WSJ What’s News - Why Investors Play It Safe Ahead of Fed Meeting

Episode Date: September 12, 2024

P.M. Edition for Sept. 12. With the Federal Reserve decision on rate cuts coming down next week, investors are switching from hot tech stocks to safer sectors. Wall Street Journal markets reporter Hardika Singh explains why. And wood pellets are big business, but that didn’t save one green energy superstar. The Journal’s Ryan Dezember talks about the rise and fall of Enviva. Plus, Ann-Marie Alcántara reports on why more Gen Z and Millennial workers are finding joy at their office jobs. Tracie Hunte hosts. Sign up for the WSJ's free What's News newsletter. Learn more about your ad choices. Visit megaphone.fm/adchoices

Introducing TD Insurance for Business with customized coverage options for your business. Because at TD Insurance, we understand that your business is unique, so your business insurance should be too. Contact a licensed TD Insurance advisor to learn more. Why investors go defensive ahead of the Fed's interest rate decision next week. And how wood pellets became big business. Manufacturers in the United States of wood pellets suddenly realized they could sell this stuff around the world by the boatload rather than in bags at your local hardware

store. Plus, a senior Israeli military official is stepping down over the October 7th attacks. It's Thursday, September 12th. I'm Tracy Hunt for The Wall Street Journal. This is the PM edition of What's News, the top headlines and business stories that move the world today. Investors are turning away from formerly hot technology stocks and going for safer plays ahead of the Federal Reserve's decision on interest rate cuts next week. Hardika Singh is a reporter on the markets team at the Wall Street Journal and she joins us now. Hardika, why are investors getting defensive? You know, like what's worrying them?

What's not worrying them? It feels like for the greater part of this month, they've just been on edge about anything and everything. More recently, questions have emerged about the health of the US economy, the magnitude of the upcoming interest rates cuts, and the presidential election, of course. So the growing uncertainty regarding those things has led them to run away from some of these more risky growth areas and turn a little bit more Defensive and hide in defensive assets. So where are they putting their money? There's a few different defensive places in which they're putting their money Some of them are gold which is considered to be a haven asset Gold tends to become more appealing when bond yields go down

We also have seen investors pile into shares of defensive companies. So that includes your utilities, real estate, consumer staples. And the idea is that investors assume consumers would put their money first toward paying off rent or electricity and gas bills or household bills before they turn toward more discretionary purchases.

And then of course, we're also seeing bond yields go down. And you know, US treasuries are considered to be some of the safest assets out there. And when there's market unrest, people tend to clamor into those for safety. What else other than some safety, obviously, are investors looking for in these stocks? We have these defensive sectors and they're sort of considered to be bond proxies because they have a good chunky dividend yield. So the idea right now, the reason why investors are going into these sectors is because they expect that when rates start to go down, these sectors that pay a chunky dividend yield

of 3% in the upper 2% range, these would become more attractive, especially since we may not be getting the 5% yield for holding government bonds just willy-nilly. It might become a bit more of a search for equity income from here on out. Harika Singh is part of the Journal's Markets team. Thank you, Harika. It might become a bit more of a search for equity income from here on out. Hartika Singh is part of the Journal's Markets team. Thank you, Hartika. Thank you. Appreciate it.

Meanwhile, the European Central Bank today cut interest rates by a quarter percentage point to 3.5% for the second time in three months in line with market expectations. The cut offers a boost to the eurozone's faltering economy and widens a policy gap with the Federal Reserve Which is expected to start cutting rates next week in its policy statement The ECB trimmed its economic outlook for the eurozone It now expects growth of 0.8 percent this year and 1.3 percent next year both below the bank's June forecast both below the bank's June forecast. Your Amazon driver is up for a raise. We're exclusively reporting that Amazon said it'll invest about $2 billion into its delivery

services program following union organizing activity among its workers. That money would go towards a 7% increase in pay from last year, reaching nearly $22 an hour for drivers delivering Amazon parcels. Verizon Communications said today it will book a third quarter severance charge of up to $1.4 billion after roughly 4,800 employees accepted a buyout offer. Verizon says half of those taking buyouts will leave this month, with the rest departing by the end of March.

