Market Outlook – May 16, 2018

All Benchmarks Fall as Dow Jones’ Win Streak Ends

 

The three main U.S. benchmarks closed lower on Tuesday with the 8-day rally of the Dow Jones Industrial Average coming to an end. The blue-chip index shaved off 193 points (-0.8%) and ended its eight straight sessions of gains which represented its longest since a nine-session climb in September.

The broader S&P 500 Index fell 18.68 points (-0.7%) with 10 of its 11 primary sectors closing in negative territory.  The Nasdaq Composite Index also dropped and fell 59.69 points (-0.8%). The declines of the Dow Jones and Nasdaq yesterday represented their biggest daily percentage decline since April 24.

For the S&P 500, it was only the index’s biggest drop since May 2. Most notable was the 13% jump in the Cboe Volatility Index (VIX) which is its largest one-day spike since April 2nd although the 14.67 reading remains at historically low levels.

U.S. DOJ and FBI Starts Investigation on Cambridge Analytica

 

The New York Times reported on Tuesday that the U.S. Department of Justice Department along with the FBI are now investigating Cambridge Analytica. The recently defunct political data firm was found to have played a major role in the Facebook user information scandal.

The newspaper report said prosecutors want to question former employees of Cambridge Analytica as well as banks that handled its business. The firm announced earlier this month it was shutting down after losing clients and the growing legal fees.

Amazon-Whole Foods Ignites Grocery Price War

 

Amazon.com Inc. (AMZN) through Whole Foods Market unveiled its much anticipated loyalty program on Wednesday. The latest program offer special discounts to Prime customers. The perks include a 10% off hundreds of sale items and rotating weekly specials such as the $10% per pound off white fish halibut steaks.

The implementation of Amazon’s new loyalty strategy would further intensify the price war and lead to a grocery showdown. The targets of Whole Foods are industry rivals Walmart Inc. (WMT) and Kroger Co. (KR).

Soros Fund is Tesla’s New Supporter

 

Soros Fund Management LLC, the investment firm founded and chaired by billionaire George Soros, took a stake in Tesla Inc. (TSLA) and bought their bonds during the first quarter of 2018. With this disclosure in the S.E.C. filing, Elon Musk’s company has a prominent supporter.

Soros Fund took about $35 million stake in the convertible bonds of Tesla which are due in March 2019. They are hybrid securities that are either bonds or preferred stock. They can be exchanged for a predetermined number of common shares. Holders can participate in stock-price changes but with the yield and greater security of a fixed-income instrument.

Musk has been under pressure lately. Investors want him to prove that Tesla can solve production problems, stem senior staff departures and resolve questions about crashes involving its electric cars.

Starbucks Pushing for Coffee Culture in China

 

Starbucks Inc. (SBUX) said on Wednesday they will build 3,000 new stores in mainland China over the next few years. The Seattle-based coffee chain is pushing for a “coffee culture” in China. The way to achieve that is to  double the number of their coffee shops from the current 3,300 to 6,000 before the end of 2022.

That could translate to opening 600 new Starbucks stores annually or one every 15 hours. The increase is 100 stores more than the earlier goal of 500 stores per year. Starbucks expects to boost its bottom line with its rapid expansion in China. Revenues are expected to triple in the Asian country between 2017 and 2022.

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