably it is the mechanism that leads to their collapse. But there may not have been enough leverage for the dot-com 2.0 bubble to burst just yet,” he says.

The reason leverage is important in bursting bubbles is because it uniquely can lead to forced unwinding. “When faced with margin calls they cannot meet, investors may have to liquidate positions against their will. The resulting fall in prices can instil doubts in the mind of others, persuading them to sell,” he said.

The buzz

Consumer price data for August is due at 8:30 a.m. Eastern.

The quarterly services survey and August budget deficit are also due for release. The Congressional Budget Office, which typically gets the budget picture pretty close to the mark, estimated the August deficit was $198 billion, and said the September-ending fiscal year gap will be the highest relative to the economy since 1945.

Database software giant Oracle
ORCL,
+0.66%

topped earnings and revenue expectations, helped by revenue from key client Zoom Video Communications
ZM,
-1.32%
.
Oracle also declined to discuss whether it will buy the U.S. operations of social-media company TikTok, as U.S. President Donald Trump said Thursday there will be no extension of the Sept. 15 deadline for it to be sold to a U.S. company or shut.

Peloton Interactive
PTON,
-3.75%
,
the exercise bicycle company, reported stronger-than-forecast fiscal fourth-quarter earnings and revenue, with its current year outlook also well ahead of estimates.

Jean-Sébastien Jacques, the chief executive of mining giant Rio Tinto
RIO,
-1.67%
,
announced he will resign in March following the controversy over the firm blowing up ancient caves while excavating for iron ore.

Thursday marked the first day since spring when new coronavirus cases in the European Union and the U.K. exceeded the United States.

The market

U.S. stock futures
ES00,
+0.65%

NQ00,
+0.64%

were stronger.

Gold futures
GCZ20,
-0.46%

fell while oil futures
CL.1,
+0.21%

edged higher.

The British pound
GBPUSD,
+0.18%

continues to reel from its more combative stance taken against the European Union in trade negotiations.

The chart

This incredible UBS illustration of Tesla
TSLA,
+1.38%

shows how shares have performed compared to other tech giants since joining the $100 billion market cap club. It took Apple
AAPL,
-3.26%
,
Alphabet
GOOGL,
-1.36%

and Facebook
FB,
-2.05%

between 4 to 11 years to achieve what Tesla did in three quarters. UBS increased its Tesla price target to $325 from $160 ahead of the company’s battery day presentation.

Random reads

Here’s the 2010 memo from a venture capital firm on an investment which valued retail software maker Shopify at $25 million. Shopify
SHOP,
-1.59%

is now worth $114 billion.

China said its U.K. ambassador’s Twitter account was hacked — after a steamy post was liked.

An experimental treatment kept mice strong in space, one that could have uses back on Earth.

Need to Know starts early and is updated until the opening bell, but sign up here to get it delivered once to your email box. The emailed version will be sent out at about 7:30 a.m. Eastern.



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Corporate bond issuance off to a bang in September


Corporate borrowing is off to the races.


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Companies wasted no time going back to the borrowing trough after the long Labor Day weekend.

U.S. investment-grade companies already borrowed $46.7 billion in the bond market this month through Wednesday, a single day that accounted for $21.3 billion of the total, according to BofA Global Research.

Notable among the week’s deluge was a debut $1 billion green bond issued by JP Morgan Chase & Co.
JPM,
-1.03%
,
putting it alongside other major corporations from Google parent Alphabet
GOOG,
-1.60%

GOOGL,
-1.36%

to Visa Inc.
V,
-1.23%
,
which in recent weeks have raced to borrow with do-good purposes.

September often can be a busy month for corporate borrowing, as companies focus on the remaining weeks left in the year to lock in optimal financing — meaning before Thanksgiving, when the typical year-end lull begins to take hold.

Here’s a look at how September bond issuance stacked up over the past five years:

The pandemic has made this year anything but typical, including with a record $1.5 trillion already borrowed by investment-grade companies so far in 2020 to help fund their operations through the year’s end.

Many highly rated businesses borrowed fresh mounds of debt at lower rates than ever before, even though they are now carrying record levels of leverage.

Read: U.S. corporate debt soars to record $10.5 trillion

However, with the Federal Reserve’s unprecedented pandemic support, there’s little reason to think big businesses have had enough of today’s ultra-low borrowing rates.

“It’s a very busy September,” said Wendy Wyatt, a portfolio manager at DuPont Capital, of investment-grade bond supply. While she doesn’t expect to see the same eye-popping borrowing boom as in March, April and May, when companies were panic-borrowing, Wyatt has been encouraged by the recent trend where bond issuance has been used by more companies to kick their debts down the road or to repay near-term maturities.

“It’s not hideous. It’s a smart business decision,” she said of the debt replacement or reduction strategy, even through she’s also keeping an eye on companies that look to take on more debt to fund mergers and acquisitions.

