February 13, 2018 Market Outlook

U.S. Stock Market Bounces Back but Remains Volatile

On Monday, Wall Street made a comeback and is swiftly skating its way to highs after the U.S. stocks plummeted to correction levels last week. Still, some investors are skeptical since the gains are too fast and it might be premature to indicate the coast is all-clear. The stock market comeback put the Dow and S&P 500 down slightly for the year and the Nasdaq up 1.1% in 2018.

The S&P 500 jumped 1.4% and the Nasdaq added 1.6%. Meanwhile, the Dow Jones has recovered more than a quarter of the 2,756 points it lost between the peak on January 26 and the closing low on Thursday.

The stock market is likely to keep taking signals from the bond market. The 10-year Treasury yield, which reflects inflation worries, crept to a four-year high on Monday before backing off.  Many analysts say that if the economy remains strong and the losses continue, it shouldn’t go on for long.

Share Buybacks can Add to Market Stability

With more cash on the balance sheets due to the strong quarterly earnings and tax cuts, companies buying back their own shares might provide additional spark to the U.S. stock market.

According to a recent research note from Goldman Sachs, many companies temporarily scaled back their share buyback programs before reporting their quarterly results. That could have been a factor that contributed to Wall Street’s slump last week and entry into correction territory.

On the overall, the fourth-quarter earnings of most U.S. corporations have beaten analysts’ expectations. If the companies resume or increase their share purchases, the market would benefit and gain more stability.

Amazon to Lay Off Employees in Retail Operations

Amazon.com Inc. is preparing to shift its head count allocation to growing businesses. As such, the retail giant will be laying off employees in the “low hundreds” and in manage out others in preparation for the consolidation of its retail operations.

According the the Seattle Times and CNBC, the manpower cuts are focused on Amazon’s Seattle headquarters and will affect some workers globally. The layoffs will occur in the consumer retail business, which includes Amazon’s toys, books and groceries units. The move is intended to make room for head count in growing businesses like Alexa, AWS and digital entertainment.

Users’ Uproar Over Snapchat’s Redesign

About 600,000 people have a signed a Change.org petition asking Snap Inc. (SNAP) to revert to the old version of Snapchat. Hundreds of Snapchat users, including the new ones, are unhappy about the redesign released over the weekend. The complaints and uproar are being posted in other social media sites.

The new redesign condenses the Stories, photos and videos that are visible to friends, but will disappear 24 hours later. Even incoming Snapchats or the real-time conversations with friends on one “Friends” page are condensed. Incoming Snapchats are given priority and appears at the top of the page and the Stories no appear longer in chronological order. Snapchat is using an algorithm to show Stories from friends it thinks the user care about most.

Snapchat is moving to be more advertiser-friendly in order to bring in more revenue. Despite protests like difficulty in rewatching stories and more sponsored content, Snap is not likely to reverse the changes.

Pepsi Reports Increase in Revenue

PepsiCo Inc. (PEP) reported before market opening on Tuesday their fourth-quarter earnings that beat Wall Street estimates. The higher demand at its Frito-Lay business that makes Doritos and Cheetos drove sales. Revenue rose slightly to $19.53 billion in the quarter ended Dec. 30 compared to analysts’ expectation of $19.39 billion.

A net loss of $710 million was recorded and it translated to $0.50 per share compared to a year-earlier profit of $1.40 billion or $0.97 per share. The loss reflected a $2.5 billion one-time charge in compliance to the new U.S. tax laws. PepsiCo is also the maker of Tropicana juices and Mountain Dew.

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