PSTG - Wall Street Lunch: Disney's Iger Gets Blackwells Backing

2024-01-03 12:18:00 ET

Summary

• Hedge fund Blackwells Capital to nominate board members to support Disney CEO Bob Iger.
• Bitcoin experiences a sharp early decline, dropping below $41,500.
• BofA says the consensus for January is now a big selloff in megacap tech stocks.

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Hedge fund Blackwells Capital will nominate 3 directors to Disney’s board to support the CEO. (0:15) Bitcoin sees a sharp early plunge . (2:27) U.S. national debt tops $34 trillion . (3:49)

The following is an abridged transcript:

Our top story today so far

Activist hedge fund Blackwells Capital will nominate three directors to Walt Disney’s ( DIS ) board in support of Bob Iger as Trian Fund, a critic of the CEO, seeks two board seats. That’s according to Reuters.

Iger returned as CEO in 2022 amid losses and underperformance of Disney movies. Trian has been highly critical of Iger and the company’s trajectory.

The news comes just hours after Disney and ValueAct entered into an information sharing agreement that will see ValueAct support Disney's recommended slate of nominees for election to its board of directors at the 2024 annual meeting.

Sources told Reuters that Blackwells will nominate Jessica Schell, a former Warner Brothers executive with expertise in content distribution; Tribeca Film Festival co-founder Craig Hatkoff; and Leah Solivan, who founded and headed TaskRabbit.

In today’s trading

Stocks continued to face selling pressure to start the year. Growth and tech are weakest, with the Nasdaq ( COMP.IND ) trailing the S&P 500 ( SP500 ) and the Dow ( INDU) .

The Nasdaq 100 ( NDX ) had its third-worst start to the year since the dot com crash.

Rates are up again, but off their highs. The 10-year Treasury yield ( US10Y ) hit 4% before easing back after the December ISM manufacturing report showed a lower-than-forecast prices paid component.

The headline ISM rose to 47.4 , a little more than the consensus of a rise to 47.1.

Economist Kieran Clancy of Pantheon Macro says: “it’s hard to tell how much of this improvement is due to the lingering effects of the one-time rebound in auto production following the UAW strikes which ended on October 31, or a more sustainable manufacturing recovery.”

Meanwhile job openings fell in November, according to the latest JOLTS figures. Openings dropped to 8.79 million , below the forecast of 8.85 million. But the quits rate slipped to 2.2%, which is the lowest level since September 2020.

Strategist Viraj Patel says notes both the hiring and quits rates fell to "below pre-Covid levels (and levels when the Fed starts to cut rates). Whether it's a blip will remain to be seen. But it suggests that animal spirits in the US jobs market are waning sharply & faster than (nonfarm payrolls) implies."

The December jobs report is due on Friday.

And in crypto, Bitcoin (BTC-USD) saw a sharp unexpected plunge that took it below $41,500 from above $45,000. It rebounded but is still in the red by more than 5%. There was no specific trigger for the tumble, but traders may be hedging against the possibility the SEC does not approve a Spot Bitcoin ETF next week, as expected.

Among active stocks

Patterson Companies ( PDCO ) will replace Chico's FAS ( CHS ) in the S&P SmallCap 600, with Chico's being acquired by Sycamore Partners. Pure Storage ( PSTG ) will replace Patterson in the S&P MidCap 400. The index moves are effective before the start of trading on Friday.

Bloomin’ Brands ( BLMN ) rose after the company announced the appointment of Dave George , former COO of Darden Restaurants, and Jon Sagal, Partner at Starboard Value, to its board of directors. The appointments were made in connection with a cooperation agreement between Bloomin' Brands and Starboard, which owns about 9.7% of the company.

And Starbucks ( SBUX ) plans to expand its food lineup with the addition of a chicken, maple butter and egg sandwich to its permanent menu starting today. Other new menu items that are being added include a potato, cheddar and chive bake, a vanilla-bean custard danish as a seasonal offering, and a hazelnut oatmilk variety to the chain's iced shaken espresso product. Starbucks is looking to strengthen its afternoon business with menu innovation.

In other news of note

The U.S. national debt has topped $34 trillion for the first time.

The gloomy fiscal milestone comes as Congress braces for another fight over federal spending. Unless lawmakers can agree on another short-term continuing resolution to fund the government or pass appropriations bills by Jan. 19 (and others by Feb. 2), the U.S. would face its first federal shutdown since 2019.

Not only is the overall balance increasing, but the cost of servicing the national debt is rising at a rapid clip.

Swiss Financial Consulting wrote on Seekign Alpha that: "The interest paid on the federal debt so far this fiscal year is $900B, but this is soon going to reach $1T... and [it] is clear that the situation is unsustainable."

Higher deficits can also make inflation a bigger problem for the central bank, which uses monetary policy to keep prices stable but has little say over what happens on the fiscal side, where outsized spending has been the norm.

Credit rating agencies are also taking notice. Moody's recently cut its credit outlook on the U.S. to negative from stable, citing heavier downside risks to the country's fiscal strength. Fitch lowered America's credit rating following the debt ceiling drama last summer, while S&P was the first to downgrade U.S. government debt in 2011.

And in the Wall Street Research Corner

A rout in megacap tech stocks this month is now the Wall Street consensus, according to the BofA equity team.

The Magnificent 7 have seen exposure by long-only active funds reach "critical mass.”

BofA strategist Savita Subramanian says: "Crowding risk in the leaders of 2023 has been cited by many (including ourselves) as a key risk in 2024. In particular, year-end 'window dressing' may have pushed active funds into big Tech leaders, but these stocks could be used as a source of funds if a hard landing is avoided and leadership broadens beyond secular growth stocks."

She adds that: "Some of this theme has played out – the equal-weighted S&P 500 ( RSP ) has handily outperformed the capweighted index ( SPY ) ( IVV ) ( VOO ) since mid-November."

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