Many economic prognosticators and Wall Street stock pickers have made it clear where they stand on inflation and the Federal Reserve policy response: the economy and markets will get worse before they get better. Many chief financial officers at top companies agree with them, according to the results from the latest CNBC CFO Council survey.
Over 40% of chief financial officers cite inflation as the No. 1 external risk to their business, and going deeper into the results from the Q2 survey, the links between geopolitics and food and energy prices, and inflation, are clear from the C-suite ranking of the external factors that are weighing on their current outlook. Almost one-quarter (23%) of CFOs cite Federal Reserve policy as the biggest risk factor, and as the Biden administration struggles for ways to increase oil supply and Russian ships sail with seized Ukrainian wheat amid concerns about a severe global food insecurity crisis, additional CFOs cited supply chain disruptions (14%) and the Russia-Ukraine war specifically as their No. 1 business risk.
CFOs are not uniformly of the view that the Fed won’t ultimately be able to control inflation. A little over half (54%) express confidence in the central bank, but that’s still not enough to alter their view of where current economic conditions and policy decisions are heading: into a recession.
According to the majority (68%) of CFOs responding to the survey, a recession will occur during the first half of 2023. No CFO forecast a recession any later than the second half of next year, and no CFO thinks the economy will avoid a recession.
The CNBC CFO Council Q2 survey is a sample of the current outlook among top financial officers. It was conducted among 22 chief financial officers at major organizations between May 12-June 6.
The 10-year Treasury, which has already doubled this year to roughly 3%, is expected to flirt with 4% by the end of 2022, according to 41% of CFOs. An equal percentage of CFOs expect the 10-year to rise to no higher than 3.49% by year-end. But on the margins, there is concern about rates rising even more rapidly, with a few outliers on the Council forecasting a 10-year that rises above 4% by year-end.
The European Central Bank on Thursday said it will raise rates for the first time in over a decade as its inflation outlook increased significantly.
Growth prospects for the U.S. economy and global economy have dimmed. The Atlanta Federal Reserve’s GDPNow tracker is forecasting a second consecutive quarter of negative growth, which meets a classic definition for recession. The World Bank just slashed its global growth outlook, warning that a period of stagflation like the 1970s is possible and with its president David Malpass saying, “For many countries, recession will be hard to avoid.” The Organization for Economic Cooperation and Development also cut its prediction for global growth this year.
The economic outlook, with elevated inflation and rates rising, is spilling over into the CFO view of the stock market’s next leg: it will be lower, according to the survey.
The majority (77%) of CFOs expect the Dow Jones Industrial Average to fall below 30,000 before ever setting a new high, which would represent a decline of over 9% from its current level, and would represent an 18% decline from its 2022 high. In a market where every bounce may be a “dead cat,” more than half (55%) of CFOs say that the current leader will remain in its spot: energy will show the most growth among all sectors of the economy over the next six months.
Mohamed El-Erian said anyone fully invested should “take some chips off the table” in an interview with CNBC’s “Squawk Box” earlier this week.
Last Wednesday, JPMorgan Chase CEO Jamie Dimon issued a warning about the economy and said “brace yourself.”
But one key point-of-view that comes through from CFOs is that many corporations are planning beyond the short-term headwinds. There is a tug-of-war in the survey results between a worsening outlook and indications from many companies that they are not pulling back on spending or hiring. While there have been headlines from the tech sector about conserving cash, slowing or freezing new hires, and even pulling current job offers, companies on the CFO Council are not going into their shells. Twice as many CFOs (36%) say they will increase their spending over the next year than decrease (18%), while almost half (46%) say they will at least maintain current spending levels. And firms are still in hiring mode, with more than half (54%) saying headcount will be increasing over the next 12 months. Only 18% anticipate a decrease in staff.
Correction: A decline in the Dow Jones Industrial Average from its current level to 30,000 would represent a decline of 9%, and an 18% decline from its 2022 high. An earlier version of this article misstated this figure.
Intel Warns Ohio Factory Could Be Delayed Because Congress Is Dragging Its Feet on Funding
A large chip factory currently in the early stages of being built outside of Columbus, Ohio, could see its scope scaled back or construction delayed depending on what Congress does with the CHIPS Act, Intel said in a statement on Thursday.
The facility was announced in January and would be the most significant expansion of U.S.-based semiconductor manufacturing in years. Intel estimated the plant could cost as much as $100 billion and committed an initial investment of $20 billion.
“We are excited to begin construction on a new leading-edge semiconductor manufacturing plant in Ohio and grateful for the support of Governor DeWine, the state government and all our partners in Ohio. As we said in our January announcement, the scope and pace of our expansion in Ohio will depend heavily on funding from the CHIPS Act,” an Intel spokesperson said in a statement.
“Unfortunately, CHIPS Act funding has moved more slowly than we expected and we still don’t know when it will get done. It is time for Congress to act so we can move forward at the speed and scale we have long envisioned for Ohio and our other projects to help restore U.S. semiconductor manufacturing leadership and build a more resilient semiconductor supply chain,” the statement continued.
The Biden administration has hailed the Ohio factory as an example of the administration’s efforts to increase manufacturing capacity in the U.S. Intel CEO Pat Gelsinger was a guest of Biden’s at the State of the Union earlier this year.
