When Jack Welch died on March 1, 2020, tributes poured in for the longtime chief executive of General Electric, whom many revered as the greatest chief executive of all time.
David Zaslav, the C.E.O. of Warner Bros. Discovery and a Welch disciple, remembered him as an almost godlike figure. “Jack set the path. He saw the whole world. He was above the whole world,” Mr. Zaslav said. “What he created at G.E. became the way companies now operate.”
Mr. Zaslav’s words were meant as unequivocal praise. During Mr. Welch’s two decades in power — from 1981 to 2001 — he turned G.E. into the most valuable company in the world, groomed a flock of protégés who went on to run major companies of their own, and set the standard by which other C.E.O.s were measured.
Yet a closer examination of the Welch legacy reveals that he was not simply the “Manager of the Century,” as Fortune magazine crowned him upon his retirement.
broken up for good.
the fateful decision to redesign the 737 — a plane introduced in the 1960s — once more, rather than lose out on a crucial order with American Airlines. That decision set in motion the flawed development of the 737 Max, which crashed twice in five months, killing 346 people. And while a number of factors contributed to those tragedies, they were ultimately the product of a corporate culture that cut corners in pursuit of short-term financial gains.
Even today Boeing is run by a Welch disciple. Dave Calhoun, the current C.E.O., was a dark horse candidate to succeed Mr. Welch in 2001, and he was on the Boeing board during the rollout of the Max and the botched response to the crashes.
When Mr. Calhoun took over the company in 2020, he set up his office not in Seattle (Boeing’s spiritual home) or Chicago (its official headquarters), but outside St. Louis at the Boeing Leadership Center, an internal training center explicitly built in the image of Crotonville. He said he hoped to channel Mr. Welch, whom he called his “forever mentor.”
The “Manager of the Century” was unbowed in retirement, barreling through the twilight of his life with the same bombast that defined his tenure as C.E.O.
He refashioned himself as a management guru and created a $50,000 online M.B.A. in an effort to instill his tough-nosed tactics in a new generation of business leaders. (The school boasts that “more than two out of three students receive a raise or promotion while enrolled.”) He cheered on the political rise of Mr. Trump, then advised him when he won the White House.
In his waning days, Mr. Welch emerged as a trafficker of conspiracy theories. He called climate change “mass neurosis” and “the attack on capitalism that socialism couldn’t bring.” He called for President Trump to appoint Rudy Giuliani attorney general and investigate his political enemies.
The most telling example of Mr. Welch’s foray into political commentary, and the beliefs it revealed, came in 2012. That’s when he took to Twitter and accused the Obama administration of fabricating the monthly jobs report numbers for political gain. The accusation was rich with irony. After decades during which G.E. massaged its own earnings reports, Mr. Welch was effectively accusing the White House of doing the same thing.
While Mr. Welch’s claim was baseless, conservative pundits picked up on the conspiracy theory and amplified it on cable news and Twitter. Even Mr. Trump, then merely a reality television star, joined the chorus, calling Mr. Welch’s bogus accusation “100 percent correct” and accusing the Obama administration of “monkeying around” with the numbers. It was one of the first lies to go viral on social media, and it had come from one of the most revered figures in the history of business.
When Mr. Welch died, few of his eulogists paused to consider the entirety of his legacy. They didn’t dwell on the downsizing, the manipulated earnings, the Twitter antics.
And there was no consideration of the ways in which the economy had been shaped by Mr. Welch over the previous 40 years, creating a world where manufacturing jobs have evaporated as C.E.O. pay soars, where buybacks and dividends are plentiful as corporate tax rates plunge.
By glossing over this reality, his allies helped perpetuate the myth of his sainthood, adding their own spin on one of the most enduring bits of disinformation of all: the notion that Jack Welch was the greatest C.E.O. of all time.
For two years, the stock market has been largely able to ignore the lived reality of Americans during the pandemic — the mounting coronavirus cases, the loss of lives and livelihoods, the lockdowns — because of underlying policies that kept it buoyant.
Investors can now say goodbye to all that.
Come 2022, the Federal Reserve is expected to raise interest rates to fight inflation, and government programs meant to stimulate the economy during the pandemic will have ended. Those policy changes will cause investors, businesses and consumers to behave differently, and their actions will eventually take some air out of the stock market, according to analysts.
“It’s going to be the first time in almost two years that the Fed’s incremental decisions might force investors or consumers to become a little more wary,” said David Schawel, the chief investment officer at Family Management Corporation, a wealth management firm in New York.
At year’s end, the overarching view on Wall Street is that 2022 will be a bumpier ride, if not quite a roller coaster. In a recent note, analysts at J.P. Morgan said that they expected inflation — currently at 6.8 percent — to “normalize” in coming months, and that the surge of the Omicron variant of the coronavirus was unlikely to lower economic growth.
16 percent gain during the first year of the pandemic. The index hit 70 new closing highs in 2021, second only to 1995, when there were 77, said Howard Silverblatt, an analyst at S&P Dow Jones Indices. Shares on Friday fell slightly.
The market continued to rise through political, social and economic tensions: On Jan. 7, the day after a pro-Trump mob stormed the U.S. Capitol, the S&P set another record. Millions of amateur investors, stuck at home during the pandemic, piled into the stock market, too, buying up shares of all kinds of companies — even those that no one expects will earn money, like the video game retailer GameStop.
What to Know About Inflation in the U.S.
Wall Street also remained bullish on business prospects in China despite Beijing’s growing tension with the United States and tightening grip on Chinese companies. Waves of coronavirus variants, from Delta to Omicron, and a global death toll that crossed five million did not deter the stock market’s rise; its recovery after each bout of panic was faster than the previous one.
“2021 was a terrific year for the equity markets,” said Anu Gaggar, the global investment strategist for Commonwealth Financial Network, in an emailed note. “Between federal stimulus keeping the economy going, easy monetary policy from the Fed keeping markets liquid and interest rates low, and the ongoing medical improvement leading to surprising growth, markets have been in the best of all possible worlds.”
400 private companies raised $142.5 billion in 2021. But investors had sold off many of the newly listed stocks on the New York Stock Exchange or Nasdaq by the end of the year. The Renaissance IPO exchange-traded fund, which tracks initial public offerings, is down about 9 percent for the year.
Shares of Oatly, which makes an oat-based alternative to dairy milk, soared 30 percent when the company went public in May but are now trading 60 percent lower than their opening-day closing price. The stock-trading start-up Robinhood and the dating app Bumble, two other big public debuts, were down about 50 percent for 2021.
supply chain disruptions stemming from the pandemic. Prices for used cars skyrocketed amid a global computer chip shortage. As Covid-19 vaccination rates improved, businesses trying to reopen had to raise wages to attract and retain employees. Consumer prices climbed 5.7 percent in November from a year earlier — the fastest pace since 1982.
But even when “inflation” had become a buzzword worthy of a headline in The Onion, the stock market appeared slow to react to price increases.
“The market is on the side that inflation is transitory,” said Harry Mamaysky, a professor at Columbia Business School. “If it’s not and the Fed needs to go in and raise interest rates to tame inflation, then things could get a lot worse in terms of markets and economic growth.”
And that is what the Fed has signaled it will do in 2022.
When interest rates go up, borrowing becomes more expensive for both consumers and companies. That can hurt profit margins for companies and make stocks less attractive to investors, while sapping consumer demand because people have less money to spend if their mortgage and other loan payments go up. Over time, that tends to deflate the stock market and reduce demand, which brings inflation back under control.
loss of purchasing power over time, meaning your dollar will not go as far tomorrow as it did today. It is typically expressed as the annual change in prices for everyday goods and services such as food, furniture, apparel, transportation costs and toys.
What causes inflation? It can be the result of rising consumer demand. But inflation can also rise and fall based on developments that have little to do with economic conditions, such as limited oil production and supply chain problems.
Is inflation bad? It depends on the circumstances. Fast price increases spell trouble, but moderate price gains could also lead to higher wages and job growth.
Can inflation affect the stock market? Rapid inflation typically spells trouble for stocks. Financial assets in general have historically fared badly during inflation booms, while tangible assets like houses have held their value better.
Mr. McBride said the values of many stocks were being supported by extremely low yields on Treasury bonds, especially the 10-year yield, which has held to about 1.5 percent.
“If that yield moves up, investors are going to re-evaluate how much they’re willing to pay for per dollar of earnings for stocks,” he said. Even if corporate profits — which were strong in 2021 — continue to grow in 2022, he added, they are unlikely to expand “at a pace that continues to justify the current price of stocks.”
quicken the pace of pulling back on that aid, set to finish in March.
