[Market Madness] Edition 0116
Another week in the funhouse
Well, well, well
Administrative topics and a general market recap
Well folks, here we are again after another week of thrills and chills (mostly chills). Stimulus was the talk of the town again. Donnie, probably still juiced on steroids and other drugs, wanted to end all talks of stimulus. The markets took very poorly to this and then all of a sudden, he wants a bigger, better, larger stimulus package than ever before. Mixed signals continue regarding where stimulus will go from here, and who knows what really will happen regarding the current proposition from the Democrats of around $1.8 trillion.
Overall, the markets here in the states and overseas had a great week. Crude oil prices moved back above $40/barrel and the dollar strengthened against other foreign currencies (as measured by the $DXY).
Here are some general themes that we will cover off on in this edition:
Macroeconomics, including job claims, market performance, and OPEC.
Market consolidations featuring Morgan Stanley and Eaton Vance
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In the meantime, if you are interested in my thought process throughout the week as I collect news and ideas for the Sunday publication, please check out my Walling page where I brainstorm and mind-map each week’s edition!
Fundamentals
Where did the markets end last week?
U.S. Indices 5 Day Performance
Dow Jones: +3.31%
S&P 500: +3.89%
NASDAQ: +4.57%
Asia and Europe 5 Day Performance
Nikkei 225: +2.56%
Hang Seng: +2.81%
FTSE 100: +1.95%
DAX: +2.85%
Rates, Spot Prices, and ‘Good to Knows’
U.S. Dollar Index: 93.06
US 10 YR: 0.777%
Crude OIL: $40.55
Spot Gold: $1,929.40
Market Madness Portfolio: +12.20% YTD
TEDRATE: 0.14
LIBOR (3 month): 0.220%
COVID 19 Global Cases: 37,278,481 (updated Oct. 11, 2020)
A mixed bag of news
Picking up from where we left off from the intro above, stocks performed well this week, mainly focusing on the progress/digress seen within the realm of stimulus. The Fed (from Jerome Powell truly) is pushing Congress to make a move on stimulus and perform some action now while the proverbial iron is still hot. Donnie’s change in rhetoric appears obviously tied to the negative market performance following his dissenting attitude of holding stimulus until after the election. Investors are still heavily focused on any developments that occur in this realm and will likely to add to the volatility in the markets up to and following the election in November.
On the economic front, new weekly jobless claims still remain above 800,000, signaling weak improvement week after week. A lot of this can be tied to unknown stimulus developments, in the sense of direct check payments and enhanced weekly unemployment benefits. Zooming out, we can see improvement from the worst weeks, but seeing continued weeks of elevated new claims suggests that we might begin seeing truly ‘locked-in’ unemployment (‘locked-in’ meaning we’re moving these folks from the category of temporary loss of employment with the opportunity to return to their job to the category of job loss and looking for new work). This is dangerous because higher ‘locked-in’ unemployment means that the available job market has shrunk due to changes in demand, working styles, etc. and those displaced workers will have a longer and more challenging new job search process. This is important because working folks are the driver of economic activity. Employee paychecks drive demand and consumption, which allows businesses to gain profit and pay their employees and the cycle continues, which leads to more and more positive economic developments.
The recovery from the pandemic from an economic and development sense will be indicative of long-term trends for the future, particularly within markets such as energy (see the quick takes for OPEC’s long-term forecast) and office renting versus remote working.
Read more here, here, here, here, here, and here.
Morgan Stanley gets hungry
If we thought that 2020 could be any less unpredictable, we thought wrong (big shoutout to Julie for the tip on this news before it hit my radar). Primarily in H2 2020, we have started to see a ramp up in activity in the deal-space (mergers, buyouts, IPOs, etc.) and it was obvious that Morgan Stanley wanted a slice of that pie too. They announced that they are going to acquire Eaton Vance in a $7 billion deal (the deal is going to be paid for in half-cash / half-stock). This deal comes on the heels of a prior purchase by Morgan Stanley of online brokerage firm E*Trade. Now, Morgan Stanley is done playing “Hungry, Hungry Hippo” with the competitive landscape and is focused on integrated these new components more functionally into Morgan Stanley.
“Morgan Stanley Investment Management will almost double in size to $1.2tn in assets with the purchase of Eaton Vance, one of America’s oldest fund houses. The move will leave it better positioned to compete against the growing might of passive fund houses BlackRock and Vanguard, as well as against the asset management arms of rival banks JPMorgan and Goldman Sachs.” (excerpted from article)
The purchases come as the competitive landscape also shifts away from Investment Banking revenue to Wealth Management revenue.
I would venture to say that this is because of the race to zero in this once-boosting revenue area. The increase of competition has led the industry to make concessions that has reduced the revenue generating abilities, and forcing firms to look for other, more profitable business functions to collect profits.
Industry consolidation is always an interesting thing, especially when it comes to folks shouting “antitrust violations.” The industry where we have seen a lot of action and antitrust threats was in telecommunications, as in the large cell-phone wireless providers. So we will have to wait and see if the same is true for the wealth management industry as well; only time will tell.
Quick Takes
To fill in the gaps
Travis Scott helps McDonald’s sales skyrocket. (via WSJ)
Donnie continues to undermine COVID 19. (via WSJ)
The oil market and its aviation problem. (via WSJ)
More on WH COVID spread. (via CNBC)
Eyes on the debt market. (via FT)
Donnie self-diagnoses as no longer contagious, to hold in person event yesterday. (via CNBC, WSJ)
As China returns to work, Renminbi jumps its most in 15 years. (via FT)
IRS investigating NRA CEO for tax fraud. (via WSJ)
AMD is in talks to purchase competitor Xilinx. (via WSJ)
The PC market is on fire. (via CNBC)
WarnerMedia plans to cut thousands of jobs as part of corporate restructure. (via WSJ)
OPEC releases long-term demand forecast. (via WSJ)
Microsoft will allow some workers to work from home permanently. (via WSJ)
Nobel Peace Prize awarded to World Food Program. (via WSJ)
VP Debate recap, if you aren’t sick of reading about these things yet. (via FT)
Are SPACs a new bubble? (Opinion via FT)
SPAK, the all new, first-ever, SPAC ETF. (via Defiance ETFs)
General Banter
What’s on my mind
Releasing soon for Market Madness is an extended team of writers and editors. I have had an amazing time riding MM solo, but in effort to expand the offerings, opinions, and perspectives, I’ve decided the time is right to bring on some more members to the staff. More to come on this in the upcoming weeks!
Reader’s Corner
A place for suggestions
The reader’s corner is out of the office for the long weekend. Check back next week!
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Behind the Madness
You’ve made it through the madness. I’ve worked really hard to ensure that you leave this page having learned something, and I hope that benefits you in your daily adventure. Thank you again for checking in.
Publishing Schedule: every Sunday
In the meantime, if you are interested in my thought process throughout the week as I collect news and ideas for the Sunday publication, please check out my Walling page where I brainstorm and mind-map each week’s edition!
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