Return of the JEDI
We hope everyone had a fun and safe Fourth of July weekend. The second quarter ended on a strong note but was followed this week by a step up in volatility as investors wonder what the third quarter holds. To a large extent we saw a continuation of recent themes including ransomware, a scarcity of labor, and the threat of federal regulation and executive orders. Coupled with anxiety over inflation and the impeding Fed bond taper (2022) and subsequent interest rate hike (2023), the markets are a bit more skittish than usual. Despite all these unknowns, the market did find a way to finish a little higher this week.
Perhaps the biggest indication of these unknowns is the dichotomy between the bond and equity markets. The 10-yr Treasury fell unexpectedly to 1.3% which caught virtually everyone by surprise. After all, if the economy is recovering we would expect flows out of bonds and into stocks. Interestingly something similar happened from Nov 2018 to Jan 2019 during which time the 10-yr fell from 3.24% to 2.56%. The Fed’s guidance had been for 2 more 25-basis point increases in 2019, but after equity markets cracked in Dec 2018 the Fed changed policy and in Jan 2019 switched to a wait and see mode. By July 2019 the Fed was back to cutting rates. Some are suggesting the sudden drop this week is Treasury yields sniffing out a potential Fed mistake in presumably becoming less accommodative later this year and next. Most analysts and economists still believe the 10-yr Treasury will end the year around 2%. Time will tell whether the bond market is foretelling a mistake by the Fed or whether there are other factors at work that we just don’t know about yet.
In company news, the Pentagon is cancelling the $10B Joint Enterprise Defense Infrastructure (JEDI) cloud contract that became a bone of contention between Amazon and Microsoft. This reopens the door for the largest cloud service providers, including Amazon, Google, Oracle, and IBM to rebid on the contract. At issue was whether the Trump administration played a role in awarding the contract to Microsoft, due to animus between then President Trump and Amazon’s CEO, Jeff Bezos. In other company news, Tyson Foods has recalled 8.5 million pounds of chicken due to possible contamination. However, the affected products were produced between December 26, 2020 and April 13, 2021. The affected product will likely have been consumed by now. However, the company felt the voluntary recall was necessary out of an abundance of caution.
In other news, the issue of hackers holding companies’ hostage took another turn this week when over 200 businesses were hit. The point of vulnerability was the IT firm Kaseya which remotely controls programs for companies. Sweden’s largest supermarket chain, with at least 800 stores, couldn’t open after the attack knocked their cash registers offline. And it appears the hackers are becoming bolder, demanding $70 million this time, which is a steady increase from the $4.4M Colonial Pipeline paid and the $11M JBS ended up paying. The group behind these recent attacks is REvil which is based out of Russia. It is not believed to be backed by the Russian government, although the FBI is investigating the situation.
In closing, I frequently write about the impact technology has on our lives. Sometimes the changes are subtle, like how we may pay for an item, and sometimes less subtle, like the rapid embrace of electric vehicles and alternative energy. This week I bring a subtle change, but one whose time has possibly come. The concept of a resume was first introduced by Leonardo da Vinci in 1482. Let me be the first to introduce you to the TikTok resume. TikTok is a social media video platform which has taken the Internet by storm this past year. The company, looking to expand its revenue stream, is rolling out TikTok Resumes which will be a channel for recruitment and job discovery. Interested candidates are encouraged to “creatively and authentically showcase their skills and experiences” in short video clips. Before you write it off as a novelty, know that companies such as Chipotle, Target, and Shopify are among the first employers that have teamed up with TikTok. Now you know.
Bruce J. Mason, MBA