“M&A has picked up and you’ve got to be cautious about that,” she said.

Related: Coronavirus slashes deal-making globally: What to expect next

To be sure, some of the big winners of the pandemic debt boom have been investment banks hired to arrange the funding.

Revenue at investment banks jumped 32% to $101.6 billion in the year’s first half from a year prior, its highest level since the first half of 2012, according to Coalition, a global analytics company.

What’s more, Coalition expects the year’s swift uptick in investment banking business, particularly in fixed-income, currencies and commodities, to combine with further head-count reductions at banks and produce an 12% return on equity for institutions it tracks in its index.

That would mark a significant reversal of a trend where ROE for banks in the index have declined each year since 2016, when it hit 9.5%.



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Peloton produces profit for the first time amid pandemic-demand spike, stock pushes toward new record


Peloton Interactive Inc. reported fiscal fourth-quarter earnings Thursday afternoon.


MarketWatch photo illustration/iStockphoto

A year after its initial public offering, Peloton Interactive Inc. is pedaling toward new highs amid a pandemic that is forcing people into their homes and away from gyms, creating demand for at-home fitness equipment.

Peloton
PTON,
-3.75%

on Thursday wrapped up its fiscal year by reporting that sales and subscribers roughly doubled in the 12-month period, and revealed its first profitable quarter as a public company and record quarterly revenue a little less than a year after its September 2019 IPO. Shares fell 3.8% Thursday from Wednesday’s record closing price of $91.17 — more than three times the IPO price of $29 a share — but pushed back toward record highs in after-hours trading following the release of the report, with gains of more than 7%.

Peloton reported fiscal fourth-quarter profit of $89.1 million, or 27 cents a share, on sales of $607.1 million, up from $223 million a year ago. Peloton reported a net loss of $47 million in the fiscal fourth quarter a year ago, just ahead of its IPO. Analysts on average expected earnings of 10 cents a share on sales of $586 million, according to FactSet.

“It has been another staggering year of growth, and I know all parts of the organization have had to work together to do everything possible to meet the incredible demand for our products and services,” Chief Executive James Foley said in a conference call Thursday. “The strong tailwind we experienced in March as the COVID-19 pandemic took hold has continued to propel demand for our products into the fourth quarter and first couple of months of Q1 fiscal year 2021.”

While still attempting to catch up to a flood of orders amid the COVID-19 pandemic — Peloton said Thursday it does not expect order-to-delivery times to normalize until around the end of the calendar year — the company is also looking to expand its customer base. On Monday, Peloton announced that it will reduce the price of its standard exercise bike and introduce a lower-priced treadmill, which could clear a path for potential buyers who were not willing to pay the large upfront costs for its products. It will also introduce a premium bike for fans who want top-of-the-line equipment.

Wedbush analysts noted that in a previous survey of 1,200 people, they found that Peloton could “dramatically improve” sales at a lower price point, especially in treadmills.

“42% of non-Peloton owners that were interested in fitness and familiar with the brand showed some level of interest in a $2,500 Tread, compared to just 30% showing interest in the current Tread,” the analysts wrote in a Sept. 9 note, after Peloton announced its new lineup. “Among existing Peloton bike owners, the number of respondents saying they would be ‘very interested’ in owning a treadmill from Peloton doubles based on the lower price, from 14% based on the $4,295 price point to 28% assuming a theoretical (at the time) $2,500 price point.”

While lower sales prices could hurt hardware margins and average selling prices, much of Peloton’s long-term prognosis focuses on the subscriptions for interactive workout media that owners continue to pay after they have received the equipment. Peloton announced Thursday that it now has 1.09 million subscribers, nearly doubling the 511 million that it reported at the end of its last fiscal year, topping its forecast of 1.04 million to 1.05 million.

In total for the fiscal year, Peloton collected revenue of $1.46 billion from the sale of equipment and $363.7 million from subscription services, up from $719 million and $181 million, respectively, in the previous fiscal year. Combined with other revenue from merchandise and other offerings, Peloton ended the year with $1.83 billion in sales, up from $915 million.

“By the end of FY 2020 our Peloton membership base grew to approximately 3.1 million, compared to 1.4 million members in the prior year,” Peloton detailed in a letter to shareholders Thursday. “Fueled in part by the challenges associated with COVID-19, member engagement reached new highs with 164 million Connected Fitness Subscription workouts completed in FY 2020.”

For the current fiscal year, which began in August, Peloton predicted htat subscribers and revenue would roughly double yet again. The company guided for revenue of $3.5 billion to $3.65 billion, with connected subscribers swelling to 2.05 million to 2.1 million. Analysts on average were predicting revenue of $2.74 billion and subscribers of 1.78 million ahead of the report, according to FactSet.

Peloton stock has gained more than 260% since its IPO; the S&P 500 index
SPX,
-1.75%

has returned 17.7% in that time. In after-hours trading Thursday, shares topped $94 following the release of the report.