“The nightmare scenario is: The Fed tightens and it doesn’t help,” said Aaron Brown, a former risk manager of AQR Capital Management who now manages his own money and teaches math at New York University’s Courant Institute of Mathematical Sciences. Mr. Brown said that if the Fed could not orchestrate a “soft landing” for the economy, things could start to get ugly — fast.
And then, he said, the Fed may have to take “very aggressive action like a rate hike to 15 percent, or wage and price controls, like we tried in the ’70s.”
By an equal measure, the Fed’s moves, even if they are moderate, could also cause a sell-off in stocks, corporate bonds and other riskier assets, if investors panic when they realize that the free money that drove their risk-taking to ever greater extremes over the past several years is definitely going away.
Sal Arnuk, a partner and co-founder of Themis Trading, said he expected 2022 to begin with something like “a hiccup.”
“China and Taiwan, Russia and Ukraine — if something happens there or if the Fed surprises everyone with the speed of the taper, there’s going to be some selling,” Mr. Arnuk said. “It could even start in Bitcoin, but then people are going to start selling their Apple, their Google.”
European shares on track for worst sell-off in a year
Companies benefiting from economic reopening tumble in early U.S. trading
Crude prices tumble
WASHINGTON/LONDON, Nov 26 (Reuters) – Shares tumbled on Wall Street on Friday as they reopened after Thanksgiving, while European stocks saw their biggest sell-off in 17 months and oil prices plunged by $10 per barrel as fears over a new coronavirus variant sent investors scurrying to safe-haven assets.
The World Health Organization (WHO) on Friday designated a new COVID-19 variant detected in South Africa with a large number of mutations as being “of concern,” the fifth variant to be given the designation. read more
Unofficially, the Dow Jones Industrial Average (.DJI) closed down 2.53% at 34,899.34 in its largest percentage drop in more than a year. The S&P 500 (.SPX) lost 2.27%, its worst one-day drop since Feb. 25, and the Nasdaq Composite (.IXIC) dropped 2.23%, the biggest one-day route in two months.
Register now for FREE unlimited access to reuters.com
U.S. markets closed early on Friday after being shut all day on Thursday for the Thanksgiving holiday.
The benchmark STOXX 600 index (.STOXX) ended 3.7% lower on the day, leaving it down 4.5% for the week. The volatility gauge (.V2TX) for the main stock market hit its highest in nearly 10 months.
Companies that had benefited from an easing of COVID-related restrictions this year, including AMC Entertainment (AMC.N), plane engine maker Rolls Royce (RR.L), easyJet (EZJ.L), United Airlines (UAL.O) and Carnival Corp (CCL.N) all fell.
Retailers dropped as Black Friday, the start of the holiday shopping season, kicked off as the new variant fuelled concerns about low store traffic and inventory issues. read more
In Europe, the travel and leisure index (.SXTP) plummeted 8.8% in its worst day since the COVID-19 shock sell-off in March 2020.
“Bottom line is this is showing that COVID is still the investor narrative, a lot of today’s movement is driven by the South African variant,” said Greg Bassuk, chief executive officer of AXS Investments in Port Chester, New York.
“We have been talking about four or five factors that have been driving the last couple of months’ activity – inflation fears, some economic data, Fed policy – but what we have seen over the last year is that big developments with respect to COVID really have ended up eclipsing some of those other factors by a substantial degree and that is what is driving today’s market activity.”
Little is known of the variant detected in South Africa, Botswana and Hong Kong, but scientists said it has an unusual combination of mutations and may be able to evade immune responses or make the virus more transmissible.
Britain said the new variant was the most significant variant to date and was one of several countries to impose travel restrictions on southern Africa. read more
A U.S. one dollar banknote is seen in front of displayed stock graph in this illustration taken May 7, 2021. REUTERS/Dado Ruvic/Illustration
The European Commission also said it wanted to consider suspending travel from countries where the new variant has been identified, though the WHO cautioned against hastily imposing such restrictions. read more
Global shares (.MIWD00000PUS) fell 1.81%, their biggest down day in more than a year. France’s CAC 40 (.FCHI) shed 4.8%. The UK’s FTSE 100 (.FTSE) dropped 3.6%, while Germany’s DAX (.GDAXI) fell 4.2% and Spain’s IBEX (.IBEX) lost 5.0%.
Malaysian rubber glove maker Supermax (SUPM.KL), which soared 1500% during the first wave of the pandemic, leapt 15%.
MSCI’s index of Asian shares outside Japan (.MIAPJ0000PUS) dropped 2.44%, its sharpest fall since late July.
