Are we on the cusp of a global recession bigger than the 2008 financial crisis?

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 year period.

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.

Do the recent weak corporate earnings foretell the end of the longest bull 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 reality.

Some of the stock markets warning signs include:

  • Slashed 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.
  • Some of 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 near future.

Cognizant Reports Great Quarterly Results, Appoints New CEO

American IT service provider, Cognizant Technology Solutions Corp reported its quarterly results, beating Wall Street estimates.

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 analysts.

General Motors Stock Rises after Company Posts Strong Quarterly Profit

General Motors stock is up by roughly 2 percent after the company reported its fourth-quarter earnings that beat analysts’ estimation.

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 that.

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.

Google’s Waymo Partners Renault-Nissan on Self-driving Cars

The Renault-Nissan-Mitsubishi 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 Records Better than Expected Profits, Revenue Dip

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 missed expectation

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 to Acquire Energy Storage Firm Maxwell Tech at $4.75 a Share

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 February 1.

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.

Papa John’s shares Surge after Starboard’s Jeffrey Smith becomes Chairman, Invests $200 million

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.

Facebook, Twitter, Apple, Others Face Probe from Irish Authorities

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.

Amazon Shares Plunge on Slow India Growth

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.