The End of Stock Market Fundamentals?

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What is anything worth?

Remember GameStop? The original meme stock, which surged in January as retail traders banded together to buy it, now seems like ancient history. These days, it’s all about AMC, the movie theater chain whose value has soared far higher and faster than GameStop and other meme stocks. AMC’s stock nearly doubled yesterday alone; it’s now worth nearly eight times its prepandemic high, a heady valuation for a business that was flirting with bankruptcy not long ago.

By the numbers. AMC is now as valuable as Delta Air Lines. AMC says that more than three million retail investors now hold about 80 percent of its shares; most big companies’ share registers are dominated by institutions. This “atypical” retail interest, AMC said in a recent filing, could lead to “rapid and substantial increases or decreases unrelated to our operating performance or prospects, or macro or industry fundamentals.” But the well-organized groups of retail traders who encourage each other to buy and hold in forums like Reddit and elsewhere on social media proved that the January frenzy was not a one-off event, and could become a more typical feature of stock markets.

AMC is embracing the retail crowd, offering free popcorn and other perks to shareholders and, more important, raising much-needed cash by issuing more of its suddenly turbocharged shares. Today, it authorized the issue of a big chunk of new shares, worth more than $700 million at prevailing prices, which were down only a little in premarket trading. On Tuesday, it sold $230 million of stock to Mudrick Capital, which promptly sold the shares at a quick profit. This is not how these things usually work.

  • A new survey by Wells Fargo found that about a third of teenagers said they were learning financial lessons from the internet and social media, and almost half were more interested in investing thanks to the GameStop phenomenon. Their formative experiences with stocks could be with AMC, GameStop and others that seasoned investors consider anomalies.

What does it mean? When stock prices are divorced from fundamentals, it cements the public perception that markets can be manipulated — by a small group of insiders or a large group of determined traders — and therefore can’t be trusted. That could have long-term implications beyond what happens with AMC, GameStop or any other stock in the headlines.

  • The S.E.C.’s chairman, Gary Gensler, said at a hearing last month that his staff will report this summer on policy issues revealed by the recent volatility of meme stocks, including “the rapidly changing face of social media and its intersection with our capital markets.” He said that although online forums serve as a “real community” for many, he fears their vulnerability to the “risk that nefarious actors may try to send signals to manipulate the market.” The more that stocks swerve on factors seemingly unrelated to underlying business factors, the more likely that regulators will feel the need to act — but how?

HERE’S WHAT’S HAPPENING

The Fed will sell off its Covid-era corporate debt holdings. The plan will wind down a program launched last March to stabilize the bond markets in the early days of the pandemic. It’s the latest sign of the burgeoning economic recovery.

The F.B.I. names a suspect in the JBS ransomware attack. Federal authorities said REvil, a prominent Russian cybercriminal gang, was behind the hack that disrupted the world’s biggest meat processor. REvil is considered one of the biggest perpetrators of “ransomware as a service,” selling its software to other criminals.

Exxon Mobil loses a third board seat to an activist investor. Exxon said that Engine No. 1, the tiny investment firm that sought to shake up the oil giant on environmental grounds, had claimed another director position. In other shareholder activism news, Elliott Management has taken a roughly 10 percent stake in the data storage company Dropbox, DealBook has confirmed.

Anheuser-Busch InBev offers free beer to promote vaccinations. The brewing giant said it would “buy America’s next round” of beer, seltzer or a nonalcoholic drink if 70 percent of American adults receive at least one dose of vaccine by July 4. (The country is currently at 63 percent.)

Dogecoin roars back. The price of the joke cryptocurrency has surged since Tuesday, as Coinbase added it to its pro trading platform. It has gained more than 30 percent since then, but remains well below its highs set last month.

New York may change how America does antitrust

The New York State legislature is in session for another week and competition law is on the docket. State Senator Michael Gianaris told DealBook that he’s confident there will be action on “The 21st Century Anti-Trust Act,” legislation he sponsored that would dramatically alter current standards. The revamp is necessary, Gianaris said, because “now we have digital and tech economies that have upended everything.”

The act’s passage would put New York at the “vanguard” of a national movement, 15 state and national labor and policy groups wrote in a letter to legislators that DealBook is first to report. The organizations argue that the law would “rein in many abusive tactics corporations use against other firms and workers that are difficult to challenge under current antitrust law and precedent.”

Market dominance would be presumed with 40 percent market share. Currently, companies qualify as dominant if they have 70 to 90 percent of a market. “It’s not illegal to be dominant,” said Pat Garofalo of the American Economic Liberties Project, one of the groups that signed the letter. “It’s just illegal to block others from the market unfairly.” In the act, an “abuse of dominance” standard would replace the current “consumer welfare” standard.