“If you travel 20 miles east of Columbus, Ohio, you’ll find 1,000 empty acres of land. It won’t look like much, but if you stop and look closely, you’ll see a ‘Field of dreams,’ the ground on which America’s future will be built. This is where Intel, the American company that helped build Silicon Valley, is going to build its $20 billion semiconductor ‘mega site’,” Biden said in the speech.
Most manufacturing of high-end chips currently takes place in Taiwan and South Korea, and U.S. officials have said that increasing the amount of semiconductors fabricated on U.S. and European soil is important for national security.
This is breaking news. Please check back for updates.
Original Article: cnbc.com
Supreme Court Strikes Down NY Gun Law Restricting Concealed Carry in Major Second Amendment Case
The Supreme Court on Thursday struck down a New York state law requiring applicants for a license to carry a gun outside of their homes to have a “proper cause” to do so, saying it violated the Second Amendment of the U.S. Constitution.
The 6-3 ruling in the case is a major victory for gun rights advocates who had challenged New York’s restrictive law, which makes it a crime to carry a concealed firearm without a license.
It also represents the Supreme Court’s biggest expansion of gun rights in more than a decade — and casts doubt on laws in eight other states and the District of Columbia that restrict concealed-carry permits in ways similar to New York.
The Supreme Court’s six conservative justices voted to invalidate the law, which has been in existence since 1911. Justice Clarence Thomas wrote the majority opinion in the case, known as New York State Rifle & Pistol Association Inc. v. Bruen.
The court’s three liberals voted to uphold the law. Justice Stephen Breyer wrote a dissent to the ruling.
In his majority opinion, Thomas wrote that New York’s law violated the Constitution’s Fourteenth Amendment — which says citizens have a right to equal protection under the law — because it “prevents law-abiding citizens with ordinary self-defense needs from exercising their right to keep and bear arms” as authorized by the Second Amendment.
The ruling comes weeks after mass shootings at a Buffalo, New York, grocery store, and another in a Uvalde, Texas, elementary school, reignited a national debate about U.S. gun laws.
Democratic elected officials quickly condemned Thursday’s decision, which they said will imperil public safety.
President Joe Biden said he was “deeply disappointed” in the ruling, which he argued, “contradicts both common sense and the Constitution, and should deeply trouble us all.”
Citing the “horrific attacks in Buffalo and Uvalde,” Biden urged states to pass “commonsense” gun regulation “to make their citizens and communities safer from gun violence.”
New York Gov. Kathy Hochul said, “This decision isn’t just reckless, it’s reprehensible.”
Hochul said that because “the federal government will not have sweeping laws to protect us … our states and our governors have a moral responsibility to do what we can and have laws that protect our citizens because of what is going on — the insanity of the gun culture that has possessed everyone all the way up to the Supreme Court.”
New York City Mayor Eric Adams said, “This decision has made every single one of us less safe from gun violence.”
The case was brought by the New York State Rifle & Pistol Association and two of its members, Robert Nash and Brandon Koch, whose applications for concealed-carry handgun licenses for self-defense purposes were rejected.
New York Supreme Court Justice Richard McNally ruled that neither man had shown proper cause to carry guns in public because they failed to demonstrate that they had a special need for self-protection.
The plaintiffs then challenged that denial in a federal court in New York. They argued that the state law governing concealed-carry licenses, which allows them only for applicants with “good moral character” who have “proper cause” to carry guns outside the home, violates the Second Amendment.
After a federal judge in New York dismissed the case, the U.S. 2nd Circuit Court of Appeals affirmed that judgment. The U.S. Supreme Court then took the case.
Thomas, in his majority opinion, wrote that New York’s proper-cause requirement, as it has been interpreted by state courts, was inconsistent with the “Nation’s history of firearm regulation.”
“A State may not prevent law-abiding citizens from publicly carrying handguns because they have not demonstrated a special need for self-defense,” Thomas wrote.
But Breyer, in his dissent, wrote, “Only by ignoring an abundance of historical evidence supporting regulations restricting the public carriage of firearms can the Court conclude that New York’s law is not ‘consistent with the Nation’s historical tradition of firearm regulation.”
Breyer also wrote, “Many States have tried to address some of the dangers of gun violence just described by passing laws that limit, in various ways, who may purchase, carry, or use firearms of different kinds.”
“The Court today severely burdens States’ efforts to do so.”
– Additional reporting by CNBC’s Amanda Macias
Original Article: cnbc.com
United Airlines Will Cut 12% of Newark Flights in Effort to Tame Delays
United Airlines will cut about 50 daily flights from Newark Liberty International Airport next month in an effort to reduce delays that have disrupted travelers’ plans this year.
The cuts amount to about 12% of United’s schedule in its New Jersey hub and apply solely to domestic flights, starting July 1.
United executives have said the delays are the result of capacity constraints, airport construction and air traffic control — not airline staffing shortfalls.
Jon Roitman, United’s executive vice president and COO told staff in a note Thursday that “after the last few weeks of irregular operations in Newark, caused by many factors including airport construction, we reached out to the FAA and received a waiver allowing us to temporarily adjust our schedule there for the remainder of the summer.”
“Even though we have the planes, pilots, crews, and staff to support our Newark schedule, this waiver will allow us to remove about 50 daily departures which should help minimize excessive delays and improve on-time performance – not only for our customers, but for everyone flying through Newark,” he wrote.
Original Article: cnbc.com
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