The Fed Is Watching Jobs Data. Why It Should Be Listening to Spotify.

Corporate America, taking note of the economic outlook ahead, is beginning to make difficult decisions. It’s a concerning trend for U.S. workers but it does suggest the Fed’s aggressive rate-hiking strategy is taking effect.

It’s a big week for the labor market. Jobs data will be released every day through Friday, culminating in November’s employment report. Before then there’s job openings, private payrolls, and jobless claims data.

All of those will provide a broader view of the employment picture, albeit with a lag. The data will be key to cementing, or altering, rate-cut expectations. Investors are growing more confident that the first cut will come by March. There is a 61% chance, up from 35% a week ago, according to the CME’s FedWatch tool.

The contents of Powell’s Spotify Wrapped–a recap of what he’s listened to most in 2023–will likely never be known. But next on his playlist could well be “The First Cut Is the Deepest.”

—Callum Keown

*** Join Barron’s senior managing editor Lauren Rublin and senior writer Nicholas Jasinski today at noon for a Barron’s Roundtable looking at what’s ahead for markets in 2024. Panelists include Barry C. Knapp, founder and managing partner of Ironsides Macroeconomics, Ellen Lee, fundamental portfolio manager at Causeway Capital, Saira Malik, chief investment officer at Nuveen, and Matthew McLennan, portfolio manager at First Eagle Investments. Sign up here.

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Supreme Court Case Puts Focus on Wealth Taxes

The Supreme Court will hear arguments today in a case that challenges a part of the Trump administration’s 2017 tax law. Many experts say the court’s eventual decision could upend the nation’s tax code at a time when the White House is seeking to raise taxes on the richest Americans.

• In the case, a couple is seeking a $14,729 refund from the Internal Revenue Service, arguing that they should not be taxed on the unrealized income they have accumulated since investing in an India-based company nearly two decades ago. Two lower courts disagreed.

• The law put a one-time levy on profit made outside the U.S., affecting multinational companies, but also potentially affecting partnerships and bond investors. The case, Moore v. U.S., could determine if income has to be “realized” before it can be taxed. The couple said they didn’t receive income from their stake.

• A decision in favor of the couple could prompt investors and companies to demand billions of dollars in IRS refunds, and it could also block some recent Democratic proposals to tax the wealthy. It could also open the U.S. up to a wave of lawsuits over other parts of the tax code, lawyers said.

• President Joe Biden has proposed a billionaire’s minimum income tax of 25%, which he said would raise $440 billion over 10 years. Congressional Democrats reintroduced the plan last week. Sen. Elizabeth Warren (D., Mass.) called arguments against wealth taxes inconsistent with the law.

What’s Next: The case comes less than a year before the 2024 presidential election and two years before many of the Trump tax cuts expire. Unless Congress acts, five of seven income tax brackets will revert to their previous rate, with the current top rate of 37% going back to 39.6%.

—Janet H. Cho

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IBM, Meta Form Group to Support Open Approach to AI

IBM
and
Meta Platforms
are joining with more than 50 companies, research groups, and academic institutions focused on open, safe, and responsible development of artificial intelligence. The move comes amid a debate within the tech industry over AI, with some companies wanting to keep tighter control over the development of large language models.

• The group, called the AI Alliance, plans to develop benchmarks and evaluation standards, tools, and resources to help develop AI systems. Among other things, it wants to help create multilingual models that can “help address society-wide challenges in climate, education and beyond.”

• IBM and Meta will lead the group. Meta has made its Llama 2 large language model open source, free to use for both research and commercial purposes. IBM has a long history in open source software; the company owns Red Hat, which provides services for Linux system users.

• IBM’s research director Dario Gil said the initial group of AI Alliance members together invest more than $80 billion a year in research and development, with more than one million combined workers. Other companies in the group include
  Intel,

  Advanced Micro Devices,

  Oracle,

  ServiceNow,

  Sony,
  SoftBank and
  Dell Technologies.

• On the other side of the argument are companies such as OpenAI,
  Microsoft,
  and
  Alphabet’s
  Google that say it makes more sense to keep models under tighter control. The open versus closed debate around AI echoes the question that evolved decades ago around computer operating systems.

What’s Next: IBM sees the future of computing as including three elements—high precision classical computing; neutral-based processing and AI; and qubit-based quantum computing. “Don’t think of them independently,” Gil told Barron’s. The future of computing will involve the convergence of all three.

