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šļø The Big Review
[5 minutes to read] Plus: Why investors are wrong about the Fed
By Matthew Gutierrez and Shawn OāMalley
šĀ Over the past two years, Uber has soared. Lyft? Not so much.
Shares in Uber, the ride-sharing and food delivery service, have nearly doubled, while Lyft shares are down about 67% over the past 24 months.
Millions of people worldwide have come to rely on Uber, which has a rare distinction in the business world: Its brand name is often used as a verb.
ā Matthew & Shawn
Hereās todayās rundown:
Today, we'll discuss the three biggest stories in markets:
McKinseyās big review as consultancies reevaluate themselves
Disney shares spike 12% after earnings beat
Why investors are almost always wrong about the Fed
All this, and more, in just 5 minutes to read.
POP QUIZ
In The News
š§ McKinsey Places 3,000 Staffers on Review Amid Slowdown
Gif by kimsconvenience on Giphy
Usually, McKinsey is the one reviewing companies for inefficiencies. But now, the consultancy is examining itself.Ā
McKinsey has warned about 3,000 of its consultants that their performance was āunsatisfactoryā and must improve. Otherwise, they could be removed from the company.
Consultants received a āconcernsā rating amid their performance reviews, with a (roughly) three-month window to improve performance.Ā
The news reflects an uncertain outlook for consultancies after years of growth, hiring, and big bonuses. McKinseyās headcount has swelled to about 45,000 employees, up 60% from the 28,000 it had in 2018.Ā
Itās reminiscent of tech companies over-hiring during the pandemic and cutting jobs to streamline costs in a higher-rate environment, as we discussed Wednesday with the likes of Meta, Snap, and Google.
Last year, McKinsey eliminated 1,400 jobs, mostly in support departments, not client-facing, despite a record $16 billion in revenue. It also shrunk its new partner class by 35%.
Terminology: Technically, consultancies like McKinsey make workers ācounseled to leaveā ā fancy language meaning they recommend employees try to find a new job elsewhere.
Why it matters:
Overall, the consulting industry has slowed over the past several months. The largest firms in the industry say more clients are shelving longer-term investments and cutting back where they can, including spending on things like consultants. So, thereās simply less work for consultants to advise them on.
Take Accenture, which slashed 19,000 jobs last year.
That safe, cushiony job at Ernst & Young? Not necessarily, as the firm said itās cutting jobs and delaying start dates for new hires. PricewaterhouseCoopers announced cuts last fall, mostly in the advisory division.Ā
McKinsey, which turns 100 in 2026, has roughly 30,000 consultancies globally, including 2,900 partners. It has offices in 60 countries and roughly 3,000-plus ongoing clients. Nearly half of its revenues come from the U.S. The degree to which artificial intelligence āconsultantsā can replace or enhance consultancies remains to be seen.Ā
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š® Disney to Invest $1.5 Billion in Epic Games, Shares Rise
Walt Disney is busy. The iconic brand knows the formula to reach Americans, too: Theme parks and streaming, yes, but also video games, sports, and Taylor Swift.Ā
Video games: Disney is acquiring a $1.5 billion equity stake in Fortnite maker Epic Games, part of a collaboration involving Disney properties like Star Wars, Marvel, and Avatar.Ā
Sports: Disney also announced that itās teaming up with Fox and Warner Bros. Discovery to create a sports-streaming service, which could revolutionize how we watch sports.Ā
Taylor Swift: Disney will stream a cut of the starās Eras Tour concert movie on Disney+ starting March 15, including footage of five songs not included anywhere else.Ā
Yes, Disney is still a big business trying to bounce back from several rocky years. Its share price is flat over the past five years, but itās already up over 20% in 2024.Ā
Thatās thanks to an improving bottom line under CEO Bob Iger, with shares jumping 14% Thursday after the entertainment giant posted solid quarterly results.Ā
The numbers:Ā
Adjusted earnings of $1.22 per share versus estimate of 99 cents per share
Revenue $23.5 billion versus estimate of $23.7 billion
Key to the upbeat tone: a solid base of Disney+ subscribers
Why it matters:
Iger is trying to invigorate a brand during his second stint as CEO. Heās grappling with cableās decline, a costly pivot to streaming, and lousy earnings growth in recent years.
Disney+ subscriber growth remains a key component of its growth strategy. The number of domestic subscribers fell to 46.1 million after rolling out price increases. Global subscribers fell to 149.6 million from 150.2 million a year ago.Ā
Yet, in a rare move, Disney issued an upbeat forecast on subscriber growth, saying it expects to add up to 6 million Disney+ subscribers in the current quarter that ends March 31.
One analyst said the expected subscription growth, plus the Epic Games investment, could help offset āongoing challenges in the Parks business and a continued decline in linear television.ā
More Headlines
š²š½ For the first time in decades, the U.S. bought more stuff from Mexico than China
š Brands think 30-second Super Bowl ads are worth $7 million
š« Alibaba shares sink after it shelves IPO plans for two of its units
š Shares in the computer chip designer, Arm, soared over 60% on Thursday
š³ Average credit card balances jump 10% to new record
ā¤ļø Why America loves the NFL
š¬ Investors Are Almost Always Wrong About The Fed
The free market has its limits, and one of them is anticipating the Federal Reserveās interest rate decisions.
In theory, markets are a āweighing machineā over time, sorting through the massesā wide-ranging opinions on corporate earnings, inflation, the job market, and much more, striking a balance that reflects all relevant information and perspectives.
Itās not that financial markets are infallible and should always accurately predict future developments, but they should account for the most likely outcomes, twisting and turning as new events unfold and new information is made available.
Yet, investors have been particularly bad at projecting the Fedās moves. In recent years, few thought the Federal Reserve would get close to hiking rates to nearly 5% after a pandemic-era inflation spike.
That outlook was wrong.
In the last few weeks, traders have significantly revised their bets on the Fed to cut rates this year after aggressive rate cuts became the consensus view in late 2023.
Why it matters:
Shifting outlook: In January, if you believed that there would be no rate cuts in 2024, youād be an outcast on Wall Street. āNow, itās a real possibility,ā according to one bond fund manager.
But expectations for future interest rates are critical in markets, driving returns on stocks, bonds, real estate, borrowing rates nationwide, and business ownersā decisions.
They also shape the U.S. dollarās foreign exchange value, as well as trends in inflation.
The emotional investor: When considering the limits to marketsā ability to anticipate the future, human psychology is one of the biggest factors.
The same events can be interpreted negatively or positively, depending on investorsā collective mood.
As Eric Wallerstein of the WSJ adds, āinvestorsā expectations tend to be anchored to their recent memory. For nearly a decade after the 2008-09 financial crisis, for example, investors repeatedly (and wrongly) bet that interest rates would soon return to pre-crisis levels.ā
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