The recent rally in US stocks has created
an opportunity for investors who suffered massive drawdowns in Q4 2018 to
recoup some of their losses. However, many investors have a sinking feeling in
their gut that the rally might not last long given the major risks facing the
global economy this year.
According to a research report by Deustche
Bank Securities’ chief economist Peter Hooper, the three biggest risks to the
global economy this year could cause massive losses to investors and consumers
alike. The three risks are ‘a no deal Brexit,’ ‘a surge in retaliatory trade
hostilities between China and the USA,’ and a massive economic slowdown in
China, which would have a massive impact on global economic growth.
Hooper believes that the global economy
could witness a recession worse than the great recession of 2007-2008 that
followed the financial crisis if all the three major risks actually happened
(became reality). Firstly, if the ongoing trade spat between the US and China
is not quickly resolved, the outcome could be a mild recession in the US, which
would cause a global economic growth decline of about 1% over the following two
Furthermore, rising inflation in China
could force the People’s Bank to hike interest rates in order to stem inflation,
which would sink the country’s economic growth prospects. The impact of the
rate hike would be very similar to that of a prolonged trade war as it would
also cause a percentage decline in the global economic growth rate.
There is also the looming threat of a no
deal Brexit, which would disrupt trade activities in Europe leading to a half
percentage point drop in the rate of economic expansion globally. Currently,
the likelihood of all these events taking place is quite minimal, but cannot be
ruled out, which is why investors should remain cautious and extremely vigilant
to avoid being caught unawares in case these threats occur.
There are numerous risks facing the global
economy in 2019 and investors should ensure that their portfolios are well
balanced, while minimizing their exposure to the stock market.
Q4 2018 was one of the worst quarters on record for US stocks, which suffered the worst retracement ever in the history of the current bull market. However, the tide changed on Christmas Eve as US equities rallied higher and have sustained this rally through January 2019 and into February.
Despite the recent rally, market analysts
such as Doug Kass have started
sounding alarm bells warning investors that the recent rally might have reached
its peak. Such analysts are looking at the mixed earnings data with many
sectors underperforming analysts’ estimates as a warning sign that the bull
market might have reached a climax.
According to Doug, investors are still
swimming in the impressive gains they have witnessed throughout January, which
has made them complacent. The data suggests that stocks might suffer a
significant pullback in the near future, but investor sentiment is extremely
bullish, which is why Doug believes that stocks are detached from the existing
Some of the stock markets warning signs
Q1 2019 profit estimates for the S&P 500 companies from -0.8% to -1.4%.
A significant portion of S&P 500
companies have projected profits for Q1 2019 that are below expectations.
these companies include Delta Airlines, Netflix and Estee Lauder Cosmetics.
The negative trends being seen in the US
stock market are worsening at a fast pace with conditions getting worse by the
day. It is quite shocking that investors are not paying attention to this
significant change in underlying trend.
The fact that by now it is evident that an
economic slowdown is underway in most of Europe and China should inspire
caution among US investors. However, the divergent US economic data has lulled
investors into a false sense of security that might be their undoing in the
American IT service provider, Cognizant
Technology Solutions Corp reported its quarterly results, beating Wall Street
Cognizant records profits amidst tough competition
The company recorded better than expected profits during the last quarter, benefitting from the increase in spending by clients in the healthcare and financial sectors. Cognizant recorded profits despite tough competitions from the likes of Accenture, and other Indian IT companies like Tata Consultancy Services, Wipro and Infosys.
The company also revealed that Francisco
D’Souza, its chief executive officer for over a decade would assume the role of executive vice chairman. Brian Humphries,
CEO of Vodafone Business has been appointed as the new CEO starting April 1.
Humphries is a man with experience
after serving as a senior executive at some top-level
companies such as Dell and Hewlett Packard.
Cognizant makes its biggest income
from offering IT service to banks. It, however, recorded a 1.7 percent increase
in revenue in that sector, reporting $1.45 billion in the last quarter. Cognizant
meanwhile saw its business in the healthcare grow by, recording a 7 percent
increase in revenue in that sector. The total revenue generated from serving
healthcare rose to $1.20 billion in the last quarter.
In the fourth quarter which ended on December
31, the company reported a net income of $648 million, representing $1.12 a
share. This is an improvement to the $18
million loss it incurred in the previous year.
