THE WALL STREET JOURNAL. **** Saturday/Sunday, September 7 - 8, 2019 |B11
U.S. stocks finished the
week higher after the August
jobs report showed hiring
slowed in a month racked by
trade threats, likely keeping
the Federal Reserve on track
to cut interest rates again this
month.
The report underscored the
delicate balance facing mar-
kets in recent months. Inves-
torsareonone
hand deeply
uneasy about
signs econo-
mies around the world are
slowing. Any threats to
growth, be it from rising tar-
iffs to political instability, can
send markets reeling.
On the other hand, signs of
slowdown are often met with
central-bank intervention,
such as the Fed cutting short-
term interest rates—a boon
for shares of U.S. companies.
Investors wrestled with
those competing dynamics Fri-
day, sending the Dow Jones
Industrial Average up 69.31
points, or 0.3%, to 26797.46.
The S&P 500 rose 2.71 points,
or 0.1%, to 2978.71. Weakness
among technology companies
dragged the tech-heavy Nas-
daq Composite down 13.75
points, or 0.2%, to 8103.07. All
three indexes ended the week
up at least 1.4%.
The Labor Department said
Friday that the U.S. added
130,000 jobs in August,
slightly short of the 150,000
projected by economists sur-
veyed by The Wall Street Jour-
nal. The unemployment rate,
as expected, remained at 3.7%.
Investors watch the jobs
data closely for signs of eco-
nomic health, and August’s
jobs figures took on even more
importance heading into the
Federal Reserve’s meeting
later this month.
“We had enough in the jobs
report to back you away from
recession fears, but it wasn’t
too hot either,” said Jim
Paulsen, chief investment
strategist at the Leuthold
Group, noting that he liked to
see an increase in hours
worked and an increase in av-
erage hourly earnings. How-
ever, “it still very much allows
the Fed to cut rates.”
During a speech in Zurich
on Friday, Fed Chairman Je-
rome Powell gave little push-
back against expectations that
the Fed is gearing up to cut in-
terest rates again. He also said
the U.S. economy faces a fa-
vorable trade outlook and
global slowdown risks, adding
the Fed is “not forecasting or
expecting a recession.”
The jobs report didn’t do
much to alter traders’ expecta-
tions for Fed rate cuts. Fed-
eral-funds futures point to the
market pricing in a 92%
chance of the Fed lowering its
benchmark rate by a quarter
point at its meeting this
month, just a hair lower than
Thursday’s 95%, according to
CME Group. Market expecta-
tions for a half-point cut re-
main at zero—unchanged over
the past week.
The employment data come
on the heels of a rally in stock
markets around the globe. In-
cluding Friday’s gain, the S&P
500 is up six of the past seven
trading sessions and is less
than 2% away from its July re-
cord.
This week’s gains come as
trade tensions between the
U.S. and China and political in-
stability in Hong Kong and
Britain appeared to ease.
—Avantika Chilkoti
contributed to this article.
BYCORRIEDRIEBUSCH
Dow Gains
As Fears
Ease to
End Week
FRIDAY’S
MARKETS
2.0–1.5
–1.0
–0.5
00.51.01.5%Tues. Wed. Thurs. Fri.Index performance this week
Source: FactSet
Nasdaq
CompositeS&P500DowJones
Industrial
AverageYASUYOSHI CHIBA/AGENCE FRANCE-PRESSE/GETTY IMAGESthe expense for Match of re-
deeming the bonds at their
current call price would likely
outweigh the savings from ob-
taining a lower interest rateMARKETS
over their face value. That in
turn could produce losses for
investors who bought at these
levels.
If Match seized on today’s
low-interest-rate environment
to refinance its 2024 bonds in
a month’s time, their actual
yield would be minus 0.207%.
Even if the company waited
until the bonds’ call price
drops next June from around
104.8 cents to 103.2 cents,
their yield would be just
3.267%.
