Market Review September 2018

As summer has officially come to a close, the US equities market has stayed the course, with major indices pushing record levels. With the third quarter of 2018 coming to a close, the S&P 500 booked its largest gains in 5 years, up 7% to 2,913. With the economy in full swing, the Federal Reserve raised rates once again, and is working to keep close watch on an economy which appears to be coming on strong.

Fed raises rates again

For the third time this year, the US Federal Reserve raised interest rates to support a healthy, growing economy. The benchmark rate was raised from 1.75% to 2%, its highest level in over 8 years, but still well below levels experienced in almost all of the previous decades prior. Fed Chairman Jerome H. Powell was quite optimistic, noting, “The decision you see today is another sign that the U.S. economy is in great shape.”

The Fed not only raised rates, but also hinted to another rate hike this year in an attempt to hit its target inflation rate of 2%. However, none of this surprised experts. As Michael Arone, chief investment strategist at State Street Global Advisors noted, “It does seem to potentially indicate they believe monetary policy is becoming less accommodative and getting more towards that neutral rate.”

This news comes at the heels of reports that the US economy grew at a solid 4.2% rate in the second quarter of 2018.

Oil on the move

Prices of oil are steadily rising to four-year high levels as supply continues to be restricted. Brent crude rose over $81 on the month. U.S. Energy Secretary Rick Perry squashed rumors that President Donald Trump was seeking to release oil from the US Strategic Petroleum Reserves in an attempt to suppress oil prices on the market.

Additionally, Saudi Arabia and Russia refused a directive from Trump to increase production levels, adding to the price rise. This has led to speculation that oil prices could rise to as high as $100 per barrel in the coming year.

US increases trade tariffs on China

The United States is not holding back in its trade spat with China. In fact, the Trump regime just announced a new round of tariffs on imported Chinese goods which is set to effect an additional 6,000 items to the tune of $200 billion.

China contends the United States is employing, “trade bullyism practices” to intimidate other counties and hurt the overall global economy by starting, “the biggest trade war in history.”  China has responded by implementing additional tariffs of its own against the United States worth $60 billion. A report by the Chinese government calls the US regime:

“It has brazenly preached unilateralism, protectionism and economic hegemony, making false accusations against many countries and regions, particularly China, intimidating other countries through economic measures such as imposing tariffs, and attempting to impose its own interests on China through extreme pressure,” the report said.

On the flipside, Trump contends these measures are necessary to combat the trade imbalance between the two countries along with the jobs and intellectual property China is stealing from the US. He stated, ““For months, we have urged China to change these unfair practices, and give fair and reciprocal treatment to American companies. We have been very clear about the type of changes that need to be made, and we have given China every opportunity to treat us more fairly. But, so far, China has been unwilling to change its practices.”  

 

Britain fails to reach an EU exit deal

Prime Minister Theresa May had presented an economic plan to the European Union in regards to its exit from the consortium. However, the EU rejected May’s deal, and Brexit proponents in British Parliament are proposing alternative plans of action for the country.

The EU has stated it will wait until November to begin taking steps toward a contingency plan if a deal has not been reached by that time. May still believes reaching a deal, while difficult, is possible. “I’m confident we’ll get a deal. And there are more voices around Europe talking about getting a deal. As a government, we’re preparing for a deal and preparing for no deal. If it is that worst case scenario, we’ll still make a success of it,” May said Wednesday.  “I believe we can get a good [Brexit] deal. There are several weeks of intense work to be done to get to that point.”

There is even a chance that Britain changes its mind and remains in the EU, a move which would surprise many. French president Emmanuel Macron publicly stated he would welcome back Britain to the EU if the nation changes its tune in a second referendum vote on the subject.

One measure in question that had cast a shadow over the failure to reach a deal is the impact a non-deal would have to flight between the UK and EU countries. Luckily for the aviation and tourism businesses, Britain stated it would allow EU airlines to continue flying to the UK no matter the status of a Brexit deal.

 

Is a CBS, Viacom deal immanent?

With former CBS chairman and CEO Les Moonves ousted from the company after charges of sexual misconduct, it appears rumors of a deal between CBS and Viacom have once again restarted. In fact, rumors are swirling enough that Viacom’s stock price rose to a six-month high during the month of September.

However, the second-largest shareholder of Viacom, the value investor Mario Gabelli, doesn’t see any benefit in this type of deal, even with the temptation of the size of the combined business. This sentiment was echoed by Viacom CEO Bob Bakish who is more interested in turning his company around rather than exploring a merger option. “There’s no question that scale is valuable,” Bakish acknowledged at the time. But he added, “There are a lot of ways to get the benefits of scale. We’re getting them more and more inside the company.”

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