February 20, 2018 Market Outlook

U.S. Stock Futures Points Down in Anticipation of Volatility

The U.S. stock futures are pointing down as investors and traders return on Tuesday following a six-day winning streak. Two big corporate names, Walmart Inc. (WMT) and Home Depot (HD), are on tap to report earnings before the opening bell

Investors will also be monitoring the shares of Rite Aid (RAD) after the Wall Street Journal reported a possible takeover by Albertsons of the drugstore chain. Rite Aid is supposed to hand over their 2,000 stores to Walgreens Boots Alliance (WBA) but it appears the $4.4 billion deal is no longer pushing through.

GM Offers Debt-Equity Swap in Exchange for SK’s Support

General Motors (GM) is taking several steps to prioritize profitability and innovation over sales and volume. After announcing last week the shutdown of its plant in Gunsan, South Korea, the Detroit automaker has submitted a restructuring proposal.

They are offering to convert the $2.2 debt owed by its ailing South Korean operation into equity in exchange for financial support and tax benefits from Seoul. The debt for equity swap would allow GM’s business in South Korea to continue operating.

The state-run Korea Development Bank owns 17% of GM Korea but the implications of the deal on their stake is not yet clear. Since 2015, GM has exited unprofitable markets including Australia, Europe, Australia, Russia, and South Africa.

U.S. Energy Firms to Change Business Models to Spur Growth

NuStar Energy (NS) and ArchRock (AROC) are planning to shift away from the general and limited partners structures that are common among energy pipeline and storage firms. In recent weeks, the two firms said they would cut income distributions to the general partners and combine units.

The move to simpler business models is intended to help attract new investors and spur growth. Another firm, TallGrass Energy (TEP) earlier this month said it was considering a similar change. According to a portfolio manager from Tortoise, James Mick, removing the layer of complexities is inevitable in order for many to invest in partnerships.

Rising oil and gas production has produced billions of dollars of new transport, gathering and storage projects. But the companies most responsible for these projects can allocate up to 50% of their income to the general partner. That results in fewer opportunities for other holders or investments in new projects. 

Fox to Launch New Streaming Service for “Superfans”

For the loyal folks who watch Fox News every night, the network is preparing to launch a new streaming service called the “Fox Nation.” According to The New York Times, the announcement of the launching of the “stand-alone subscription service without a cable package” will be made on Tuesday morning.

“Fox Nation” is the name of the company’s conservative opinion site. The site was temporarily taken offline Monday night and replaced with a “coming soon” note ahead of the official announcement. The online channel is expected to start by the end of 2018 and the network is expecting their dedicated audience to sign up.

Federal Crytpocurrency Rules Looms in the Horizon

U.S. lawmakers are moving to consider new rules that could impose stricter federal oversight on the emerging asset class such as bitcoin and other cryptocurrencies. Several top lawmakers are concerned by this global investment craze.

Republican Senator Mike Rounds, a Senate Banking Committee member, said there is a need for a regulatory framework. Congress is likely to push for digital assets to be regulated as securities and be subjected to the SEC’s investor protection rules.

Bipartisan momentum is gaining ground in the Senate and House of Representatives for action to address the risks posed by the digital currencies to investors and the financial system in general.