PELOTON BACKPEDALS IN RIGHT DIRECTION

Peloton Interactive built its business to delight its customers. Now it must do the same for its shareholders.

Peloton said Tuesday that it will stop producing its own hardware, exiting all owned manufacturing operations and expanding its relationship with its Taiwanese manufacturer, Rexon Industrial Corp. The move comes as Peloton’s new Chief Executive Barry McCarthy works to right the company’s financials, unwinding big, and in hindsight naive, bets co-founder John Foley made during his tenure.

Peloton’s shares, which have lost 92% of their value over the past year, jumped by almost 5% after the market’s open. A shift to outsourced manufacturing came as a relief. The about-face highlights what Mr. Foley got spectacularly wrong: Peloton acquired Taiwan-based manufacturer Tonic Fitness Technology back in 2019—a move Mr. Foley said was meant to help Peloton own the supply chain in an effort to increase scale and capacity, as well as to “delight” its members.

But, as online retailer Stitch Fix, another business currently undergoing major restructuring and suffering a similar stock price implosion also is learning, it is very hard to own every piece of your customers’ experience and grow exponentially without losing your investors. The numbers simply don’t add up.

Customers probably won’t care where their exercise bike is made, and in fact Rexon and other contract manufacturers had already been building some of Peloton’s components and equipment. Apple, a company with a reputation for design and a loyal customer base, outsources its manufacturing, largely to China. That wasn’t always the case, but outsourcing went a long way toward making the company highly profitable, courtesy of current Chief Executive Tim Cook. In Peloton’s case, it is worth noting that Rexon builds the company’s Tread treadmill and built its recalled Tread+, the sales of which are still on hold. As long as there are no more recalls, Peloton users are there for the company’s content, with the pretty hardware just a means to the end.

Mr. Foley wanted Wall Street to see Peloton as a growth company, and that is how it was valued at its peak. Ultimately, though, there are only going to be so many people interested in sweating profusely on an expensive stationary bike alongside kindred endorphin seekers the world over. As BMO analyst Simeon Siegel put it, Peloton is a company with a phenomenal stable of existing users and right now, it should be focused on “bear hugging” those loyalists.

Data from UBS show that adoption levels of Peloton’s cheaper app, which the company views as a key customer acquisition tool toward its more expensive subscription, continued to decline in May and early June. It also showed active users declining since January. YipitData shows subscriber retention for fiscal 2022 has slightly underperformed historical averages and that churn increased in June year over year. More broadly, Similarweb data shows “home fitness” web traffic declining 24% year over year for the most recently tracked two-week period in late June—the largest annual declines logged by the firm this year.

Wall Street will have to wait for Peloton’s fiscal fourth-quarter report for more granular details on how exactly Tuesday’s announcement will impact the company’s cost structure. A Peloton spokesperson confirmed the company would cut about 570 employees in Taiwan, but that 100 employees would remain in that business unit focused on quality control, engineering and research and development. And Peloton will get a new chief financial officer in Liz Coddington—previously of Amazon.com and Netflix—after the company said Jill Woodworth, who had served in that role since 2018, will step down.

The company we once knew as aspirational is quickly becoming a commodity. It will try to prove to its investors that it can at least be a hot one.

The stock market had a decent summer. Investors are bracing for a bumpier fall.

In the past couple of months, equity investors cheered soaring profits at big companies, shrugged off jitters in the bond market and nudged megacap tech shares back near records.

Now, as the post-Labor Day stretch begins, a number of new challenges lie ahead: ever-shifting odds of an interest-rate increase from the Federal Reserve. Sky-high expectations after a stunning earnings season. The persistent threat of higher consumer prices as fighting in the Middle East drags on.

“You’re moving from this earnings-driven market to this macro-driven market with the Fed, inflation and interest rates in focus,” said Keith Lerner, chief investment adviser for Truist Advisory Services. “It tends to be a choppier period.”

Historically, every major U.S. stock index experiences its worst average return in September. The Dow Jones Industrial Average has slid an average 1.1% in the ninth month of the year, in data that dates back to the 19th century. The S&P 500 has seen the same average decline—and for every September dating back to 1928, the benchmark ends the month lower more than half of the time.

Analysts caution against reading too much into those seasonal patterns. But in recent weeks, new reasons for investor caution have emerged. One of the largest: the looming threat of an interest-rate increase from the Fed, which announces its next policy decision on Sept. 16.

Chairman Kevin Warsh’s decision to ditch forward guidance and take more of his cues from markets has muddied the waters for investors when it comes to monetary policy. That has left traders scouring Fed governor speeches and economic-data reports for clues on the central bank’s next move.

“There’s going to be a lot of eyes on those numbers,” said John Luke Tyner, head of fixed income and portfolio manager at Aptus Capital Advisors.

The past couple of weeks offered just one example of how frequently those expectations can change. After Warsh struck a hawkish tone during remarks on Aug. 28, the odds of a hike at the Fed’s next meeting jumped from 35% before the speech to 58%, according to CME FedWatch data.

On Thursday, Fed governor Christopher Waller made a case for leaving rates where they are. Interest-rate futures showed coin-flip odds between a hike and a hold. Then Friday’s robust jobs report amped up rate-hike bets once more, back to a roughly 60% chance of higher rates after the meeting.

“Rates have really been driving the car for equities the last few weeks,” said Ross Mayfield, an investment strategist at Baird.

That uncertainty comes as an unruly bond market could put pressure on stocks. Treasury yields have marched higher for much of the summer, driven by concerns about rising oil prices, growing U.S. budget deficits and a deluge of tech-company bonds now competing for investors’ cash. Last week, the rout went global, pushing yields to multiyear highs in Japan, Germany and the U.K.

Higher bond yields can drag on stock prices and lift borrowing costs for companies and consumers across the economy.

Rising prices remain the top concern for bond traders, and continued fighting between the U.S. and Iran has done little to ease those worries. The national average price of diesel climbed to a record of $5.850 on Friday, according to AAA. That is up from $3.712 a year ago.

Investors will get more insight on the path of prices this week, with the much-awaited consumer-price index report due Friday and a reading on producer prices Thursday.

With another blockbuster earnings season in the books, some analysts have also warned that any boost from the third-quarter reports due in the coming months could be minimal. Back-to-back quarters of standout profits have raised expectations and made it especially difficult to impress traders. Custom-chip company Broadcom, for example, said Wednesday that it more than tripled its earnings and nearly doubled its revenue. Shares slipped 2.7% the next session.

Many analysts note there are plenty of reasons not to panic. The economy is in impressive shape, thanks to a healthy labor market and the rippling effects of the artificial-intelligence investment boom. Profits are booming at America’s biggest companies. The Cboe Volatility Index has dropped to its lowest levels of 2026. Credit spreads are tight, a sign bond investors aren’t concerned about economic conditions that could hurt companies.

But the mood has shifted from the euphoria that felt tangible when the Nasdaq was notching back-to-back records early this summer. The question, Mayfield said, is whether the fundamentals that have bolstered the bull market so far can stretch the rally into 2027.

“There are more anxieties or uncertainties about the backdrop,” he said. “It does feel like a transitional moment.”

PELOTON BACKPEDALS IN RIGHT DIRECTION

Fitness company says it will outsource its manufacturing as it steers toward more sustainable growth.

Investors are bracing for a bumpier fall stock market due to shifting odds of a Federal Reserve interest-rate increase and other macro challenges.