Jun 15, 2020

Axios Markets

By Dion Rabouin
Dion Rabouin

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🚨 Situational awareness: Dow futures are set to fall nearly 700 points at the open, following Asian stocks after last week's pullback.

🎙 “I never tell you to get down, it's all about coming up.” - See who said it and why it matters at the bottom.

1 big thing: Biggest U.S. companies commit $1.6B to fight inequality

Data: Fortune 500, Axios analysis of company statements, get the data; Chart: Andrew Witherspoon/Axios

Axios' Andrew Witherspoon and I write: The 100 largest U.S. companies have so far committed $1.63 billion to organizations fighting racism and inequality, according to company announcements and an Axios analysis.

What's happening: Since protests began over the death of George Floyd at the hands of Minneapolis police officers, companies have released statements of support for black communities and pledged donations to organizations like the NAACP, National Urban League, Equal Justice Initiative, and the National Center for Civil and Human Rights.

  • The response so far is a significant departure from years past when many large companies preferred not to talk about the killings or the role of racism in the United States.

Why it matters: Even without including donations made by firms outside the Forbes 100, the total through Sunday was the largest single outpouring of giving and investment of its kind, though it accounts for just 0.20% of the 100 companies' collective 2019 profits.

  • The "impressive" total is "a down payment on moving forward," Andre Perry, a fellow at the Brookings Institution, tells Axios.
  • But it falls short of the amount needed to produce real systemic change, and does not measure up to the benefits reaped by many white-owned companies from racist policies such as slavery, redlining and segregation, he says.

The big picture: "I appreciate corporations giving dollars, but we need to have a set metric that says here’s what we should be aiming for in terms of correcting for the policy violence of the past," says Perry, author of "Know Your Price: Valuing Black Lives and Property in America’s Black Cities."

  • "We’re not going to get to true recovery through pity and feeling sorry for folks. Black people were systematically stripped of resources and we’ve got to restore that value."

By the numbers: So far, 42 of the Fortune 100 companies have announced monetary contributions.

  • Just 10 companies make up 90% of the total commitment amount — the largest being Bank of America's four-year $1 billion pledge.
  • Excluding the 10 largest, announced donations totaled an average 0.02% of companies' 2019 profits.
  • The smallest was a $200,000 contribution from food processing giant Archer Daniels Midland, which earned $1.38 billion in profits last year.

Yes, but: Not included are significant contributions from companies like SoftBank, which pledged to create a $100 million investment fund devoted exclusively to companies helmed by people of color, and individuals like Box CEO Aaron Levie, who reportedly offered $500,000 of his own money.

  • The total also does not account for the increase in disbursements from charitable groups including the Ford Foundation or organizations like the NFL, which announced a $250 million program.

What's next: "What I have not seen is the strategy behind the giving," Perry says. "Giving in these times is a good gesture. However, giving without strategy can miss an opportunity to really uplift black communities."

2. Catch up quick

Beijing shuttered the city's largest fruit and vegetable supply center and locked down nearby housing districts after dozens of people tested positive for COVID-19. (Bloomberg)

French President Emmanuel Macron lifted most of France's remaining coronavirus lockdown restrictions and said he would focus on rebuilding the economy. (FT)

Barring a last-minute reversal, baseball fans will be left with a short, league-imposed 50-game MLB season that will not allow any spectators in attendance. (WSJ)

AT&T is considering selling its Warner Bros. gaming division for about $4 billion as part of an effort to service its nearly $200 billion in debt. (CNBC)

3. Zombies are multiplying!
Data: Datastream, Worldscope, DB Global Research; Chart: Axios Visuals

The number of so-called zombie companies is spiking and could soon represent more than one in five U.S. firms, thanks to the coronavirus pandemic.

What it means: "Zombies" are firms whose debt servicing costs are higher than their profits but are kept alive by relentless borrowing.

What they're saying: "This is a macroeconomic problem because zombie firms are less productive, and their existence lowers investment in and employment at more productive firms," Deutsche Bank Securities chief economist Torsten Sløk said in a note to clients Thursday.

  • "In short, one side effect of central banks keeping rates low for a long time is that it keeps more unproductive firms alive, which ultimately lowers the long-run growth rate of the economy."

What's next: "This trend ... is likely to continue going forward given the Fed’s commitment to keeping rates low and the ongoing support from the Fed to credit markets."

4. Labor pushes McDonald’s to cut dividend and increase sick pay

Labor activists with the Fight for $15 and a Union movement are publishing a memo today obtained first by Axios that will push McDonald's to suspend its quarterly dividend.

  • The group wants McDonald's to instead prioritize increasing sick pay for more workers at $15 an hour.

What it means: The group is seeking a dedication of $61.2 million to cover 10% of workers for additional sick leave for two weeks, putting the price tag at "just 6.6% of the expected quarterly dividend to be paid on June 15."

What they're saying: The memo takes aim at a silent video tweeted by McDonald's showing support for George Floyd and other black men and boys killed in recent years to call for the company to use a portion of its dividend to pay workers rather than shareholders.

  • "Rather than an empty PR social media posting, the company could demonstrate its purported stance by, for once, halting its dividend and redirecting that money towards helping its frontline workers weather a pandemic disproportionately impacting people of color."

The bottom line: Dozens of companies have suspended or cut their dividends this year, citing economic uncertainty brought on by the coronavirus pandemic.

  • McDonald's is one of a handful that has maintained it — for a 44th straight year — but could be facing renewed pressure from activists in addition to the pandemic and deteriorating economy.
5. Americans increased spending while working from home

Data: CreditCards.com; Chart: Axios Visuals

A new survey finds that rather than saving, Americans who switched from working in an office to working from home spent more money last month, as grocery and utility bills increased significantly but spending on things like restaurants, gas and clothes declined only slightly.

Details: The changes were driven by millennials, people living in the Northeast and lower income households.

  • The differences by age cohort were the most jarring — Gen Xers spent $2 less per month on average and baby boomers spent $24 less a month, while millennials spent an additional $208 a month.

Between the lines: With more people expected to continue working from home in the near future, the increased spending — with more going towards grocery stores and less towards restaurants — could be a trend that sticks, Ted Rossman, industry analyst at CreditCards.com, tells Axios.

  • 82% of people who were forced to work from home would like to continue doing so at least two days per week once restrictions have been lifted.

Of note: The survey focused only on "essential" items and excluded things like entertainment, sporting events or alcohol.

Methodology: CreditCards.com commissioned YouGov to conduct the May 21-22 survey, with a total sample size of 2,768 adults, including 822 who were working or had worked from home during the COVID-19 outbreak.

Dion Rabouin

Editor's note: The top story was corrected to show 10 companies make up 90% (not 88%) of the total commitment amount, and that the NFL is not a nonprofit entity.

Thanks for reading!

Quote: “I never tell you to get down, it's all about coming up.”

Why it matters: Founding member of pioneering rap group NWA and actor, writer and entrepreneur O'Shea Jackson, AKA Ice Cube, was born on June 15, 1969.

  • Cube was one of the first to predict the 1992 LA riots and often speaks out against police brutality and racism in his music.