February 22, 2018 Market Outlook

Another Negative Day Expected at Wall Street

Wall Street seems to be headed for another downturn as U.S. stock futures are pointing down again. Yesterday saw all three major benchmarks decline.

The Dow Jones Industrial Average swung 475 points and gave up its gains while all 11 sectors in the broad S&P 500 closed lower. The two indices declined in two successive sessions. Nasdaq ended lower for three consecutive days.

Investors are concerned about the Feds increasing rates as the minutes of the central bank’s January meeting showed plans to keep gradually raising short-term interest rates.

Some fund managers fear that the rates might be increased by more than three times this year contrary to previous forecasts. As a result, benchmark bond yields went up by nearly 3% and that could hurt the stocks.

Biggest Year-On-Year Decline in U.S. Home Sales

The National Association of Realtors on Wednesday reported that existing home sales dropped 3.2% to a seasonally adjusted annual rate of 5.38 million units last January.  The figure is the biggest year-on-year decline in U.S. homes sales in more than three years. It was an unexpected drop caused by a chronic shortage of houses that lifted prices and kept first-time buyers out of the market.

The data indicates the spring selling season to be lackluster given the supply squeeze and rising mortgage interest rates scenario. This is the second straight monthly drop in home sales. January also showed weak retail sales as well as industrial production which suggests that there is slower economic growth in the first quarter.

GE’s Asset Sales to Proceed but No Sale of Stocks

General Electric Co. (GE) has no intentions of selling shares to raise capital but is determined to proceed with its plan to dispose assets worth $20 billion. The 126-year-old American conglomerate is about to sell the first $4 billion very soon.

Speaking to an investor conference organized by Citigroup in Miami, Chief Financial Officer Jamie Miller did not give details on the planned asset sales. However, she disclosed that the asset sales could cut cash flow by less than $500 million in 2019, but would have no impact in 2018.

GE’s transportation unit, makers of railway locomotives; the iconic lighting division, makers of bulbs for consumers, and the connections business that sells motors, generators and automation and electrical grid equipment are all on the selling block.

Regarding GE’s 62.5% stake in oilfield services business Baker Hughes (BHGE), Miller said they’re not in a hurry to sell when the two-year lockup period expires. Baker Hughes shares rose on Wednesday.

Broadcom Lowers Bid for Qualcomm

The parties to the biggest technology acquisition are headed for a showdown as Broadcom Ltd. (AVGO) lowered its bid for Qualcomm Inc. (QCOM) on Wednesday by 4% to $117 billion. The microchip maker objected to Qualcomm’s decision to raise its own bid for NXP Semiconductors NV (NXPL) to $44 billion.

Qualcomm countered by saying that Broadcom had made “an inadequate offer even worse.” Thus, a showdown looms on March 6 when Qualcomm shareholders meet to elect an 11-member board and decide whether to hand control to the six nominees of Broadcom.

The intention of Broadcom in its takeover attempt is to consolidate the wireless technology equipment sector. They want to prevent smartphone makers such as Apple Inc. (AAPL) and Samsung Electronics Co Ltd. to use their market dominance to negotiate lower chip prices.

Twitter Begins Crackdown on Fake Stories

Twitter Inc. (TWTR) announced on Wednesday that they will start cracking down on tactics to make tweets or topics go viral. The social network known for its freewheeling discussions in short messages will no longer allow people to use software to simultaneously perform other actions such as liking or retweeting from multiple accounts.

Like other popular social network platforms, Twitter is under pressure to stem the spread of fake news and foreign propaganda. Automated accounts or the so-called “bots” are being used to propagate false stories. Twitter bots circulated propaganda before the 2016 U.S. elections. According to authorities and academic researchers, issues regarding U.S. politics continued to intensify under cover of anonymity.

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