December 16, 2020

Market recap

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Top Story

The EU’s Plans to Crack Down on Big Tech

EU Releases a Draft of Legislation for Monitoring Big Tech

The European Union has released a draft of its highly anticipated Digital Services Act and Digital Markets Act, two rulebooks that will soon set strict guidelines for tech giants in the EU. Before now, the European Commission has kept the details of the proposals under wraps.

The acts seek to enforce competition laws and algorithm transparency, as well as requiring companies to manage harmful and illegal content. Additionally, the legislation aims to stop major tech companies from promoting their own products on marketplaces that they control, which could prevent smaller tech companies from gaining visibility. For example Apple (AAPL) will be under scrutiny regarding how it promotes products like Apple Pay on its App Store.

The acts will serve as an update to legislation that first became law in 2004, when Facebook (FB) had just been founded and Twitter (TWTR) did not yet exist. When the rules take effect, companies like Google (GOOGL), Facebook (FB), Apple (AAPL), Amazon (AMZN), and Microsoft (MSFT) will be marked as internet “gatekeepers.” This means they will be required to follow certain guidelines to limit their power in the market. They will be subject to fines of up to 10% of their annual revenue if they violate competition rules.

The UK’s Plan to Limit Harmful Content Online

In addition to legislation from the EU, yesterday the United Kingdom said it plans to charge significant fines to social media companies and other tech giants if they fail to remove harmful content from their sites. If companies do not obey these rules, they could face fines of up to $24 million or 10% of their annual global revenue, whichever is higher. These restrictions and subsequent fines will begin next year under the Online Safety Bill.

The bill is expected to include special requirements for the largest companies that allow users to post their own content or chat with each other, including TikTok, Facebook (FB), Instagram, and Twitter (TWTR). According to the bill, the UK will also have the right to file criminal charges against the companies’ senior executives if they do not comply with the new rules.

Twitter Fined in Irish Data Commission Decision

Meanwhile, Twitter is facing a fine of approximately $547,000 in Ireland for its failure to properly declare and document a data breach. Twitter said in a statement, “An unanticipated consequence of staffing between Christmas Day 2018 and New Years’ Day resulted in Twitter notifying the IDPC outside of the 72 hour statutory notice period.”

The charge is notable in part because it is the first against a United States tech company since the European Union’s General Data Protection Regulation (GDPR) rules took effect in 2018. The Irish Data Protection Commission is facing criticism on two fronts in the wake of this case. First because the decision took so long to reach. Critics say it will be hard for the commission to effectively sanction fast-moving tech companies if it continues to move this slowly. Second, critics are also displeased because the fine is smaller than expected. Under the GDPR, regulators can fine companies up to 4% of their global annual turnover. Twitter will pay a fine equivalent to just over 0.1% of the company’s full-year 2019 revenue.

Big Tech is up against significant pushback from EU lawmakers. Investors will be anxious to see how various discussions and conflicts unfold.

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As Vaccine Hopes Rise, So Do Certain Real Estate Stocks

Real Estate Shares Jump on Vaccine News

Investors are looking ahead and hoping that a vaccine will eventually help the economy and industries that have been battered by the pandemic return to normal. Wall Street is betting that hotel, retail, and office space real estate, which has been hit hard during the pandemic, could rebound. It will likely take significant time before shopping, travel, and business looks anything like it did before the pandemic. But since Pfizer (PFE) and BioNTech (BNTX) announced the encouraging results of their vaccine trials in early November, shares for hotel, retail, and office real estate companies have popped by more than a third.

Shares of Park Hotels and Resorts (PK) and Xenia Hotels & Resorts (XHR) have soared 62%. Wall Street expects these resort chains to profit from pent-up demand as more people get vaccinated and start to travel again. The FTSE Nareit Equity Lodging/Resorts Index is also up 49%.

Regional malls and shopping centers REIT indexes have also seen a 40% spike since the vaccine announcement. Compared to the S&P 500, which was up 4.6% during that period, retail and lodging have been two of the top performers.

Executives Exercise Caution

Despite the renewed interest from investors, some executives say their businesses may take a long time to recover from the challenges of the pandemic. Leaders in the hotel industry for example have said it could take until 2023 for business to recover.

That could hold true even if the vaccine relaxes restrictions and encourages travel. Echoing that caution, business leaders like Bill Gates have said they doubt business travel will ever return to pre-pandemic levels. If recovery takes as long as these executives suspect, real estate and property companies could be of particular interest to long-term investors.

A-Rod Hopes for Home Run with Hotel Investments

Former New York Yankee Alex Rodriguez is among investors willing to take their chances on real estate. Rodriguez is partnering with CGI Merchant Group in launching a hotel investment fund. The baseball legend will invest some of his own money in the fund, which is seeking to raise $650 million in partnership with Hilton Worldwide Holdings (HLT). A-Rod will also help with sourcing deals.

The CGI Merchant Fund said it will invest in hotels and resorts around North America and the Caribbean. It is focused on tourism that it expects will bounce back fastest after the pandemic, which means staying away from hotels with open floor plans and large group gathering spaces. Rodriguez and CGI Merchant said they are willing to wait for the travel sector to deliver returns, and they see the fund as part of a long-term investing strategy.

As Media Groups Consolidate, Group Nine Eyes Future Acquisitions

Group Nine Media Considers Forming Blank-Check Company

Over the past several weeks Group Nine Media, the company behind websites like The Dodo and NowThis, has considered forming a blank-check company that could help the media group acquire some of its smaller competitors. The media group is interested in growing its audience and getting an upper hand in negotiations with online advertisers. Group Nine Media executives have already consulted with advisers about their desire to form a special-purpose acquisition company.

Special purpose acquisition companies, also referred to as SPACs or blank-check companies, are formed specifically to raise capital by going public. That capital can then help a company make deals and acquire smaller companies.

Behind Group Nine’s Growth

Group Nine Media is part of the quickly consolidating digital media sector. The company was formed through a merger of several smaller businesses in 2016. Since then it has purchased even more digital media competitors. Last year Group Nine acquired PopSugar’s website and properties in an all-stock deal that valued Group Nine at $600 million.

The media group has developed a reputation for news, travel, and animal videos that spread quickly and widely on social media. The group’s holdings include PopSugar, The Dodo, NowThis, and Thrillist.

Reflecting the Sector’s Consolidation

Group Nine is not alone in focusing on digital media acquisitions that could lead to larger audiences. Just last month, BuzzFeed announced plans to buy HuffPost from Verizon Media (VZ) in an all-stock deal that will marry two of the largest digital media companies. Last year Vice Media Group acquired Refinery 29 and Vox Media merged with New York Media, the publisher of New York Magazine.

These acquisitions could help the media groups compete for ad sales against tech giants like Facebook (FB) and Google (GOOGL). While advertising budgets have flagged during the coronavirus pandemic, media groups hope sales will recover in the near future.

Not-So-Breaking News

Financial Planner Tip of the Day

"If you find yourself regularly spending money on things you don’t need, then it may help to identify the underlying triggers that are leading to your excessive spending. It can help to monitor your mood when you find yourself impulse shopping."

Brian Walsh, CFP® at SoFi

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