Market Outlook – June 22, 2018

U.S. Benchmarks Fall in Worst Session

 

The main U.S. stock market benchmarks closed sharply lower on Thursday to register its worst session this month. The Dow Jones Industrial Average extended its losing streak to eight days, falling 196.10 points (-0.8%). This latest losing streak of the blue-chip index matches its longest since March 2017.

Meanwhile, the S&P 500 Index suffered its biggest one-day drop since May 31. With 8 of the 11 primary sectors declining, the broader index slid 17.56 points (-0.6%). The energy sector led decliners as it dropped -1.9% followed by the -1.2% of the industrials sector.

It was a reversal for the Nasdaq Composite Index which just posted a record on Wednesday. The tech-heavy index sank 68.56 points (-0.9%) which represented its biggest one-day percentage drop since April 24. Investor sentiment was again affected by the fears of a potential global trade war.

OPEC Mulls Raising Oil Supply

 

The members of the Organization of the Petroleum Exporting Countries (OPEC) are close to making a deciding to boost oil output during a meeting in Vienna on Friday. It appears that all members, including Iran, will cooperate after major consumers warn of a supply shortage.

The near-consensus involves increasing oil production by about 1 million barrels per day (bpd). That is equivalent to 1% of global supply. Saudi Arabia and Russia previously batted for the said production increase. Iran is OPEC’s third-largest producer. Tehran has never agreed to a deal that gives in to the pressure from U.S. President Donald Trump to pump more oil.

China Says U.S. Showing Symptom of Paranoid Delusions

 

Beijing continued its tirade against the U.S. on Thursday and accused America of being “capricious” over trade issues. China also warned that the interests of U.S. workers and farmers would ultimately be hurt. They vow to hit back with “quantitative” and “qualitative” measures.

On Friday, Chinese media said the U.S. protectionism is self-defeating and a “symptom of paranoid delusions.” That should not distract China from its path to modernization. The rhetoric from both sides only heightens the fears of a trade war.

Feds Conduct Stress Test for Banks

 

After conducting a stress test for banks, the US Federal Reserve released the results on Thursday. The results showed that Wall Street banks are strong enough to withstand the next severe economic downturn. The test placed the banks against various scenarios: an economy with 10% unemployment; a plunge in housing; and severe recession in Europe and elsewhere.

Bank of America (BAC), Citigroup (C), and JPMorgan Chase (JPM) are among the 35 major financial institutions that were tested. The banks would be able to lend under even the grimmest of economic conditions. Even under that horrible scenario, the banks would have more capital than they possessed in the years leading up to the Great Recession.

YouTube Favors Membership Fees to Replace Ads

 

YouTube, which is a unit of Alphabet Inc.’s (GOOGL) Google, said on Thursday that video uploaders with   more than 100,000 followers could start paid fan clubs on the service. That is one of the several new features YouTube sees as a way for users to diversify revenue and to help itself.

YouTube said is aiming to reduce reliance on advertisers. The annual revenue from advertisers ran up to billions of dollars. However, many of them do not want to be associated with racy music videos, roguish stunts, and the like.

By introducing new tools such as memberships and expanded merchandise sales, video producers will have more control over their businesses. The income of some video makers fell last year because YouTube became selective as to where ads should appear.

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