Cognizant earned $1.13 per share in
consulting and outsourcing services, which is higher than the average analyst estimation
of $1.07 a share. Revenue rose from $3.83 billion in the previous quarter to
reach $4.13 billion and narrowly surpasses the $4.11 billion estimated by
General Motors stock is up by roughly
2 percent after the company reported its fourth-quarter earnings that beat
GM post strong profits to reassure investors
General Motors Co. reported a very strong fourth quarter result that surpassed the estimates by most analysts and market experts. The company also presented an upbeat profit forecast for 2019, reassuring investors that the company would perform excellently this year. The quarterly results is good news for GM as it shows it can still compete despite slowing car demands in major markets and trading war issues between the United States and China.
GM earnings were $1.43 per share
during the last quarter, beating the $1.25 average estimated by Wall Street
analysts. Last month, the company had assured its investors that earnings per
share could rise as high as $7 per share and they seem to be working towards
GM continues to make a profit from its trucks and sport utility
vehicles. In this area, the company recorded a $6.54 per share earnings in
2018, which is better than the expected $6 per share.
General Motors told its investors
that the Chinese auto market is expected to be flat this year. Its income from
China dropped from $504 million a year ago to $307 million in the last quarter.
For that reason, the company is taking action to reduce costs in China and
improve profits in a softened market.
alliance has partnered with Alphabet Inc.’s Google with the aim of developing
self-driving taxis and other services using autonomous vehicles. This is according to a report by media outlet
Nikkei earlier today.
Google and Nissan partner to challenge General Motors, Audi, others
The partnership between the allied companies and Google will see Waymo, Google’s autonomous driving car company merge resources with Renault-Nissan-Mitsubishi alliance. The alliance will see them challenge other companies in the self-driving vehicle space including General Motors, Mercedes Benz, Audi, Toyota, and other.
The carmakers are expected to
announce a plan for the partnership by this spring, the report added. The companies
are looking at joint developed of self-driving taxis using Nissan vehicles. The
vehicles will have a system that takes care of reservations and payments.
A spokesman at the
Renault-Nissan-Mitsubishi alliance Nick Twork commented that the story is
nothing but speculation at the moment. He
stated that “This (Nikkei) story is based
on rumors and speculation. We have
nothing to announce.”
Waymo has meanwhile refused to comment on this latest report.
In January, Nissan Motor Corp
announced that its board is still committed to the alliance it entered with Renault
SA and Mitsubishi Motors Corp. the announcement came after the company’s directors
met to discuss the investigation into their former chairman Carlos Ghosn while
also discussing ways to boost governance.
Viacom Inc. recorded better than
expected profits today, with higher fees from cable and satellite operators in
the United States. The success of Transformers” reboot “Bumblebee” also played
a role in company recording profits.
Viacom records profits; revenue
Viacom recorded profit during the last quarter as it continues to increase its effort towards providing original content for streaming service providers such as Netflix. The company signed a deal in November with Netflix, agreeing to make more original movies and TV shows for Netflix other streaming companies.
Despite the profit recorded, Viacom
saw its revenue missed analysts’ expectations. The company recorded a revenue
of $3.09 billion during the last quarter, just shy of the $3.12 billion
estimated by Wall Street analysts.
The drop in revenue came from lower
advertising revenue, and the currency
swings in the country as the media landscape in the US becomes more
competitive. Viacom was able to raise $969 million in revenue from domestic
affiliates and fees from cable and satellite operators in the country. This represents a 5 percent increase, beating
the 2.4 percent estimated by analysts.
Viacom which controls MTV, Comedy
Central, and Nickelodeon, revealed that
its total affiliate revenue went up by 3 percent to reach $1.17 billion, which
is higher than the $1.11 billion estimated by analysts.
The film entertainment division which
includes Paramount Pictures saw its revenue grow by 14 percent to reach $621
million. Overall, the profit per share was $1.12, which is above the $1.03 per
share estimated earlier on.
Tesla Inc. is set to purchase battery-technology
company Maxwell Technologies Inc. in a deal worth around $218 million in stock.
Tesla to boost electric car expertise with Maxwell Tech acquisition
Tesla is looking to bolster its expertise in the electric car sector with the acquisition of Maxwell Tech as it faces tough competition from other industry giants like Ford, General Motors and others venturing into the space.
The acquisition of Maxwell Tech will
see Tesla add expertise in its energy storage and power delivery. Tesla will
purchase the company at $4.75 per share, according to Maxwell’s announcement
earlier today and represents roughly 55 percent premium to the closing price on
According to Maxwell Chief Executive
Officer Franz Fink, the two companies share a similar goal. The deal would
enable their shareholders to participate in Tesla’s mission to boost the advent
of sustainable and safe transport and
energy sector, he added.
