Market Outlook – June 8, 2018

Tech Rally Ends

 

The recently rally by the technology sector snapped on Thursday as  both the S&P 500 and the Nasdaq indices posted modest losses. The S&P 500 Index ended 1.98 points (-0.1%) lower to break its a four-day winning streak. The Nasdaq Composite Index sank 54.17 points (-0.7%).

Meanwhile, the Dow Jones Industrial Average managed to advance 95 points (+0.4%) to stay above the 25,000 mark. About two-thirds of the blue-chip companies finished in green territory. Among the lead decliners are Intel Corp. (INTC), Facebook Inc. (FB), Microsoft Corp. (MSFT) and Google parent Alphabet Inc. (GOOGL). Many of the tech stocks have recently traded at records.

Investors are cautious and obviously worried about the looming showdown at the two-day G7 meeting which begins on Friday in Charlevoix, Quebec. U.S. President Donald Trump is expected to maintain his tough stance on trade.

Weakening Demand Brings Down Oil Prices

 

Oil suffered a setback on Friday as its prices fell and reversed early gains. The weakening demand in China and surging U.S. output weighed down the market notwithstanding the support from supply woes in Venezuela and OPEC’s production cuts.

U.S. West Texas Intermediate (WTI) crude futures CLc1 went down to $67.57 a barrel or a 38 cents (-0.6%) drop. The international benchmark for oil prices, Brent crude futures LCOc1, were trading 53 cents down at $76.79 per barrel

According to data from the General Administration of Customs, the crude oil imports in China went down in May compared to the record-high level reached last April. State-run refineries are entering planned maintenance.

U.S. Reaches Deal with ZTE Corp. to Lift Ban

 

The chairman of ZTE Corp., Yin Yimin, made an apology to the staff and customers on Friday after striking a key concession yesterday with the Trump administration to lift the U.S. ban.

Yimin disclosed that the Chinese telecoms equipment maker has agreed to pay $1.4 billion as fine in exchange for the lifting of a ban that prevents ZTE buying American components. US commerce secretary Wilbur Ross confirmed that the final deal had been signed with ZTE.

On top of the upfront payment of the fine, ZTE would have to overhaul its board members and management team within 30 days. The company was required to put an additional $400 million in escrow too. The deal also includes a new 10-year ban that is suspended unless there are future violations.

The ZTE Chairman is looking to get back into business the soonest time possible and the company will hold those responsible for the breach on the previous agreement with the U.S. accountable.

Twitter to Sell $1 Billion Bonds

 

Twitter Inc. (TWTR) is preparing to sell $1 billion bonds to big institutional investors, such as mutual funds and hedge funds. On Thursday, when the company priced its offering, TWTR fell 2.5% as it could dilute the value of existing shares.

The company is hoping the sale of the bonds can eventually convert into Twitter stock. TWTR is up +65.35% year-to-date and has outperformed rivals Facebook Inc. (FB) and Snapchat parent Snap Inc. (SNAP).

Twitter is on a roll of late because it is finally exhibiting profitability. TWTR’s momentum is likely to continue now that the stock has been added to the S&P500.

Head of Amazon-Berkshire-JPMorgan JV to be Announced Soon

 

On Thursday, Berkshire Hathaway Inc. (BRKA) CEO Warren Buffet and JPMorgan Chase & Co. (JPM) CEO Jamie Dimon told CNBC they will make a major announcement in two weeks. They will name the final candidate whom they have selected to head the Amazon-Berkshire-JPMorgan joint venture.

Many believe the person is David Feinberg, the CEO of Pennsylvania-based health system Geisinger Health System. However, Feinberg’s spokesman said he will remain committed to staying on at Geisinger.

The proposed joint venture aims to fix health care in the United States. According to a pair of sources, the top ten candidates for the post were asked to write a white paper on how they would fix America’s health care system.

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