Other companies with rela-
tively high credit ratings for
speculative-grade borrowers,
including U.S. Foods Inc. and
manufacturer SPX Flow Inc.,
also have bonds with negative
yields by this measure.
There are good reasons why
Match and other companies
may not redeem their bonds
quickly enough to hurt inves-
tors. Similar to a homeowner
who decides against refinanc-
ing a mortgage when factoring
in closing costs, investors sayon new bonds.
Still, there is always the
chance that companies will act
sooner than expected if bond
yields fall further or they de-
cide they won’t get a better op-
portunity to refinance their
debt. Moreover, even the hint
of negative yields in the corpo-
rate-bond market is rare, dem-
onstrating the unusual nature
of this year’s bond-market rally.
Toward the end of last year,
investors dumped nearly every
type of riskier asset on fears
that the Federal Reserve was
being too aggressive in raising
interest rates. This year,
stocks and corporate bonds
have rebounded as the Fed has
pivoted to cutting rates. Still,
bond investors have remained
cautious as recession fears
have lingered, and those that
focus on buying speculative-
grade bonds have shown a dis-
tinct preference for debt with
higher credit ratings.
The average yield on dou-
ble-B bonds, the highest-ratedtype of speculative-grade debt,
has fallen to 4.07% from 4.69%
at the start of May, according
to Bloomberg Barclays data.
The average yield on triple-C
bonds, close to the lowest-
rated type of speculative-
grade debt, has increased to
10.89% from 9.64%.
Declining yields result from
rising bond prices and the in-
troduction of new bonds with
lower interest rates.
In general, speculative-
grade-debt investors are avoid-
ing the higher risk of default in
low-rated bonds only to be
stuck with stretched valuations
in higher-rated debt, said Bill
Zox, chief investment officer of
fixed income at Diamond Hill
Capital Management.
The threat that double-B-
rated bonds could be re-
deemed early should generally
limit how high their prices can
climb, he said. Yet such bonds
could still post large declines
if there is another flight from
riskier assets.In today’s topsy-turvy mar-
kets, some investors are buying
junk-rated corporate bonds that
could lose them money even if
their prices don’t decline.
They are simultaneously
hunting for yield in a low-in-
terest-rate environment, while
trying to avoid the very riski-
est forms of debt.
On Tuesday, for example, a
6.375% unsecured note issued
by Match Group Inc., the com-
pany that owns Tinder, OkCu-
pid and other dating websites,
traded at 105.349 cents on the
dollar, according to Market-
Axess.
If held to maturity in June
2024, the bonds would yield
around 5%. Their actual yield,
though, could be much lower
because the bonds became
callable in June of this year.
That means Match already
can redeem the bonds at a
time of its choosing by paying
investors a modest premiumBYSAMGOLDFARBThis Junk Debt Can Lose Money
Hot and Cold
Double-Bbondyieldshave
fallenrecentlywhiletriple-C
bondyieldshaverisen.Average yieldSource: Bloomberg Barclays20051015%2015 ’16 ’17 ’18 ’19CCCBBGold Prices Fall as Traders Evaluate Jobs Data, Fed Comments
Gold prices fell Friday, as in-
vestors digested U.S. employ-
ment data and comments from
Federal Reserve Chairman Je-
rome Powell.
Gold for December delivery
was down 0.6% to $1,506.20 a
troy ounce on
the Comex di-
vision of the
New York Mercantile Exchange.
Speaking in Switzerland, Mr.
Powell said the U.S. economy is
in comparatively good shape and
that the central bank doesn’t ex-pect an imminent recession, de-
spite headwinds to global
growth from trade worries and
Brexit.
At the same time, he offered
little to push back expectations
that the Fed is likely to cut in-
terest rates again this month,
after lowering their benchmark
rate by a quarter point in July.
He also said the Fed expects
a new macroeconomic landscape
in which rates remain compara-
tively low and growth more
muted—a positive for gold,which struggles to compete with
yield-bearing assets when bor-
rowing costs rise.