—Eric J. Savitz

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More Pharmas Seek Their Stake in Weight-Loss Market

Swiss pharmaceutical company
Roche
struck a $3.1 billion deal to buy U.S.-based experimental weight-loss drugmaker Carmot Therapeutics. The deal would give Roche exclusive access to a weight-loss drug portfolio as it hopes to join
Eli Lilly
and
Novo Nordisk
in the fast-growing market.

• Carmot is in early development of the class of drugs known as GLP-1 receptor agonists, which Novo has developed into the commercial brands Wegovy and Ozempic, triggering a cultural and investing frenzy. Carmot has two injectable drugs in Phase 2 trials, and a daily tablet in Phase 1 trials.

• Jefferies analyst Peter Welford cited the potential for Roche to combine Carmot’s drugs with Roche’s muscle-preserving treatments. Roche is paying $2.7 billion and another $400 million after certain milestones are reached.

• Other companies are also racing to grab a piece of the sector.
  AstraZeneca
  has an exclusive licensing agreement valued at up to $2 billion with the Chinese company Eccogene for a drug for weight loss and Type 2 diabetes.

• Lilly, whose drug Zepbound was recently approved for weight loss, acquired biotech Versanis Bio, which is testing an antibody drug it hopes can promote the building of muscle mass while instructing the body to metabolize fat.

What’s Next: Roche said the Carmot drug lineup includes those that could treat patients with or without Type 2 diabetes, and potential treatments for those with Type 1 diabetes. The deal is expected to close in the first quarter of 2024, when Carmot’s employees will move to Roche.

—Janet H. Cho and Adam Clark

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Housing Forecast Sees Market in Toledo, Ohio, Getting Hot

A Realtor.com forecast identifying metro areas poised to see both rising housing prices and sales next year found Toledo, Ohio, leading the way. Existing-home prices there are expected to rise 8.3% from the prior year, while sales will climb 14%, according to the forecast.

• After Toledo, second-place Oxnard, Calif., will see home prices rise 3.3% and sales rise 18%; and Rochester, N.Y., will see a 10.4% increase in prices and a 6.2% increase in sales. Prices and sales will fall the most in Austin; Baton Rouge, La.; and Portland, Ore.

• Those markets are largely anomalies. Realtor.com said it expects U.S. existing-home sales volume will be about flat next year, while prices could fall by 1.7%. Larger metropolitan areas will broadly see higher price growth, but fewer sales because of inventory constraints.

• Prices in the first three quarters have risen the most in New England and the census division including Wisconsin, Illinois, Indiana, Ohio, and Michigan, the Federal Housing Finance Agency said.

• A Bank of America study found patience waning among prospective home buyers despite current interest rates. About 62% said they were waiting for lower rates, down from 85% previously. About half of current homeowners said they would sell if their dream home became available.

What’s Next: In some relatively affordable markets, buyers’ hunt for lower housing costs will spur sales. In some expensive markets hit hard by rising mortgage rates in 2022 and 2023, lower rates next year will spark a double-digit rebound in sales, Realtor.com’s chief economist Danielle Hale said.

—Shaina Mishkin and Janet H. Cho

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Take-Two Interactive’s Grand Theft Auto Reveal Disappoints

Investors were quick to pull the trigger and sell
Take-Two Interactive
Software stock after the owner of Rockstar Games and publisher of Grand Theft Auto put out a trailer of the video game franchise’s next installment and announced a launch window.

• Take-Two released the trailer for Grand Theft Auto VI late Monday, hours after a version was leaked on social media platform X. The company said the game would be released in 2025 on Sony’s PlayStation 5 and Microsoft’s Xbox Series X and S systems.

• Shares in Take-Two tumbled in early trading on Tuesday. Grand Theft Auto is among the biggest franchises in gaming, and details about the next iteration have been a meaningful catalyst for Wall Street’s outlook for Take-Two stock.

• Grand Theft Auto V is the second-best selling video game title of all time, with more than 190 million copies sold. The sixth installment of the franchise is among the most hotly-anticipated games and is expected to drive significant revenue to Take-Two’s Rockstar Games.

What’s Next: Shares probably fell because traders were disappointed with the 2025 release date, with there having been some speculation that the title could come in 2024. They may also have been concerned that the reveal was muddied by the leak, or that perhaps gamers don’t love what they see.

—Jack Denton

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Be sure to join this month’s Barron’s Daily virtual stock exchange challenge and show us your stuff.

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Everyone will start with the same amount and can trade as often or as little as they choose. We’ll track the leaders and at the end of the challenge the winner whose portfolio has the most value will be announced in The Barron’s Daily newsletter.

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—Newsletter edited by Liz Moyer, Brian Swint, Rupert Steiner, and Steve Goldstein