Since 1999, it is the first time when all three major indexes in the United States are at their highest levels. All three haven’t lost more than 1 percent in the past seven weeks, the technical are still bullish and as the US presidential elections near, many think the markets may go down any moment.
One such source of volatility comes from the economy itself, which grew by just 1 percent in the first half of 2016. July retail sales figures were also largely disappointing. The CBOE Volatility Index VIX is up 0.63 percent, lowest for the American markets, makes it easy to understand that not even the Pros and gurus know where the market will go next month. However, if you still wish to invest your money in stocks, you need to follow where the money is leading.
Many of the investors are still putting their money into lucrative ETFs, which saw $10 billion of inflows, in contrast to $3.5 billion of outflows. Bonds saw inflows of $9.8 billion in the past 17 weeks and previous metals saw inflows of $0.9 billion in past 10 weeks. The wisdom of many investors shows that ETFs are the way to go, knowing that the Fed will not increase the rates till December or after the Presidential elections. Investors should caution in these markets, and many should try to keep their positions in cash, rather than going investing in futures where they can lose.
The recent crash in oil prices since late 2014 has made it difficult for many big players in the oil industry to earn the billions they had been in the past decades. If the industry was a place that had two engines to make it run, one of its engine was lost in 2014, and the second one is about to go down and no one knows how to steer this plane back.
Many oil producers have said their downstream business is also not performing as expected. Exxon Mobil Corp., Total SA and BP Plc, over the years, relied on so-called downstream businesses that includes refining crude into gasoline, oil trading, and gas stations, to cover losses on their upstream units that includes pumping crude and natural gas. Chief oil analyst at consulting firm Energy Aspects Ltd, Amrita Sen said, “The crash in oil prices in late 2014 brought refineries worldwide a pleasant surprise: booming margins. But now, the market is changing.”
BP has been the first to report second-quarter results, showing the impact as its downstream earnings fell to $1.51 billion from $1.81 billion in the first quarter and $1.87 billion a year ago. Refining margins are at their weakest level in past six months for the period of April-to-June. BP said their refining margins are under significant pressure. Many producers have used their downstream resources to make up for the losses in upstream business. It went well initially, but now as the growth has slowed, margins across the gasoline products have come under stress. An oil analyst at JPMorgan Chase & Co., Nitin Sharma said, “The majors aren’t going to get the cash flow from downstream that they were hoping. They have some discretionary capital spending they could cut in 2017.”
Microsoft recently has started to look a very different company. The acquisition of LinkedIn looks attractive, while it has started to release its assets tied to Nokia’s acquisition, which did not go too well. Nevertheless, Microsoft holds positive prospects as its revenue from cloud computing keep on rising.
Looking at the earnings that were issued on July 19, 2016, revenues were $22.64 billion beating estimates of $22.15 billion, while net earnings for the fiscal fourth quarter until June 2016 was 69 cents in contrast to estimates of 58 cents. Shares had risen to $57.29 by July 26, from the previous close of $53.09 on July 19, gaining a modest 7.9%. Microsoft is considered a better proposed than other technology companies such as Apple and Amazon, reason being their advancements and investments towards the cloud infrastructure, via products such as Office 365 and Microsoft Azure.
LinkedIn itself has seen a positive share price growth since it was acquired by Microsoft. Microsoft still trails in the smartphone race as it sold only 1.2 million Lumia handsets in the previous quarter. Regardless, Microsoft may recover losses from increased participation from LinkedIn subscribers as Microsoft’s CEO Satya Nadella said, “The LinkedIn team has grown a fantastic business centered on connecting the world’s professionals. Together we can accelerate the growth of LinkedIn, as well as Microsoft Office 365 and Dynamics as we seek to empower every person and organization on the planet.” Microsoft has also benefited largely from their recent issue of bonds, which it will use to finance the seven–part LinkedIn deal.
Verizon agreed to buy Yahoo in a $4.8 billion acquisition. The company Yahoo as we know it may disappear, but the brand itself may stay there. As reported by the Wall Street Journal, “The sale doesn’t include, among other things, Yahoo’s cash, its shares in Alibaba Group Holding Ltd., its shares in Yahoo Japan, and Yahoo’s noncore patents, called the Excalibur portfolio. These assets will continue to be held by Yahoo, which will change its name at closing and become a registered, publicly traded investment company.”