  • “Where New York goes, often the rest of the country follows,” Garofalo said, and lawmakers at the federal level could be motivated “if they see the ship is leaving port.”

“The proposed legislation adopts a European standard for defining a monopoly,” said Kathryn Wylde, the head of the Partnership for New York City, a group that represents the city’s C.E.O.s. “It may be a political win to take on the big tech companies,” but developing a new regulatory regime is best left to the federal government, she said.


Yellen takes on a tax ‘race to the bottom’

Treasury Secretary Janet Yellen is at the Group of 7 finance ministers meeting in Britain, which starts tomorrow, with a mission: convince her global counterparts to embrace a global minimum tax and eliminate tax havens. It won’t be easy.

Yellen wants to end a “race to the bottom,” in which countries slash their tax rates to entice companies to move their headquarters and shift profits. This is tied to the Biden administration’s effort to raise the U.S. corporate tax rate, which would be more effective if there were fewer low-tax jurisdictions competing to lure companies away.

The U.S. is also applying pressure. The Biden administration unveiled 25 percent levies on some $2.1 billion worth of goods as a response to other countries’ efforts to tax American digital giants. The tariffs, however, were suspended — for 180 days — while the U.S. negotiates with other countries.

Proponents of a global minimum tax see the possibility of a deal by October. “There’s been a 180-degree change on taxes by the United States that makes us think there will be a deal,” said Ángel Gurría of the O.E.C.D.

  • High-tax European countries like France and Germany, eager to impose levies on multinationals, support the effort. But countries with low tax rates like Hungary (9 percent) and Ireland (12.5 percent) have balked at the proposal to set a higher floor on the corporate tax rate.

In other economic news: The U.S. is enjoying sustained wage growth, but experts worry about a slowdown or a rise in inflation. Here are the charts to watch to see which way things are headed.


Will supersonic business travel make a comeback?

Maybe, in about a decade. United Airlines announced today a deal to buy 15 jets that can travel faster than the speed of sound from Boom Supersonic, a Denver-based start-up. United said it has an option to increase its order by up to 35 planes.

United has been positioning itself as an innovative risk taker. It announced a $20 million investment in an electric air taxi start-up, Archer, in February. “Aerospace takes a long time to innovate,” said Michael Leskinen, who heads corporate development at United. “If you don’t start setting these opportunities out now, you will have missed them.”

  • United and Boom would not disclose financial details of the plane, which they are calling the Overture, but Leskinen said the economics should be about the same as a new 787. Boom is planning to carry out test flights in 2026 and to carry passengers before the end of the decade.

Barriers beyond sound. The Concorde flew its final trip between New York and London in 2003. That service was plagued by high costs, safety concerns and flagging demand. In recent years, people have also grown increasingly concerned about air travel’s contribution to climate change. Boom says its new engines are more efficient than their gas-guzzling supersonic predecessors, and that they would run on “sustainable aviation fuel,” making them better for the environment.

Will business buy in? United is not yet saying how much a ticket would cost, though it notes that the Overture would run at a quarter of the operating costs of a Concorde. Pitched at business travelers, who got used to fewer in-person meetings during the pandemic, the new service would test whether corporate travel managers think cutting travel time is worth adding to costs, said Henry Harteveldt, a travel industry analyst.

THE SPEED READ

Deals

  • The tech investor Prosus agreed to buy Stack Overflow, an online community for software developers, for $1.8 billion. (WSJ)

  • Rent the Runway is reportedly interviewing potential underwriters for an I.P.O. later this year. (Bloomberg)

  • SPACs are facing a new problem: They’re earning less interest from their cash holdings than expected. (Bloomberg)

Politics and policy

  • The Biden administration plans to end a tax break that lets real estate investors avoid capital gains taxes on property sales. (Bloomberg)

  • New York City’s economy was one of several points of contention at last night’s mayoral debate. (NYT)

Tech

  • Facebook employees are unhappy about the company taking down content in response to requests from governments in India and Israel. (NYT)

  • The S.E.C. is running out of ways to restrain Elon Musk from making problematic comments on social media. (WSJ)

  • How Tencent escaped the scrutiny that dogged other Chinese internet giants like Alibaba. (NYT)

Best of the rest

  • “Here Are America’s Top Methane Emitters. Some Will Surprise You.” (NYT)

  • Mike Krzyzewski of Duke, the N.C.A.A.’s winningest men’s basketball coach, will retire at the end of the coming season. (NYT)

  • Was it just speculation or something stranger? Unraveling the mystery of the $113 million New Jersey deli. (NYT)

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