Not a politician

By Hoda Mehr Wed, Jun 26, 2019

What you need to know?

Investors have been expecting the Fed to cut the interest rate and stimulate the economy. The expectation is also supported by additional pressure that is coming directly from the White House. Even after last week’s Q&A session when the Fed’s chairman explained that the economy is in good shape and does not need policy intervention, the overall expectation is that a rate cut may be coming in the next monthly meeting. That’s why, in a speech on Tuesday, Jerome Powell felt the need to once again talk about the Fed’s independence from politics and restated that interest rate decisions will only reflect the changes in the economy, the level of risk the economy is facing, and will not be impacted by short-term political priorities.

What does it mean for investors?

In the short-term, the stock market is a reflection of investors’ sentiment. The pull and push between politicians and economists will fuel such sentiment, and consequently, will impact the stock prices. Long-term investors can ride the volatility. Short-term investors, however, need to be on their toes as investors’ sentiment is heightened due to such pull and push forces.

• U.S. markets: Contrary to Monday, the stock market was a bit more volatile on Tuesday and major indices wrapped the day lower than where they started. The S&P 500 index was down almost 1% and the Dow did not deviate from the downward trend either. Scroll down to the Overall Market section to read more about what happened.. 
• Cryptocurrency: Bitcoin price surpassed $11,000 on Tuesday. The price increase continues as crypto investors expect “the havening”.This is a term used to describe a process that happens every four years and cuts crypto-miners’ reward by half. Such expected reduction will reduce the supply of miners and that’s what’s boosting the price up. What a maze is the world of crypto.

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Not getting a cut is not as bad as what the market believes. 

What happened on Tuesday?

Except for Basic Materials, all other sectors ended up lower on Tuesday’s market close. The biggest loser of the day was the Consumer Cyclical sector that closed the day almost 1% lower. The decline is attributed to the Fed’s chairman’s speech and confirmation that a rate cut is not likely, and will not happen even if the White House requests it.

Now, what?

Investors are getting used to boosts and supports from the government, which seems unlikely to continue. The Fed is doing its best to avoid using yet again another rate cut to stimulate the market. It’s understandable why. The end of June marks a historical moment in the U.S. economy as we enter the longest recovery ever in our history. The Fed would want to keep the option of a rate cut open in case the economy follows its cyclical ups and downs and starts a downward trend. Not getting a cut is not as bad as what investors think so. It’s a way to protect the market in case of a more drastic and cyclical market decline.

Botox costs $63 Billion.

Shares of pharmaceutical giant AbbVie (Ticker: ABBV) was down more than 15%, but shares of the maker of Botox, Allergan (Ticker: AGN), were up by 25%. This dual action of the stock prices came after the news that AbbVie is acquiring its fellow pharmaceutical company, Allergan, for $63 Billion. Yeh, Botox costs $63 Billion. You would think investors should be happy about it. But, judging based on the stocks’ reaction, AbbVie’s investors believed the company is paying way too much money to acquire Allergan, and they showed their dissatisfaction by selling off the stock. On the other side of the coin, Allergan’s investors cannot be happier with their 25% one-day return.

Now, What?

Typically on the days when the news of an acquisition comes out, shares of the acquiring company drops, and the acquiree’s shares jump. Seems like AbbVie and Allergan’s stocks are no exemption to the pattern. There is a concern though. The acquisition is not final until FTC (the Federal Trade Commission) and the two companies’ shareholders approve it. And, some investors believe the approval is unlikely. Despite such concerns, the vibe in the investment community is that the acquisition will go through and the price decline represents a buying opportunity.

Oh no, the empire it tumbling. 

Remember we talked about the king of sunglasses in one of the Daily Scoop’s last week? It was about the Italian empire, Essilorluxottica (Ticker: ESLOF), that dominates the sunglasses industry, from Ray-Ban to Oakley? Do you also remember that we talked about how the stock was up quite a lot after the recent management dispute came to an end? Well, shares of the empire came down tumbling more than 24% on Tuesday, and there is no apparent reason for it.

Now, what? 

Investing in stocks that are listed on Over-The-Counter markets (OTC) such as Essilorluxottica (Ticker: ESLOF) comes with an inherent risk of lacking proper news coverage and analysis. While the company is a global empire, its shares are only listed in secondary tier stock exchanges in the U.S. and do not have a significant trading volume. Having a small volume leads to rapid fluctuations because even a relatively small buy or sell order by an institutional investor can rapidly move the stock price. Beware if you invest in the so-called OTC stocks.

Angry uncle. 

So, what happened? 

Was uncle Warren Buffett angry? In an interview with CNBC, uncle Buffett felt the need to talk about Berkshire’s friendly relationship with 3G Capital, the private equity firm and Berkshire’s partner in the Kraft-Heinz acquisition deal. Was he ever angry?

Everyone’s favorite uncle, Warren Buffett, told CNBC that there has never been a tension between Berkshire Hathaway and 3G Capital because of the Kraft Heinz deal. We are not sure when that tension was in the news, though. The fact that uncle Buffett felt the need to talk about it may be the sign that he was mad at 3G Capital for paying too much for the Kraft Heinz deal. You know how it is, when you deny it, there is some truth to it.

Angry or not, he is still our favorite uncle.

About the Author

The authors of this Scoop are the editorial team at Stock Card, led by Hoda Mehr. Hoda Mehr is CEO and Co-founder of Stock Card and the host of Renegade Investors podcast. She runs a community of 40,000 stock market investors and manages Stock Card's successful flagship portfolio, Roll with Our CEO, on Stock Card Portfolio Store. Hoda is an Economist with an MBA from Concordia, John Molson School of Business. She applies behavioral economics, data journalism, and storytelling to all aspects of her work. Before starting Stock Card, Hoda worked as a strategy and insights lead at technology companies including Symantec, Aimia and Sony. Create a free account to do your stock market research easily and mistake-free: Stock Card Stock Card