Yahoo’s market cap stood at $36.4 billion when the markets closed on Monday. It shows their residual assets are still worth around $32 billion, which translates to 6.5 times as much as traditional businesses of Yahoo. Moreover, many believe that this transaction of Verizon is for the better of the company, rather than the worse. Most of the employees may retain their jobs unless Verizon wishes to lay them off. Yahoo in general, over the past few years, seemed to have lost its identity in the fast–paced digital economy. They started the internet revolution but failed to buy Google when it was still a small venture. They also went through negotiations, refusing a $40 billion bid by Microsoft in 2008. However, since Melissa Mayer took over, Yahoo share prices rose 152 percent, since their crash in the financial crisis of 2008. In comparison, the Nasdaq Composite Index rose 175 percent during the same period. Much of the revenues Yahoo generated was because of its investments in Alibaba and Yahoo Japan, which are not part of this deal.
It stands that an era ends. Yahoo over the past two decades transformed from a portal to messenger and an advertisement company. They reinvented the internet as we see it today, but then everyone has to see an end eventually.
The Japanese telecommunication giant SoftBank has offered to buy the British chipmaker ARM for a whopping $32 billion. The deal when complete would make Softbank visible on every single mobile computing gadget today and in future.
SoftBank has offered 1,700 pence in cash per share, which is a 43 percent premium to ARM’s Friday closing price. SoftBank already has considerable holdings in wireless carrier Sprint Corp. and Alibaba Group Holding Ltd. As per Masayoshi Son, the Chief Executive Officer of SoftBank, “I have admired this company for over ten years. This is an endorsement of the view of the future of the U.K.” Simon Segars, Chief Executive Officer of ARM said, “This all happened very, very quickly. They made an offer that was very, very compelling for our shareholders and a proposal for how to invest in the company for the future.”
SoftBank will gain access to a cash-generating mobile industry leader, who received royalties each time an Apple Inc., Samsung Electronics Co. or Qualcomm Inc. adopt its patents or designs. The deal surpasses the biggest acquisition by a Japanese company in Europe since Japan Tobacco Inc. had paid approximately $15 billion to acquire Gallaher Group Ltd. back in 2007.
Shares in SoftBank closed down 10.3% at 5,387 yen ($50.6) in Tokyo trading on Wednesday, as investors sought assurances and guidance over this purchase. Many see this as one of the worst deals Britain ever made. SoftBank’s Credit Default Swap has risen by 30 basis points, as investors are worried over the implied credit risk this deal may generate. However, ARM shares rose 47 percent on Monday, sighting a sign that the company may see an increase in revenues with better SoftBank synergies.
By now, we all have got familiar with Pokemon Go, the game that has taken smartphone users by surprise. The game has reached new highs ever since it got launched a week ago; bringing Nintendo, back into the gaming sphere.
Pokemon Go is not exactly a Nintendo creation. Nintendo owns an undisclosed stake in Niantic, a previous Google spinoff that created the game in the first place. However, Nintendo does own 32 percent of the company that manages all merchandise for Pokemon Go.
The popularity of Pokemon Go has skyrocketed and so has the market value of Nintendo in just over a week. It rose from $22.9 billion to $37.2 billion. Last year on March 17, 2015, Nintendo in an announcement said they would team up with a mobile gaming platform developer DeNA in Japan. Although Nintendo wished to make a game for its own mobile platform, it‘s publishing of Pokemon Go overall platform came as a surprise. An analyst at Jefferies Group LLC in Singapore, Atul Goyal recommended Nintendo stock a definite buy saying, “Finally Nintendo has turned a corner and embraced a huge strategic shift. We have been waiting for Nintendo to make this move and this will offer large upside.”
Nintendo if plays its cards right can make some gains here, as it is not getting all Pokemon Go revenues, but a fraction of it. So at this point, Nintendo’s stock looks a lot overpriced, then it should be in comparison to long term revenues that may flow from Pokemon Go franchise.