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Harris promises to offer free tuition for low-income students at public and historically Black colleges


Democratic vice presidential nominee Sen. Kamala Harris welcomed by a marching band at Florida Memorial University, a historically Black private university, on Thursday.


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Democratic vice-presidential nominee Sen. Kamala Harris promised Thursday that a Biden-Harris administration would make college tuition free at public schools and private historically Black colleges and universities for students whose families’ income is below $125,000 a year, and pledged student-loan debt forgiveness for some graduates of HBCUs.

“In relation to the history of HBCUs, [students] decide to take on a profession of service, which often does not pay as well as if they go into the private sector and do other things,” Harris said at a roundtable discussion held at Florida Memorial University, a historically Black private university. “So for those students who come out and have jobs that pay less than $125,000, student-loan debt will also be forgiven.”

Harris also promised to invest $70 billion in historically Black colleges and universities.

Additionally, she said that two-year college programs would be free for low-income Americans.

“We want to support our young people for whatever they pursue by way of education after high school,” Harris said. “For some that will be a college and university, for some it will be a two-year program, or an apprenticeship, or something of that nature, and we want to make sure that we support them in that quest.”

Harris made the remarks in response to Jaffus Hardrick, president of Florida Memorial University, who said that “we are literally working on a shoestring budget” amid the economic decline caused by the pandemic that has forced many students to reconsider attending college.

During her short-lived presidential campaign, Harris proposed making community college free.

Her remarks came in the key swing state of Florida, where 29 electoral votes are up for grabs, the most among any of the major swing states. Former President Barack Obama claimed the state by a thin margin in the 2008 and 2012 elections. President Donald Trump, however, won it in the 2016 election.

In a RealClearPolitics moving average of polls focused on top swing states that are likely to decide the election, Democrat Joe Biden had an edge of 3.9 percentage points over Trump as of Thursday, but his edge in Florida was just 1.2 points.

Before addressing the roundtable, Harris took a jab at Trump, citing the interview he had with Bob Woodward where he said “I wanted to always play it down,” referring to the threat of the looming pandemic.

“He suggested that to wear a mask is a sign of weakness as opposed to a sign of strength,” she said. “This is the president of the United States.”

Earlier in the day, Harris visited Doral, a neighborhood of Miami with a high concentration of Venezuelans.

Two days prior, Trump also visited South Florida, where he signed an order extending a moratorium on offshore drilling around Florida’s Gulf Coast.

Biden is scheduled to visit the Sunshine State on Sept. 15.



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Homeland Security whistle-blower says he was pressured to alter intelligence on Russia and white supremacists to match Trump preferences


Acting U.S. Secretary of Homeland Security Chad Wolf testifies during a hearing before Senate Homeland Security and Governmental Affairs Committee.


Alex Wong/Getty Images

WASHINGTON (AP) — An official at the Department of Homeland Security said in a whistle-blower complaint released Wednesday that he was pressured by agency leaders to suppress details in his intelligence reports that President Donald Trump might find objectionable, including intelligence on Russian interference in the election and the threat posed by white supremacists.

Brian Murphy says in a whistle-blower complaint filed with the agency’s inspector general that he was demoted for refusing to alter his intelligence reports in an “illegal and improper” manner.

The former FBI agent and Marine Corps veteran had served as principal deputy under secretary in the Office of Intelligence and Analysis.

In August, he was demoted to assistant to the deputy under secretary for DHS Management.

“Mr. Murphy is, put simply, a dedicated public servant who has had a laudable career prior to the recent events that have led to the submission of this package to the OIG,” his complaint states. “Prior to his current circumstances, he had never had so much as a negative fitness report in his professional career with the U.S. Government.”

In his complaint, he alleges that former DHS Secretary Kirstjen Nielsen, current acting Secretary Chad Wolf and his deputy, Ken Cuccinelli, repeatedly pressed him to change intelligence assessments in ways that would support administration policies or avoid offending the president.

In one example, he said Nielsen and her deputies pressed him to exaggerate the number of migrants with links to terrorism who have been detained at the Southwest border. Murphy said she falsely used a higher figure in testimony to Congress.

The complaint says Wolf, who has been nominated to be secretary by Trump, directed Murphy to cease providing intelligence assessments on the threat of Russian interference to the U.S. because it “made the President look bad.” Murphy said he declined because it would be a violation of his duties not to do it.

He said Cuccinelli directed him to modify a section of a report on white supremacy to make the threat appear less severe, and to include information on left-wing groups to echo administration talking points around civil unrest following the protests over the killing of George Floyd.

A copy of the complaint was released Wednesday by Rep. Adam Schiff of the House Intelligence Committee. Schiff says he has asked Murphy to testify to Congress.

DHS did not immediately respond to a request for comment by The Associated Press.



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