Market Outlook – May 30, 2018

Main U.S. Benchmarks Ends Lower

 

The Dow Jones Industrial Average ended sharply on Tuesday, falling 391.64 points (-1.6%) to once again erase year-to-date gains. Nine of the eleven major sectors of the broader S&P 500 finished in the red to bring the index lower by 31.47 points (-1.2%). The financials sector declined 3.4% while the industrials and materials fell 1.6% and 1.8% respectively. The Nasdaq Composite Index fell 37.26 points (-0.5%).

What drove Wall Street lower and triggered a global selloff was the political tension in Italy. The Cboe Volatility Index (VIX) also hit the highest level in more than two months. Investors shifted to government bonds.

U.S. Returns to Hardline Stance on Trade

 

China warned on Wednesday that it was ready to fight back if the United States is looking for a trade war. Beijing was caught by surprise when Washington suddenly changed its tune on Tuesday.

The White House said it still held the threat of imposing tariffs on $50 billion of imports from China unless it addressed the issue of theft of American intellectual property. Further, it will press ahead with restrictions on investment by Chinese companies in the U.S. including export controls for goods exported to China.

Tencent and Alibaba Joins List of Elite Brands

 

Two Chinese companies are now listed among the Top 10 of the world’s most valuable brands. Shenzhen-based Tencent Holdings (TCEHY) is listed as No. 5 while Jack Ma’s Alibaba Group (BABA) is ranked no. 9 among the stalwarts.

Ahead of Tencent are Alphabet Inc. (GOOGL), Apple Inc. (AAPL), Amazon.com Inc. (AMZN), and Microsoft Inc. (MSFT). After the Chinese online games giant comes Facebook Inc. (FB), Visa Inc. (V), and McDonalds Corp. (MCD). Alibaba is ahead of tenth placer AT&T (T).

U.S. Approves Bayer Takeover of Monsanto

 

Finally, Bayer’s dream of creating the largest seeds and pesticides maker will come through.  The German firm secured U.S. approval for its planned takeover of Monsanto Co. (MN). Bayer agreed to sell about $9 billion in assets to comply with the United States’ divestiture requirement.

Once this $62.5 billion agro-chemical tie-up is firmed up, Bayer will combine its crop chemicals business Monsanto’s industry-leading seeds business. Bayer CEO Werner Baumann said in a statement, “Receipt of the DOJ’s approval brings us close to our goal of creating a leading company in agriculture.”

Michael Kors Remains Open to Making Acquisitions

 

On Wednesday, Michael Kors Holdings Ltd. (KORS) the reported net income of $44 million in fiscal fourth quarter ending March topped estimates. Kors’ revenue rose from $1.06 to $1.18 billion.

CEO John Idol expects its retail group to propel the growth of the Michael Kors brand in fiscal 2019. The retail unit will soon execute plans for fashion luxury products, brand engagement and the customer experience.

Kors will continue to make strategic investments to expand their retail fleet globally, capitalize on the significant opportunity to grow their accessories business and increase brand engagement through glamorous red-carpet marketing communications. Idol added that the company remains open to making acquisitions.

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