Verizon also said it plans to end the use of certain real estate assets and to exit non-strategic portions of some businesses. U.S. Markets Turn Higher Today U.S. markets turn higher today after the latest read on inflation. As the producer price index, which measures the prices businesses receive for their goods and services, rose 0.2 percent in August from July. That was in line with expectations. The NASDAQ composite gained 1% while the S&P 500

was up about 0.6% and the Dow 0.8%. Coming up, the rise and fall of a wood pellet giant. That's after the break. Enviva became a green energy superstar when it cast in on a boom in wood pellets and started building the world's biggest plant to make the material. But earlier this year, the company filed for bankruptcy. Enviva's financial collapse has jolted some of the nation's largest clean energy investors, adding to the list of financial disappointments for the ESG investment sector, which has raised trillions of dollars for funds that

promise to invest with environmental, social, and corporate governance goals in mind. Despite Enviva's troubles and questions about the environmental claims put forward, trade in wood pellets, dried sawdust pressed into cylinder form, remain strong. 2024 exports from the US are expected to beat last year's record. My colleague Pierre Bienneme spoke to Ryan Dezembre,

who writes about commodities for the Wall Street Journal and asked him what brought Enviva down. Well, Enviva filed for bankruptcy protection earlier this year, and their big problem was that they basically promised customers more pellets than they could make for a cheaper price than they could make them. And then in trying to sort of cover that up and make up for that, they were buying pellets on the open market when they were cheap. If you recall, Russia's invasion of Ukraine caused the prices of things like coal and

natural gas to spike and wood pellets were no different. And suddenly, Enviva couldn't go out on the open market and buy pellets to fulfill its obligations and it made a particularly disastrous trade trying to cover it all up. So what does this company's fortunes reveal about the market for this kind of energy overall? Well, the market's still really strong. Major utilities and power producers around the world in Korea, Japan, all over Europe and the UK, they need this stuff to keep their customers' lights on. They're burning this instead of coal.

So the demand is there. And the reason why is in those places around the world, this sort of electricity production from burning wood pellets is heavily subsidized. You know, this is a business that didn't really exist before the clean energy investing movement and came about because there were subsidies in Europe that basically paid power producers

to burn biomass or organic material. And manufacturers in the United States of wood pellets, which are normally sold in bags and used for like wood stoves or smokers at residential use, suddenly realized they could sell this stuff around the world by the boatload rather than in bags at your local hardware store. But Ryan, there are concerns about the environmental effect of burning wood pellets for energy. So scientists who object to this industry say that burning wood pellets actually produces more carbon emissions than burning coal, and that's because coal has a much more energy content in it.

So you have to burn more wood pellets to get the same energy equivalent as you would burning coal. The industry behind this makes the claim that you have to consider that when timberland owners and pine tree farmers in the southeast U.S., when they replant trees, those trees grow and reabsorb the carbon that's been in the atmosphere. So they look at it as a sort of a net zero emissions. Of course, a lot of scientists don't agree with that, but that's sort of the debate around this business. That was Commodities Reporter Ryan December. Ryan, thanks so much. Thank you. Israel's military said today that a top Israeli military intelligence official has resigned over his failure to prevent the

Hamas-led attacks on October 7. Yossi Sariel, the commander of Unit 8200, the Israeli military's largest and most important intelligence unit, told his commanders that he would step down in the near future, the military said. He's a second high-profile military official to resign over the October 7 attacks. Israel's military is conducting an investigation specifically into the intelligence failures that left Israel surprised when Hamas militants attacked on October 7. With that attack's one-year milestone coming up, what do you want to know about the conflict and where it may be headed?

Send a voice memo to wnpod at wsj.com or leave a voicemail with your name and location at 212-416-4328. We might use it on the show. And finally, corporate jobs have long had a bad reputation among younger workers. They looked at offices of soulless places with neutral-colored walls, poor lighting, and cubicles. But Gen Zers and millennials are starting to embrace these office jobs and even finding themselves happy. Our reporter, Anne Marie Alcantara,

spoke with our Your Money briefing podcast about this trend. For some time now, there's a popular format of people who post videos called Come With Me to My 9 to 5, and they just document their 9 to 5. That's commuting to work, drinking their coffee, eating their lunch, typing at work, presentations, whatever they might do in their job. So what many bosses are learning is that so many younger workers want a purpose with what their job does. Even if it's a silly so-called lazy girl job, they want to feel some meaningful work that

they come in every day and they do something great. So that's one thing that managers are looking into is like how can we better sell this job to people. And then of course the benefits and not just the traditional 401k but also mental health days or things like summer Fridays. These little things that help people appreciate their job and feel like they are being cared for by their employers. And you can hear more about Gen Z's appreciation of their corporate jobs on tomorrow's Your Money Briefing podcast. And that's what's news for this

Thursday afternoon. Today's show was produced by Pierre Bienneme and Anthony Bansi with supervising producer Michael Kosmitis. I'm Tracy Hunt for the Wall Street Journal. We'll be back with a new show tomorrow morning. Thanks for listening.