Market Outlook – October 1, 2018

Wall Street Enters the Last Stretch of 2018

 

As Wall Street enters the last quarter of this year, the American consumer appears to be in good shape. And the busy holiday shopping season is approaching. Friday this week is crucial as investors await September’s jobs report. It will validate how the U.S. economy can continue its stride into 2019.

In September, consumer confidence rose to an 18-year high, complemented by a strong labor market. That is why many are curious to find out the Labor Department’s fresh data on jobs growth, wages, and unemployment.

The discretionary stocks have been outperforming the broader U.S. stock market. It’s a clear signal of consumers’ confidence in the health of the U.S. economy and willing to spend more of their disposable income.

Many investors are very optimistic that the American consumers will keep supporting economic growth. The only concern is if oil prices continue to rise which could curtail spending moving forward.

U.S. and Canada Saves NAFTA from Collapse

 

With the North America Free Trade Agreement (NAFTA) on the verge of collapse, the United States and Canada was able to save the deal on Sunday. The two countries made sure the trilateral pact with Mexico goes on. In effect, the move rescues the $1.2 trillion open-trade zone of the three nations.

Many are saying it was a big victory for United States President Donald Trump. His agenda was to shake-up an era of global free trade. With persistence, Trump was able to make Canada and Mexico accept more restrictive trade rules. Trump hopes to achieve his primary objective of bringing down U.S. trade deficits through a reworked NAFTA.

China’s Manufacturing Sector Weakening Due to U.S. Tariffs

 

The growth of the manufacturing sector in China sputtered last September. Two surveys released on Sunday showed that both external and domestic demand weakened. The policymakers in Beijing are feeling the pressure as U.S. tariffs seem to be inflicting a heavier toll on the Chinese economy.

The factory sector has been in expansion mode for the last 15 months but has suddenly stalled. Export orders are falling and the pace is the fastest in over two years. The official survey only confirms the further weakening on the manufacturing side. Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group said, “Downward pressure on China’s economy was significant.”

Tesla and Musk Faces Crucial Test

 

After quickly settling the SEC’s fraud case against CEO Elon Musk, Tesla Inc. (TSLA) faces a crucial test this week. On Tuesday, the electric carmaker will present its production report. The company needs to show investors whether they can sustain and surpass its long-promised target of building 5,000 units of the Model 3 weekly.

The report will also determine whether Musk can fulfill his pledge to turn a profit in the third and fourth quarters. Since its IPO, Tesla has reported only two profitable quarters. The company largest loss in history was during the second quarter of this year. They ramped up production in late June to hit the 5,000 mark.

Musk will be stepping aside as chairman for three years. Tesla will also be paying a $20 million fine for Musk’s tweets that misled investors. According to Goldman Sachs (GS), Tesla’s $2.7 billion debt is due this year and in 2019.

Goldman Sachs’ President & Part-Time DJ Assumes CEO Post

 

There will be a changing of the guard at the helm of Goldman Sachs (GS) on Monday. Lloyd Blankfein will be stepping down and ending his tenure as CEO of the investment bank.

David Solomon, President and part-time DJ, will be replacing Blankfein. Many see the successor a far cry from the typical investment banker. However, the new CEO will be taking over a bank that has made a recovery under Blankfein since the financial crisis a decade ago. The challenges he will be facing are also plenty.

Solomon will need to address the lower revenue from Goldman’s trading desk. Fees are collected from clients who are buying and selling bonds, commodities, and currencies. GS is down -11.98% year-to-date.

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