Why the Market Needs Meme Stocks Right Now - Barron's

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In a market that’s gone quiet, meme stocks are back to provide investors with a daily source of entertainment.

With Memorial Day approaching and catalysts nowhere in sight, the overall market has ground to a halt. The S&P 500 has risen just 0.4% in May, while the Dow Jones Industrial Average is up a touch more than 1%. The Nasdaq is down 1%. What’s more, the indexes have been stuck in place—rising, falling, and ultimately going nowhere.

Enter the meme stocks. GameStop has jumped more than 30% this week, while AMC Entertainment has soared 62%. And other stocks, including Express and Koss, have joined the party. If watching the market has become akin to watching paint dry, the meme stocks are akin to blasting it with a flamethrower to see if it will dry faster.

For anyone not involved in the trade, it’s pure entertainment. Watching the stock market go nowhere can make bulls question their bullishness, and bears question their pessimism. It’s trying to find meaning in nothing.

There is no meaning deeper message about the economy embedded in the meme stock moves—they’re detached from fundamentals. Analyst reports on the companies are beside the point. It’s all supply and demand.

So it brings a sense of disappointment to see GameStop down 2% in premarket action Thursday, and AMC off 3%. On another quiet day in the market, we need the meme-trade distraction.

—Ben Levisohn

*** Join Barron’s on June 8 for a virtual event to recognize organizations bridging the learning gap and promoting financial empowerment. Award presentations by Mark Cuban, Curtis Granderson, Annika Sörenstam, and more. Tickets benefit Junior Achievement. Learn more here.

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HSBC Pulls Out of U.S. Retail Banking as It Continues to Pivot to Asia

Europe’s second-largest bank by assets said Wednesday it would sell most of its branches on the U.S.’s east and west coast to Citizens Bank and Cathay Bank, respectively, as part of a plan to implement some $4.5 billion of cost cuts, shed 35,000 jobs worldwide, and shift its main focus to Asia.

• The sales bring to an end HSBC’s long and unprofitable effort to become a major player on the U.S. banking market. “We lacked the scale to compete,” Chief Executive Noel Quinn acknowledged in a statement.
• HSBC said it would keep serving its “globally connected affluent and high net worth clients” in the U.S. through “a small network” of 20 to 25 locations.
• The British-Asian bank is also in talks with U.S. private-equity fund Cerberus Capital Management to unload its loss-making French operations.
• HSBC lost $547 million in wealth management and personal banking in the U.S. last year, compared with the $5 billion profit it made in Hong Kong and the rest of Asia.

What’s Next: HSBC’s decision to end its long period of suffering in the U.S. was expected. But the increased focus on Asia brings the bank closer to some form of alignment with the interests of the Chinese government—with the increased risk of becoming a punching bag amid rising international tensions.

—Pierre Briançon

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Ford Announces $30 Billion Commitment to its Electric Vehicles Future

Ford Motor is expanding its commitment to vehicle electrification, surprising investors with plans to increase spending on electric vehicles to $30 billion by 2025. It added $8 billion to its previous spending goal, and said it will target the additional money for battery production.

• Ford, which sold about 4.2 million vehicles in 2020, expects electric vehicles to be 40% of its sales by 2030. Some analysts say its electric-vehicle strategy has lagged behind General Motors and Volkswagen, which is providing its EV technology to Ford for future plug-in offerings in Europe.
• Last week, Ford unveiled its F-150 Lightning, the all-electric version of its bestselling, most profitable truck, with enough generating power to plug in a house. The launch generated 70,000 orders within its first week, even though it won’t be available until 2022.
• Ford also announced Ford Pro, a global vehicle services and distribution business for its commercial and government customers. It is also starting a joint venture with South Korea’s SK Innovation to eventually churn out batteries to power millions of future Ford and Lincoln vehicles.
• Ford calls its new strategic plan Ford+. CEO Jim Farley called it Ford’s “biggest opportunity for growth and value creation since Henry Ford started to scale the Model T.”

What’s Next: Investors are applauding Ford’s transformation into an electric auto maker, sending the shares to a five-year high on Wednesday. Ford said it expects in 2023 to achieve an 8% operating margin, up from around 4% in recent years.

—Al Root and Janet H. Cho

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Climate Activism Gets a Couple of Victories Against Oil Majors

Climate activists scored in a couple of high profile campaigns Wednesday, in moves that hold oil giants Royal Dutch Shell and Exxon Mobil accountable for their climate policies and warn companies in other heavy polluting industries they risk extra environmental scrutiny.

• A Dutch court in The Hague ordered Shell to slash its greenhouse emissions 46% by 2030 from 2019 levels in a decision climate activists said would reverberate throughout the energy industry.
• Seven environmental groups and thousands of Dutch citizens backed “the People versus Shell,” civil suit, and campaigners said it is the first time a company has been made to align its policy with the 2015 Paris climate accords.
• An activist investor won two seats on Exxon’s board on Wednesday after a closely watched shareholder vote that could force Exxon to change its fossil-fuel focused strategy and more directly confront concerns about climate change.
• The vote is a blow to Exxon CEO Darren Woods, who campaigned against the activist fund Engine No. 1. Exxon lost $22 billion last year and some saw the vote as a referendum on his tenure. Woods was re-elected to the board.

What’s Next: Several oil majors plan to cut their production of fossil fuels, invest more in renewable energy and reduce carbon emissions. The 2015 Paris climate accord, which the U.S. rejoined this year, aims to limit global temperature increases to 2 degrees Celsius above preindustrial levels.