Earlier in the day, a weaker-
than-expected U.S. employment
number bolstered the case of in-
vestors searching for safeguards
against a slowing economy,
boosting gold.
The U.S. added 130,000 jobs
in August, slightly short of the
150,000 projected by econo-
mists surveyed by The Wall
Street Journal.
The unemployment rate, asexpected, remained at 3.7%.
Easing worries about trade
and Brexit have dented prices
for the haven metal during the
past few days, although gold re-
mains near six-year highs and is
up around 18% this year.
In base metals, September
copper was off 0.3% at $2.6155
a pound.
In energy markets, U.S. oil
was up 0.4% at $56.52 a barrel.
Brent crude, the global standard,
rose 1% to $61.54 a barrel.
—Ira IosebashviliCOMMODITIES
U.S. government bond
prices rose Friday after the
Labor Department said the
economy added fewer jobs
than expected, raising new
concerns about growth.
The yield on the benchmark
10-year Treasury note fell, set-
tling at 1.552%, from 1.604%
before the report. The 10-year
note settled
Thursday at
1.569%. On a
weekly basis,
the yield rose, snapping a
streak of five consecutive de-
clines.
Yields, which decline as
bond prices increase, fell after
the data showed an increase of
130,000 jobs in August, com-
pared with the 150,000 pre-
dicted by economists in a Wall
Street Journal survey. The
economy added 159,000 jobs
in July and 178,000 in June,
according to revised Labor De-
partment data.
Theslowdowninjob
growth last month was led by
private employers, who added
96,000 workers, while govern-
ment payrolls grew by 34,000
largely because of temporary
hires for the 2020 census.
The deceleration in hiring
was offset by a 3.2% increase
from a year earlier in average
hourly earnings, exceeding the
3% economists had forecast.
While rising wages can sug-
gest inflationary pressures,
which can hurt the value of
government debt, some inves-
tors said the gains were a pos-
itive sign because consumer
spending has played such a
large role in sustaining eco-
nomic growth.
Several investors said the
data offered little to dim ex-
pectations that the Federal Re-
serve will reduce interest rates
for a second time this year at
its meeting later this month.
Friday’s employment report
capped a week that offered a
mix of strong and weak data.
The combination left many in-
vestors with the impression
that the economy is continu-
ing to grow, although with
growing risks.
A manufacturing report this
week showed the sector begin-
ning to contract, though an-
other report indicated that the
much larger service sector re-
mained healthy.
Investors have been partic-
ularly sensitive to signs of
weakness after President
Trump last month announced
new tariffs on $300 billion of
Chinese goods.
There was “a run of gloomy
data that we probably overre-
acted to,” said Jim Vogel, head
of interest-rate strategy at
FTN Financial. Conflicting
signs in recent data “should
balance each other out,” he
said.
The 10-year Treasury yield
dropped on Wednesday as low
as 1.456%, a three-year low, af-
ter posting its biggest one-
month decline in eight years.
The WSJ Dollar Index,
which measures the greenback
against a basket of 16 other
currencies, declined by less
than 0.1% to 91.27.BYDANIELKRUGERTreasurys
Advance
On Slower
Job Gains
CREDIT
MARKETSthe trademark transaction. We
has said it is phasing out Mr.
Neumann’s ownership of prop-
erty.
In July, the Journal re-
ported that Mr. Neumann had
withdrawn at least $700 mil-
lion through a combination of
loans and stock sales. The Au-
gust filing shows that he has
borrowed more than $740 mil-
lion tied to his shares in the
company. His stock sales
amount to several hundred
million dollars in addition to
the loans, according to people
familiar with the transactions.
Among the loans Mr. Neu-
mann took out was a $362
million low-interest loan from
the company to exercise stock
options early, according to the
filing. This type of borrowing
is permitted in private compa-
nies but generally barred
among public ones. Separately,
Mr. Neumann has taken out
$380 million in loans from
several banks over the years
against his company shares,
including from IPO underwrit-
ers. The $362 million was re-
paid in August, the filing
shows.
