Good morning,
The stock market had its worst day since September yesterday. As is usual, global stocks are following the U.S. down this morning, and the usual safe havens—Treasury bonds, the yen, gold—are enjoying a rare moment int he sun.
Should you be worried?
On one level, certainly not. No market that goes up in a straight line is to be trusted, and the monthly survey of fund managers by Bank of America Merrill Lynch that came out yesterday showed a higher proportion believing that stocks were overvalued since at least 2001. Analysts have been warning for weeks that the market had been getting ahead of itself. It was just a question of what would be needed to make people listen. And the answer to that is the worrying part.
According to most reports, the trigger was a realization that divisions within the Republican party may stop the proposed American Health Care Act from passing. Mark Meadows, chairman of the House Freedom Caucus of conservative Republicans, claimed yesterday 40 Republicans opposed the bill, more than the GOP’s 21-seat majority. If the bill should fail, it would put in doubt the ability of the administration to enact tax reform and all the other growth-friendly policy initiatives that the stock market has enthusiastically anticipated since November.
At the heart of the problem is the fact that Donald Trump’s election promise of reaching out to the forgotten parts of U.S. society is in some key elements—like the provision of health care for the old and poor at the state’s expense—at odds with the GOP’s small-state philosophy. It’s a well-documented divide and the fact that it comes as a surprise to the stock market is arguably not the best advertisement for the investment industry.
The President reportedly leaned on Meadows’ followers yesterday to accept that the political tide is against them. It seems that he’ll need to show his command of the Art of the Deal with his own party before he gets to try it on Chinese protectionists and Europe’s peaceniks.
| Geoffrey Smith | |
| @geoffreytsmith | |
| geoffrey.smith@fortune.com |
Top News
• Akzo Nobel Rebuffs PPG Again
Dutch paints and coatings maker Akzo Nobel rejected a second offer from PPG Industries that, at $24.1 billion, was worth just under 7% more than its opening bid. The prospect of a takeover has been greeted coldly in the Netherlands, which fears job losses at plants across the country. Akzo, whose board rejected the first offer unanimously, is still gamely trying to argue that PPG is undervaluing it. It’s promising to meet with investors soon, and is expected by analysts to spin-off its chemicals division. Reuters
• CostCo Moves Into Home Delivery
CostCo announced a major roll-out of its home delivery service. It aims to move into 50 local markets covering 30 million households by the end of this year, thanks to a partnership with startup delivery service Shipt. Shipt currently charges an annual fee of $99 for unlimited grocery deliveries. The move takes the bulk-retailer further into one of most complex and costly fronts in the e-commerce wars, one that it can no longer afford to ignore as competitors from Wal-Mart to AmazonFresh become increasingly active in the space. Fortune
• Huawei Tries to Crack the U.S. With AT&T
Chinese telecoms equipment Huawei is working on a deal with AT&T to crack the U.S. smartphone market. The Chinese manufacturer is in the early stages of having AT&T approve its proprietary Kirin mobile phone chip set for use on AT&T's network, according to a person familiar with the situation. Huawei is the world’s third-biggest smartphone maker, despite being hardly present at all in the U.S. It’s quite clear about its ambition to compete globally with Apple, and each iteration of its P-series phone seems to narrow the quality gap. Fortune
• Apple’s Low-Key iPad Launch
Apple rolled out a new iPad with a launch so muted it begged questions about the whole future of its tablet line. Apple’s quarterly tablet sales have fallen by more than 50% since it debuted the iPad in 2013, and global tablet shipments have fallen 20% in the last year alone. Within Apple, the iPad is now outsold not just by the promising services business, but even by the Mac PC. Analysts blame shifting consumer preferences toward ‘hybrid’ devices with their own dedicated keyboard that can function as notebooks when required Fortune
Around the Water Cooler
• What If We Didn’t Make People Hate Ads?
A broad coalition of advertising trade groups, ad buyers, and sellers from the U.S. and Europe urged the industry to stop using annoying online marketing formats that have fueled the rapid rise of ad-blockers. The types of ads it condemned included pop-ups, auto-play video ads with sound, flashing animated ads, and full-screen ones that mask underlying content from readers or viewers. Such techniques have made the fortune of many a developer of ad-blocking technology. And the rise of ad-blocking, in turn, has provoked a heated debate over whether to rein in abusive ad practices or simply freeze out consumers who expect access to premium content without ads. Fortune
• Uber Plans to Come Clean on Harassment
Uber plans to wrap up its investigation into sexual harassment allegations by the end of April, and subsequently publish them, executives told a conference call Tuesday. Board member Arianna Huffington dismissed any chance of CEO Travis Kalanick resigning as a result of the investigation. Kalanick, for many the epitome of Silicon Valley’s high-testosterone culture, has called the scandal an opportunity to “set a new standard for justice in the workplace.” He was absent from the call yesterday, interviewing candidates for the Chief Operating Officer position that he recently created. Fortune
• The $100 Million Phishing Trip
The Department of Justice reported the arrest of a Lithuanian man who allegedly conned employees at two U.S. tech firms into making $100 million in bank transfers to a phony supplier. The agency said the scammer used email to impersonate a real Asian supplier, complete with forged invoices and corporate stamps, and tricked the unnamed companies into wiring money to a bank account he controlled. The DoJ described the two companies as a "multinational technology company, specializing in Internet-related services and products" and "a multinational corporation providing online social media and networking services."
• Airbnb Goes Chinese
Airbnb announced a local rebranding to help a relaunch of its services in China. The company is hoping the name “Aibiying” (“Welcome each other with love”) will resonate more with locals as it fights for market share with home-grown competition. The company appears to have internalized the lessons of Uber’s experience in China. The ride-hailing app kept its original brand but lost out in a battle with local rival Didi Chuxing. To support the relaunch, Airbnb is also tripling its local workforce to 180 and plans to double local investment this year. Fortune
And finally: I foolishly allowed myself to be duped by a Twitter hoax last week. Contrary to what I wrote, there was no analogous precedent for the hack of McDonald’s Twitter account back in the Nixon era. My apologies.
