Market Outlook – September 19, 2018

U.S. Stocks Rise on Relief Rally

 

Despite the escalating trade tiff between the U.S. and China, the main benchmarks rose on Tuesday behind a relief rally by U.S. stocks. The Dow Jones Industrial Average climbed triple digits, rising 184.84 points (+0.71%) to close at 26,246.96. After one of its worst performance the previous day, the Nasdaq Composite Index advanced 60.32 points (+0.76%).

Meanwhile, the broader S&P 500 Index also shrugged off the trade tensions as it gained 15.51 points (+0.54%). It was observed that the so-called cyclical sectors – consumer-discretionary and industrial – tend to flourish during periods of strong economic growth.

Beijing will retaliate to Washington’s new tariffs and will impose 5% to 10% tariffs on $60 billion worth of U.S. products effective September 24. With China’s response, U.S. President Donald Trump said America has “no choice” but to levy another $267 billion in duties on Chinese goods.

But Moody’s warned on Tuesday that the latest round of tariffs affect the global economy as well as U.S. consumes. They said a long lasting trade friction would be “material for the global economy.”

Tesla Confirms DOJ’s Investigation of Take-Private Deal

 

On Tuesday, Tesla Inc. (TSLA) said that the U.S. Department of Justice was investigating Chief Executive Elon Musk’s August 7 public statements regarding a take-private deal.  Musk surprised investors via a ‘tweet’ saying “funding secured” to take the company private. In another tweet, Musk wrote, “Investor support is confirmed.”

The DOJ asked Tesla for documents about their CEO’s announcement but Tesla describes it as a “voluntary request.” The company said it was cooperating and that the matter “should be quickly resolved.”

Many view the investigation as the biggest threat to Elon Musk’s leadership. Shares of Tesla fell -3.35% to $284.96 on Tuesday. TSLA is down -8.48% year-to-date.

Alibaba Accelerating Push for Cloud Computing Business

 

Alibaba Group Holding Ltd (BABA) will be setting up a dedicated chip subsidiary by the second half of 2019 as it aims to launch its first self-developed AI inference chip. The chip could be used for autonomous driving, smart cities and logistics.

During an event in Hangzhou on Wednesday, the Chinese firm said that the new subsidiary would make customized AI chips and embedded processors. That is in support of the firm’s push into fast-growing cloud and internet of things (IoT) businesses.

Alibaba co-founder and Chairman Jack Ma said previously that China has to control its “core technology” like chips to avoid over- dependence on U.S. imports. The ongoing trade war bares China’s reliance on America.

Coca-Cola Among Top Bidders for Glaxo’s Indian Horlicks

 

Three consumer goods giants are vying for a business that offers a significant footprint in a fast-growing emerging market in India. Coca-Cola Co. (KO) along with Nestle and Unilever are among the bidders for Glaxo Smith Kline’s (GSK) Indian Horlicks nutrition business.

Foreign companies view India as an attractive investment destination because of its growing population and rising wealth. The potentially lucrative market can offset weak growth in Western markets. The deal might be worth more than $4 billion.

Holiday Retail Sales Could Hit $1.1 Trillion This Year

 

Given the record-low unemployment across the U.S., strong consumer confidence and building sales momentum, retailers could make a killing this coming holiday season. Holiday retail sales could top $1.10 trillion.

Rod Sides, vice chairman of Deloitte’s U.S. Retail & Distribution practice, told CNBC, “We think most retailers will have a good holiday season if they have a distinctive value proposition.” He added, “We think off-price will continue to do well, and there will be a rebound in luxury.”

Deloitte released its annual forecast on Wednesday. They project retail sales for the 2018 holiday season to increase by 5% to 5.6% from last year. On a stand-alone basis, Deloitte is also predicting e-commerce sales to reach as much as $134 billion this holiday season. Last year’s online sales stood at $110 billion.

But Sides cautioned that a major correction to the financial markets or increased political unrest could dampen their rosy outlook.

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