In commodities, oil prices plunged. Gold prices reversed earlier gains seen amid the move away from riskier assets.
U.S. crude was last down 12%, at $69.02 per barrel by 1:21 p.m. EST (1812 GMT). Brent crude dropped 10.5% to $73.59.
Spot gold prices were down 0.09%.
As investors dashed for safe-haven assets, the Japanese yen strengthened 1.87% versus the greenback, while sterling was last trading at $1.3331, up 0.08% on the day.
The dollar index fell 0.757%, with the euro up 1% to $1.1318.
U.S. Treasury debt yields posted their sharpest drop since the pandemic began. Treasuries benchmark 10-year notes last rose to yield 1.4867%. The 2-year note last rose to yield 0.4941%, from 0.644%.
“A flight to safety is underway with the 10-year U.S. Treasury yield down,” said Keith Lerner, co-chief investment officer at Truist Advisory Services. “The proximate cause of the sell-off is yesterday’s announcement of a new COVID-19 variant in South Africa, which investors fear could weigh on economic growth.”
The market swings come against a backdrop of already growing concern about COVID-19 outbreaks driving restrictions on movement and activity in Europe and beyond. read more
Markets had previously been upbeat about the strength of economic recovery, despite growing inflation fears.
Register now for FREE unlimited access to reuters.com
Reporting by Chris Prentice; Editing by Susan Fenton
Our Standards: The Thomson Reuters Trust Principles.
It was the quintessential American company, a corporate behemoth whose ambition matched the country’s.
Formed in 1892, General Electric reached into nearly every home over the next century. It sold light bulbs, televisions and washing machines. Its jet engines opened up long-distance travel, its generators lit houses, and its medical equipment helped diagnose patients.
Now G.E. is making a final break with its storied past, splitting itself into three businesses, a victim of the lingering effects of the 2008 financial crisis and a fast-growing economy less hospitable to global conglomerates.
On Tuesday, the company said it would spin off its health care division in early 2023 and its energy businesses a year later. That would leave its aviation unit as its remaining business.
Mr. Welch also built up a huge finance arm at G.E. The assumption was that G.E.’s managers were the best in the world, and there was easy money to be made on Wall Street.
The buildup backfired when the financial crisis hit in 2008, putting G.E. in a credit crunch. Its chief executive at the time, Jeffrey R. Immelt, moved to drastically pare back the big finance unit, GE Capital.
Other businesses hit hard times because of the financial crisis as well, and some Wall Street firms collapsed. But few outside of Wall Street are still paying a price like G.E. As the company scrambled to shed many of its troubled financial assets, its overextended power-generation business became a drag on the operation.
dropped from the blue-chip index. By the fall of that year, Mr. Flannery had been forced out, replaced by Mr. Culp, a former chief executive of Danaher, a more compact conglomerate that makes scientific, medical and automotive equipment.
Under Mr. Culp, the company has paid hundreds of millions of dollars to settle with the Securities and Exchange Commission over claims that it misled investors before his arrival. He has also accelerated cost-cutting at the company. G.E., which had more than 300,000 employees worldwide in 2014, now has 161,000 workers.
Mr. Culp on Tuesday described the breakup of the company as being in step with the times, as other industry conglomerates have streamlined. In the last few years, G.E.’s big German rival Siemens has spun off its health care and energy businesses. And Honeywell International, another wide-ranging industrial company, has sold off some operations.
Trian, the activist shareholder firm led by Nelson Peltz, have pressured the company to spin out or sell various businesses, and they cheered the move on Tuesday.
“Trian enthusiastically supports this important step in the transformation of G.E.,” a spokeswoman for Trian said.
Shares of G.E. climbed about 3 percent in trading on Tuesday.
The three new stand-alone companies will be sizable. The jet engine business had revenue of $22 billion last year. There are 36,000 G.E. engines on commercial airliners worldwide and 26,000 engines on military aircraft.
Its health care business had $17 billion in revenue last year, with four million of its imaging and other machines in use at hospitals and clinics around the world.
The new energy and power company will include wind turbines and gas-fueled power generators that produce about one-third of the world’s electricity.
Each of those businesses faces challenges — the aviation unit is emerging from the pandemic falloff in air travel, and the power business must adapt to the shift to alternative energy sources.
But each one, Mr. Culp insisted, would be a strong competitor in its respective market, “a simpler, stronger and more focused company,” easier to manage and easier for investors to understand.
It is a message very different from the G.E. of old.