This first week of November was quite an eventful week for students here at The University of Texas at Austin. Jimmy Fallon even visited campus and recorded his show here on Thursday, so you’ve probably already had your fill of bad jokes for a while -we’ll be pretty straightforward in this addition. As we enter the grueling winter and adjust to Daylight Savings, the market continues soar. In fact, 14 S&P 500 companies, including Apple, Alphabet, JP Morgan, and Microsoft, hit stock price record highs this week. Here’s a quick snapshot of the market:
S&P 500: 3,093.08 (+7.90, +0.26%)
DJI: 27,681.24 (+6.44, +0.02%)
Nasdaq: 8,475.31 (+40.80, +0.48%)
Things are looking up for US-China relations (despite Trump’s announcement):
After weeks of investor uncertainty regarding the trade wear, China’s Commerce Ministry has officially announced its agreement with the United States to cancel tariffs over several phases. Phase One is making progress, and the higher optimism in the market regarding trade reflects that. However, on Thursday, Trump then told reporters “They’d like to have a rollback, I haven’t agreed to anything,” which led Thursday’s market to slightly fall. That being said, although the future still remains somewhat uncertain regarding trade relations, any progress is good progress after all.
Even better news?
The yield curve: normal is the new normal
To re-explain the yield curve in simple terms, the yield curve is the yield expected over time from investing in the U.S. Treasury market. An inverted yield curve indicates that longer-term Treasury bond yields will be lower than short-term ones. Historically, this is why investors and economists alike have believed that an inverted yield curve strongly indicates an incoming recession.
That said, this week, the spread between the 3-month bill yield and the 10-year note yield traded at a +10 basis point differential after inverting as low as -51 basis points in August. This is great news, since investors closely monitor yield curves and believe that positive yield curves indicate expectations for future growth.
Are we in the clear?
Time will tell. Last week, we reported that the manufacturing index for October was very low. Low manufacturing isn’t a good sign for an economy, but with trade relations with China improving, we may see a future increase for November’s index.
The VIX has been consistently low.
The VIX, or the Cboe Volatility Index, has been trading at a three-month low this week. However, with events such as the U.S. election and ongoing trade tensions remaining in store for the future, many investors are looking to invest in the VIX with expectations of future risk in store for the economy.
But how are investors feeling about recent risk?
Investors still love bonds.
Investors seem to be worried about high risks this year. According to Goldman Sachs, US equity funds saw net outflows of $173 billion in the past 12 months, whereas bond and cash funds saw inflows of $259 billion and $592 billion, respectively, the highest amount since 2009. Additionally, according to PwC, U.S. corporate balance sheets are holding more than $2.2 trillion in cash, the highest number in decades.
With more recent optimistic economic news, however, we may see a reversal of this and see more inflows into equity funds coming soon.
But now on to our favorite time of the week…
Earnings, Earnings, Earnings!
Boeing shares climbed 1% as they double down to a timeline for the return of their 737 Max, despite terribly missing analyst expectations. The company reported a profit of $1.45 per share, compared to investor expectations of $2.09.
Roku’s shares plunged 16% after several quarters of surpassing earnings expectations. This quarter, Roku reported a loss of $0.22 per share, worse than the $0.18 loss investors were already expecting. Roku still clings to the advantage of being a distributor of content like Apple, Amazon, Netflix, and Disney, but the streaming battle is only getting more intense.
And speaking of Disney…
Disney’s earnings per share might have fallen by 28% to $1.07, but revenues increased by more than 3% to $19.1 billion. Either way, investor expectations were surpassed as analysts predicted earnings of $0.95 per share on a revenue of $19.03 billion. With more positive news about Disney+ and its future bundling on Amazon Fire TV, as well as Samsung and LG smart TVs, Disney’s stock continues to have a bright future.
Uh-Oh’s and CEOs
This month has faced a series of CEOs stepping down from companies. These CEOs so far include those from Nike, Under Armour and Bed Bath & Beyond. And as of this week, we can now add two more to that list.
McDonald’s CEO steps down.
Looks like Steve Easterbrook, the CEO of McDonald’s, is stepping down from his position after it was found that he was having a consensual relationship with an employee. More surprising is the fact that Easterbrook will forfeit millions of unvested stock options while receiving 26 weeks of pay that add up to more than $670 million. By millions, we mean that by the end of 2018, Easterbrook had more than $21 million of unvested options.
During his tenure since 2015, stock prices rose by 96% to $193.94. However, this last quarter, McDonald’s shares fell by 4% for the first time in two years. Where will McDonald’s go from here? That all depends on new CEO Chris Kempczinski and his direction.
Gap’s CEO also steps down.
Another highly paid CEO is stepping down from his company. Gap CEO Art Peck announced he is leaving the company this week. This may be good news for Gap, considering the company’s share price has fallen by more than half its value since the beginning of his 15-year tenure. Peck was expected to stay on with Gap through the process of the company spinning off Old Navy, which successfully topped $7 billion in sales this year. However, investors responded poorly to the announcement, and Gap’s stock fell by 12% during after-hours trading.
Enough about these CEOs, though. Let’s talk about a CEO that’s doing much better…
T-Mobile’s CEO announced three new objectives during New T-Mobile’s Uncarrier 1.0 while providing a positive direction for the Sprint merger.
While providing optimism regarding the approval of T-Mobile’s merger with Sprint, T-Mobile CEO John Legere announced three new objectives for the company in the coming years. As TechCrunch highlighted, this includes “10 years of free 5G for all police, fire, emergency medical services and other first responders countrywide, free wireless service and reduced cost devices to 10 million disconnected households in the U.S. and Puerto Rico, and a new $15/month prepaid plan with unlimited talk and text and 2GB of data.”
What does this mean for the future of T-Mobile? If and only if the merger with Sprint is approved, T-Mobile will have the ability to significantly expand their network and customer base while making more rapid progress on their 5G technology. In the carrier industry, investors see 5G as the competitive strategy to win. With so much at stake, you bet that T-Mobile is crossing their fingers the merger is approved.
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Articles to Read for More Information
Things are looking up between US-China relations:
S&P stocks are at an all-time high:
The yield curve is no longer inverted:
VIX is low:
McDonald’s CEO steps down:
Gap CEO also steps down:
T-Mobile and Sprint Merger: