MARKETS

Markets Take Fall Preparations Way Too Literally

Before reading, take a quick glance back at the markets section. We regret to inform you that red = bad. 

U.S. stocks succumbed to peer pressure yesterday and followed their international counterparts in logging steep losses. Oil took a dive and yields on 10-year Treasury notes also fell as investors craving stability hopped into the safe-haven asset.

What’s dragging the market down

1. Pandemic. The U.S. is about to pass 200,000 coronavirus-related deaths. In Europe, where cases are also rising in several countries, the UK is on track to log almost 50,000 new cases per day by mid-October if the current trend continues. As the British government weighs stricter measures like a second lockdown, spooked investors sent travel and bank stocks sinking.
2. China. Over the weekend, Beijing released penalties for its “unreliable entities” list, which will target foreign individuals and companies whose actions are viewed as a threat to Chinese interests. Penalties could include fines or restrictions on work permits, investments, and trade.
3. Politics: The U.S. is 42 days out from the election, but investors are prepping for a drawn-out result that could take months. And with renewed partisan fighting over the late RBG’s open Supreme Court seat, a congressional compromise on another round of pandemic relief looks quite unlikely before Nov. 3. 
4. Scandal: Sunday’s bombshell report that major banks continued to move large sums of dirty money despite red flags was another blow for financial stocks already bruised by falling bond yields and near-zero interest rates for the foreseeable future. HSBC shares hit a 25-year low.

Zoom out: Now entering their fourth consecutive week of declines, the S&P is down over 6%, the Dow 4.5%, and the Nasdaq 8.5% for the month of September. The S&P, which had its best August since 1986, is now on track for its worst September in nine years.

GAMING

Microsoft Buys Some Videogames

Yesterday, Microsoft announced plans to acquire ZeniMax, the parent company of videogame studio Bethesda Softworks, for $7.5 billion. 

It’s not quite TikTok 

But it comes with a lot fewer headaches...and popular gaming titles like Elder Scrolls, Doom, Fallout, Dishonored, and Starfield. 

The acquisition highlights Microsoft’s shift toward a subscription-based gaming model ahead of the November 10 release of its two new Xbox consoles. 

• Before...Microsoft valued exclusivity. It made its biggest games, like the Halo series, playable only for people who owned an Xbox.
• Now...Microsoft doesn’t care as much about where you play its games, the Verge writes. What’s important is that subscribers to Microsoft’s subscription service, Game Pass, get first access to the most popular games.

Bottom line: Buying Bethesda allows Microsoft to cut down on costly licensing fees and revenue sharing agreements with other studios. Its new recipe for success? Feeding its 15 million Xbox Game Pass subscribers a healthy diet of popular games made in-house.

+ While we’re here: Go deeper into Microsoft’s plans for dominating cloud videogaming with our breakdown of all the major players. 

AUTO

The Rise and Fall of Trevor Milton

Well, mostly the fall. Nikola founder and Executive Chairman Trevor Milton stepped down from the electric automaker yesterday because battling an onslaught of fraud accusations makes work feel a lot more like...work.

The backstory: In the spring, Nikola went public via reverse merger and its shares surged despite never having sold a vehicle. It received another stamp of approval when GM announced a $2 billion investment to co-develop Nikola’s electric trucks.

But on September 10, short-seller Hindenburg Research wrote a scathing report attacking Nikola and Milton for misleading investors. The SEC and DOJ are now investigating.

Big picture: This isn’t a Theranos-style collapse...yet. GM is sticking with Nikola, and even though the electric automaker's shares dropped 19% yesterday, its market capitalization remains over $10 billion.

Still, Hindenburg’s founder Nathan Anderson is watching Nikola’s descent into chaos like the Joker. Milton leaving is “only the beginning of Nikola’s unraveling,” he said yesterday. 

• Don’t forget: Hindenburg stands to make money from a drop in Nikola’s share price.

Looking ahead...former GM vice chairman and Nikola board member Steve Girsky will take over immediately. Good luck, sir.

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WEALTH

You’re Worth $119 Trillion*

*Together with all other U.S. households. In Q2, the net worth of American families rose 7% to an all-time high, according to Fed data released yesterday.

• Household wealth = money in your bank accounts + assets (like stocks and real estate) - liabilities (loans or credit card debt). 

That record jump follows a record crash in Q1 because of the pandemic. Sounds like good news for the economic recovery...right?

It's complicated

As stock indexes rebounded in Q2, wealth held in stocks saw the biggest gains, padding household portfolios by $5.7 trillion. But not everyone shared in the returns.

• While over a third of the richest 1% own corporate equities, only 7% of the middle 50%–90% and just 2% of the bottom half do.
• Households in the bottom half are more likely to own real estate (54%) than other asset classes. But home values only increased $500 billion in Q2 compared to the trillions gained in the stock market.

Bottom line: This data underscores fears of a K-shaped recovery—where the “haves” bounce back but things get worse for the “have-nots.”

MEDIA

Quibi Can't Sell Subscriptions but It Might Sell Itself

You’re not in Groundhog Day, but another short-form video app could be up for sale. Quibi is weighing “strategic options” after falling well short of its subscriber targets, the WSJ reports.

To figure out where a company backed by nearly $1.8 billion in funding stumbled, we asked our Twitter followers...

• Confusing branding: “The name. It doesn't convey what the service, you know, actually does”—Chris Cillizza
• Misjudged the market: “It solved a problem nobody had”—Matt Gibbons
• Didn’t leverage its users: “Failed to democratize content creation for a generation of content creators”—Edgar Rodriguez
• Bad content: “Its slate of shows resembled a list of rejected 30 Rock one-liners”—Maura Johnston

Bottom line: Everything is on the table, per the WSJ, from going public through a SPAC to being acquired by a media/tech giant like Disney or Amazon.

WHAT ELSE IS BREWING

• Tesla’s Battery Day is finally here. We know we’ll get an awkward Elon speech, but...what else? 
• The CDC removed guidance it had just posted about the airborne spread of the coronavirus, saying it was a mistake. 
• Oracle and ByteDance aren’t seeing eye-to-eye about a TikTok deal, raising fresh doubts about an agreement.
• Roku shares jumped to a 52-week high after NBCUniversal’s streaming service Peacock launched on the platform.

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The student debt crisis: Is there any sensible solution? In her latest Sunday column, Business Casual host Kinsey Grant says there's one thing we shouldn't do: cancel it all. Read it here.

Tech Tip Tuesday: Here’s how to change your font in Slack, because feedback lands softer in Comic Sans.

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SEASONS TRIVIA

To celebrate the autumnal equinox, today’s trivia is all about the Earth's journey around the Sun. Can you identify what each number represents? Numbers 5–8 are seasons while 1–4 are the specific days that mark the beginning/end of those seasons in the Northern Hemisphere.

Neal Freyman/Timeanddate.com

SEASONS TRIVIA ANSWERS

1. March (vernal) equinox 
2. December (winter) solstice 
3. September (autumnal) equinox
4. June (summer) solstice
5. Spring
6. Winter
7. Autumn 
8. Summer

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Vanguard Digital Advisor's services are provided by Vanguard Advisers, Inc. (“VAI”), a federally registered investment advisor. All investing is subject to risk, including the possible loss of the money you invest. Neither VAI nor Digital Advisor guarantees profits or protection from losses. Terms and conditions apply.