Startup founders often seek
some cash from their holdings
before their companies go
public, though known in-
stances anywhere near this
size are highly unusual in the
U.S.
We has said Mr. Neumann
is the largest shareholder and
that most of his wealth is tied
to the company; specific hold-
ings haven’t been disclosed.
Public companies are le-
gally required to have corpo-
rate governance standards,
such as independent directors,
and to work in the interests of
all shareholders. Startups,Neumann’s brother-in-law is
the chief product officer, while
Mr. Neumann’s brother-in-law
runs We’s fitness offering.
“All this together creates
the impression of no culture of
accountability,” said Amy
Westbrook, a law professor at
Washburn University who has
studied large startups.
We has used vendors or
contractors owned by family
members of executives, includ-
ing a construction company
that built much of its New
York offices, people familiar
with the deals said. Those
deals were disclosed internally
to some executives before they
ended.
In another instance, We
paid the parents of Vice Chair-
man Michael Gross to serve as
real-estate brokers on at least
one building lease in Miami,
people familiar with the mat-
ter said. The couple were li-
censed, small independent
brokers.
Also in Miami, We signed a
lease at a building partly
owned by the brother of Arash
Gohari, We’s co-head of real
estate. The publication The
Real Deal previously reported
that transaction.
Mr. Gross and Mr. Gohari
declined to comment through
a We spokesman.
Such transactions involving
lower-level employees are
“even more what institutional
investors get worried about,”
as it can reflect the extent of
such questions, said Chris Cer-
nich, a managing director at
Strategic Governance Advi-
sors, which advises companies
on corporate governance is-
sues.
—Maureen Farrell
contributed to this article.did other high-profile startups
in recent large IPOs. The
terms “related parties” or “re-
lated party” appear more than
100 times in We’s filing, com-
pared with 28 such instances
in Lyft Inc.’s prospectus and
seven in Uber Technologies
Inc.’s. We said in its filing that
it aims to provide more trans-
parency on related-party deals
in the future.
In addition, people familiar
with the company point to
other potential conflicts that
weren’t in the IPO filing and
wouldn’t necessarily require
disclosure.
“There’s a bunch of unusual
governance features, and
they’re kind of unusual trans-
actions,” said David Larcker,
director of the Corporate Gov-
ernance Research Initiative at
Stanford University.
We’s filing noted several in-
stances in which co-founder
and Chief Executive Adam
Neumann made millions of
dollars from the company
since it was formed in 2010.
They include We’s nearly $6
million purchase of the trade-
mark to the word “We” from a
company controlled by Mr.
Neumann, as well as his own-
ership of four properties
where We leases space. Facing
criticism from analysts and
others, the company said
Wednesday that it would undoContinued from page B1We Wo rk
Scrutiny
Ramps Up
which tend to focus on growth
in their early stages, typically
institute governance measures
as they mature.
“The tech industry gener-
ally speaking is hardly a model
for good corporate gover-
nance, but WeWork takes the
absurdity [to] an entirely dif-
ferent level,” technology strat-
egist Ben Thompson wrote in
his newsletter, Stratechery,
last month, referring to sev-
eral matters including the
trademark transaction.
Mr. Neumann also has full
voting control. The IPO filing
disclosed that he had 20 votes
per share, twice the number
he was listed as having in a
2018 bond disclosure. Such
control, not uncommon amongstartups, could make it harder
for other shareholders to have
a say in company matters once
it goes public.
Several former executives
and other employees said they
were surprised during their
time at the company to find
that numerous roles were
filled by friends or family of
Mr. Neumann and his wife, Re-
bekah Neumann—also a We
co-founder—or other top exec-
utives. The practice continued
as the company, recently val-
ued at $47 billion, progressed
past the startup stage, where
informal deals between friends
can be more common. Ms.We disclosed more
potential conflicts
than some tech
peers in other IPOs.