—Liz Moyer

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Republicans Expected to Release Nearly $1 Trillion Infrastructure Proposal

Senate Republicans are expected to offer their latest infrastructure proposal on Thursday, a nearly $1 trillion response to the $1.7 trillion offer the Biden administration made last week, as both sides inch closer to a bipartisan agreement.

• The GOP plan focuses on projects like highways and bridges and includes funding for research and development that the White House took out of its plan. Separately, Vice President Kamala Harris met with lawmakers from both parties on Wednesday to talk about broadband investments.
• Republicans oppose Biden’s plan to fund infrastructure by raising corporate taxes, while the president dislikes Republican proposals to raise fees like taxes on gas. GOP negotiators want to use unspent money from the Covid relief package to pay for infrastructure, which Democrats resist.
• If they compromise on a narrower bipartisan package, senior Democrats have said they would come back and pass an additional bill with the remaining priorities, which could be difficult given their slim majority in Congress.
• Senators including Mitt Romney (R., Utah), Susan Collins (R., Maine) and Joe Manchin (D., W.Va.) are drafting a separate proposal that excludes federal aid for electric vehicles, elder care or low-income families. Their plan would be paid for with unused stimulus money, user fees and uncollected taxes.

What’s Next: Biden will visit Cuyahoga Community College in Cleveland on Thursday to talk about his proposals to expand broadband access and replace lead pipes for cleaner drinking water, and the jobs created by those infrastructure upgrades, White House press secretary Jen Psaki told Cleveland19 News.

—Janet H. Cho

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Enterprise Software Stocks Slide Despite Strong Earnings

Snowflake, Okta, and Workday reported strong fiscal first-quarter earnings on Wednesday. But that wasn’t enough to spur a bounce back from a recent selloff in these high-multiple enterprise software stocks.

• Snowflake’s sales growth beat estimates, and the company raised its full-year guidance. Snowflake shares had already fallen 16% year-to-date, and are down about 45% from their highs in December.
• Okta’s results beat the company’s guidance, but a mixed full-year outlook and the surprise resignation of Chief Financial Officer Mike Kourey seemed to play spoiler for the stock.
• Workday, which provides HR and financial software, reported adjusted earnings and revenue that beat consensus estimates. The company expects to expand its workforce by more than 20% in 2022.

What’s Next: Salesforce.com is next up. The cloud-based provider of enterprise sales software reports results after today’s close. If yesterday’s earnings were any indicator, they’ll need a big-time beat to push shares higher.

—Connor Smith and Eric J. Savitz

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This year’s complicated tax season is finally behind us. How can taxpayers do better next year at avoiding common tax blunders?

With the May 17 filing deadline now in the past, you’ve probably filed your 2020 Form 1040. If so, mission accomplished. Good. But could you have done better? Probably. Let’s discuss.

I’m still not on the Roth IRA bandwagon

C’mon man! I’ve been telling you for years about the wonderfulness of Roth IRAs. But have you done anything about it? No? Then please get on the bandwagon this year for two reasons.

First, as explained immediately below, Roth IRAs have two big advantages over other tax-favored retirement accounts.

Second, waiting until next year to do a Roth conversion could result in a higher conversion tax bill.

You can take federal-income-tax-free Roth withdrawals after reaching age 59½ as long as you’ve had at least one Roth account open for more than five years. If you die, your heirs can dip into an inherited Roth account without owing any federal income tax, as long as the account has been open for more than five years. So open a Roth account now to start the five-year clock ticking. If federal income-tax rates go up in the future, income and gains earned within your Roth IRA will be blissfully unaffected. Depending on what happens with the Biden tax plan, rates could go up this year, but I think next year is more likely. Think of your Roth IRA as insurance against future tax rate increases.

Roth IRAs set up in your name are exempt from the dreaded required minimum distribution (RMD) rules, which force you to start taking taxable withdrawals from other types of tax-favored retirement accounts, including traditional IRAs, after reaching age 72. If you fail to withdraw the proper RMD amount for a year, you owe a 50% penalty on the difference between the amount you should have taken out and what you actually took out (if anything). Ouch! In contrast, you can leave Roth IRA balances untouched for as long as you wish and continue earning federal-income-tax-free income and gains. When you die, your remaining Roth IRA balances can be left to your heirs, who can then take out the money federal-income-tax-free.

Start making annual contributions of up to $6,000 or $7,000 if you are age 50 or older. If you’re married, your spouse can join in the fun. The catches: you must have earned income at least equal to what you contribute, and the annual contribution privilege is phased out at higher income levels.

Convert a traditional IRA into a Roth account. A conversion is treated as a taxable distribution from the traditional account with the money going into the new Roth account. So it will trigger a bigger federal income tax bill (and maybe a bigger state income tax bill too). However, the two positive factors mentioned earlier may greatly outweigh the one-time conversion tax hit. As long as the current relatively low rates are still in effect when you convert (maybe only for the rest of this year), the conversion tax hit will probably be as low as it ever could be in your remaining time on Earth. You don’t need any earned income to do a Roth conversion, and there’s no income restriction. Even retired billionaires can do Roth conversions.

Get on the Roth bandwagon, unless you believe your tax rates during retirement will be lower than the rates you’re paying right now.

Read more here.

—Bill Bischoff

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—Newsletter edited by Liz Moyer, Stacy Ozol, Mary Romano, Matt Bemer

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