Despite this positive news, Tesla
shares dipped at the pre-market trading, plunging by 1.9 percent to trade at
$306.56. Maxwell Tech shares meanwhile have
surged by 49.5 percent and currently trades at $4.59 per share.
The shares of Papa John’s is up 6
percent at the pre-market trading today after the company revealed that activist
hedge fund Starboard Value is set to invest $200 million in the company.
Papa John’s set to rival Domino’s Pizza again
Papa John’s has been embroiled in controversies over the past two years which led to the resignation of founder John Schnatter as CEO and chairman of the company. The company also lost ground on some of its rivals including Domino’s Pizza and Round Table Pizza. Papa John’s is now looking to rival these companies again.
Papa John’s shares have plunged by 37 percent over the past year, with that of Domino’s rising by 29.86 percent over the past 12 months.
The company announced that Starboard
CEO Jeffrey Smith would become its
chairman. He will be joined on the board by Anthony Sanfilippo, former chairman
and CEO of Pinnacle Entertainment, with Papa John’s CEO Steve Ritchie also to
serve on the board.
According to the Wall Street Journal,
Starboard will invest in Papa John’s via a convertible stock purchase of 11 to
15 percent. This news came after the company put together a special committee to
review the relationship between Papa John’s and John Schnatter last year. In
2017, the founder stepped down as CEO and stepped down as chairman last year
also. His resignations come following a series of errors including using the
N-word on a conference call in May last year. He later explained that his comments
were taken out of context as he was provoked
into making those racial statements.
The company made plans to sell itself
but abandoned that plan after receiving low offers from the prospective buyers.
Social media giant Facebook Inc. is
facing seven different data-protection probes in Ireland as the regulators
implement the new GDPR rules and fine the company
a huge amount of money.
Facebook, Apple, Twitter, to be affected
The Irish regulators are clamping down on big tech companies for violating the new GDPR rules in the country. The investigation into Facebook’s activities is one of the 16 cases the regulators are looking into, with other tech giants such as Twitter Inc., Apple Inc., and LinkedIn Corp. expected to be affected. The investigation is also looking into WhatsApp and Instagram.
Helen Dixon, Ireland’s data
protection commissioner during an interview,
stated that the regulators in Ireland opened probes “centered on the activities
of very big internet companies with tens and hundreds of millions of users.” She
revealed that regulators in other EU countries are also investigating similar
data protection cases against these companies.
The new GDPR rules in EU has given
the local regulators the power implement hefty fines on companies that violate
data protection rules, and the local
regulators are looking to take advantage of that. If found guilty, the
companies would be fined as high as 4
percent of their annual revenue.
This news comes just days after the
French regulators fined
Google a record $47 million after the company violated some data protection
rules. Market analysts believe that the Google fine would not be the last and
more tech companies will be affected by the new regulation.
The shares of Amazon has plunged
earlier today after India’s revised e-commerce rules caused widespread disruption of its services in India.
Indian rules affect Amazon service in the country
NASDAQ: AMZN is down by 4.35 percent at the pre-market trading today after India revised its e-commerce rules. This led to the company removing its key grocery service and other products such as sunglasses and floor cleaners from its store.
The new e-commerce rules in India will also affect other retail giants such as Walmart Inc. which bought a majority stake in homegrown e-commerce player Flipkart. The new rule dictates that e-commerce operating in India are forbidden from selling products through vendors they have an equity interest. They are also barred from making deals to ensure that sellers sell their products exclusively on their platforms.
This latest development comes a day after
the e-commerce giant released its earnings report and its first-quarter
project. Amazon is expecting to generate $56 billion to $60 billion in this quarter and falls below the $61 billion
estimated by most analysts.
The sales and earnings during the
last quarter exceeded analysts’ expectations, but
there were concerns after the North American retail unit experienced slow
growth during the holiday period.
Jeff Bezos had previously pledged
around $5 billion to boost growth in China as he considers the world’s
second-most populous country as the best place to start pushing Amazon
globally. The new rules are expected to
cut Amazon’s growth this year in India by roughly 50 percent.
Tom Forte, an analyst at DA Davidson
& Co., stated that it would be
damaging to Amazon’s future if they fail to capture India. Until recently,
China has been Amazon’s biggest failure, and
if it fails to adapt and win over India, it would be hard for the company to
push its global growth agenda.