Making a Splash

Nov 16, 2018   //   by Bruce Mason   //   Weekly Market Update  //  No Comments

It was another volatile week in the markets as investors and analysts digested corporate and economic news.  The technology sector led the slump once again as Apple and Nvidia disappointed.  In fact, corporate stories from General Electric to PG&E drove the markets lower this week.  We remain optimistic that a Christmas bump may be coming but unfortunately, it didn’t happen this week.

Let’s start with the good news.  The latest negotiations between the U.S. and China appear to be moving forward.  In a press conference today, President Trump announced that four of the five sticking points between the nations have been resolved.  The trade war has acted as a drag on the economy in terms of uncertainty.  A resolution on this front could provide the fuel for another push higher in the markets.  The second piece of news is that the Fed’s Vice Chair, Richard Clarida, said in an interview today that the Fed may stop raising rates at the “neutral rate,” which in layman’s terms means sooner rather than later.  The expectation for future interest rate hikes is slowly changing, with a high probability of another rate hike in December followed by a reassessment of the economic conditions and perhaps even a pause.  This too could go a long way to reassuring investors’ fears of the Fed going too far.

In other news, we learned Germany’s economy shrank in Q3 for the first time since 2015.  Some believe it could be chalked up to new emissions tests that temporarily disrupted auto production.  However, the contraction will feed fears that the euro area’s expansion is running into trouble.  We also learned that Japan’s economy contracted in the third quarter, mostly attributed to strong typhoons and a powerful earthquake that halted factories and stifled consumption.  A decline in exports was also concerning, suggesting trade protections are starting to take a toll on overseas demand.  Both countries will be watched closely in the months ahead.

As for company news, there was more than a bit and it could best be described as mixed.  Amazon finally announced the location of its second headquarters.  Apparently, it had such a difficult time deciding it chose both New York City and Washington D.C.  The move does not come without controversy, especially from taxpayers in New York who will be paying a whopping $48,000 per job in incentives to lure the company to its environs.  New York is on the hook for over $1.5 billion in tax cuts and incentives over the next ten years.  For other company news we turn to PG&E which is quite possibly responsible for the fires in Northern California.  Talk had turned to bankruptcy for California’s largest utility provider as liabilities could far exceed its insurance coverage.  The stock fell as much as 63% before slightly rebounding after representatives in California said it wouldn’t let the company go bankrupt.  And finally, it seems General Electric is once more in the spotlight for all the wrong reasons.  The company fell on hard times after the financial crisis in 2008 and has struggled to find its footing ever since.  Despite billions in asset sales, it’s debt level continues to weigh on the stock as investors fear credit rating agencies will drop its rating to junk status.  The company has a herculean task ahead both in righting the ship and in calming investors nerves.

In closing I turn to the art market which seems to come up occasionally on my radar.  In the past, I’ve mentioned pieces of art that have sold for astronomical amounts.  This time is no different.  Talk about making a splash, on Thursday a painting by David Hockney, titled Pool with Two Figures, sold for a mind numbing $90.3 million.  What makes this special is that it is the highest ever paid for a piece of art by a living artist.  In less than nine minutes of heated bidding at Christie’s, this piece smashed the previous record held by Jeff Koon’s sculpture, Balloon Dog (Orange), which fetched $58.4 million in 2013.  I’m sorry if you were in the market for a Hockney and missed this sale, but at least now you can start saving for the next record breaking auction.  Happy Thanksgiving!

November 16, 2018

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