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September 27th, 2019

President’s Possible Impeachment Disrupts Markets

By PRATTE

Blogue 27 sept EN

The possible implementation of a process of impeachment of the president of the United States shook the financial markets this week. BlackBerry shares tumbled drastically on Tuesday after announcing disappointing earnings. Netflix’s stock also fell this week after analysts cut its price target by 32%, revealing its concerns about profitability. Here’s what happened this week in the markets.

Market Brief

The three leading indexes retreated at the opening on Monday after last week’s decline. Indeed, over the last week, the Dow lost 1.04%, the Nasdaq 0.72% and the S&P 500 0.50%, their first weekly losses in one month. Wall Street ended the day in a scattered order. “We opened this morning slightly in the red in reaction to data on activity in the euro area which was very disappointing, with particularly terrible data for Germany,” said Christopher Low, an economist at FTN Financial. “There is growing fear that the European Central Bank will be powerless in the face of the slowdown in the European economy. While the German government is resisting the idea of any fiscal stimulus, there is a sense that the recession will be inevitable in this country.” Low said. Monday, manufacturing activity in the United States exceeded expectations, reinforcing the indexes.

The speaker of the House of Representatives, Nancy Pelosi, announced Tuesday the opening of an impeachment investigation into Trump’s phone call with Ukrainian leader Volodymyr Zelensky. During this call, the president lobbied for Zelensky to investigate the family of Democratic presidential candidate Joe Biden. Despite a rise at the opening, Wall Street was shaken in the middle of the session by this news. The S&P 500 yielded 0.8%, its biggest drop in a day since August 23rd. NASDAQ also had its worst day of the month, falling 1.5% while the Dow closed down 142.22 points, or 0.5%, after falling more than 200 points in the middle of the session. Tesla was down 7.47%, Twitter lost 4.54% and Facebook lost 2.97%.

On Wednesday, US markets opened in disorganized order. Investors remained careful regarding the impeachment process that could disrupt the trade war with China. The US president’s comments on a future deal with China “have reassured the markets and pushed up the indexes,” commented Peter Cardillo of Spartan Capital Securities. Wall Street ended the day higher while Nike gained 6% after the announcement of better than expected earnings.

The impeachment procedure continued to influence the markets on Thursday as investors analyzed the publication of the whistleblower’s complaint against the US president. The three leading US indexes ended the session lower, the Dow lost 0.30%, the NASDAQ lost 0.58% and the S&P 500 shed 0.24%. Beyond Meat jumped 11% at the end of the session after the announcement that McDonald’s restaurants were going to test vegan sandwiches using their vegetable meat. Micron share was down 1.7% while stocks from large tech companies such as Apple, Facebook, Netflix and Amazon ended the session down. US markets opened slightly higher on Friday as investors reacted to further developments on trade.

 

In the Canadian sector, the TSX also began the week down after a record week. This poor performance continued throughout the session, with the index closing down 32 points, led by the finance and telecommunications sectors. Same scenario for Tuesday as the Toronto index ended the session down 0.41%. BlackBerry fell by 22.7% and Cronos Group yielded 8.6%. The energy sector was down 2.4% largely because of lower oil prices and the price of gold. Same thing on Wednesday, as the TSX finished lower by 14 points for a third consecutive session. The materials sector, led by the fall of the price of gold, lost 2.2% while the energy sector fell by 0.44%. Despite a bearish open, the TSX turned positive at the end of the day on Thursday and closed slightly higher, ending a series of bad sessions. The TSX fell at the opening on Friday, down 0.2% after gold prices dropped more than 1% and as a drop-in oil prices triggered a selloff in energy shares.

Bitcoin
Since Sunday, the operator who manages the New York Stock Exchanges (NYSE) allows investors to bet on bitcoin through futures. Investors will be able to exchange futures on the Intercontinental Exchange (ICE) platform by betting on a rise or fall in the value of bitcoin, as it is possible to do for oil or gold. Bakkt, a company supported by ICE, will take over the operations. This firm aims to make transactions and payments with cryptocurrencies viable for private and institutional investors.

“Our first goal is to provide an ecosystem that we can trust,” said Bakkt’s boss, Kelly Loeffler, just after the US authorities gave their approval in mid-August. Cryptocurrency enthusiasts are hoping that this will provide the necessary legitimacy for an asset class plunged into controversy as a result of illicit activity in the still-nascent industry.

Netflix

On Tuesday, the company saw the value of its stock drop after an analyst reduced by 32% of its price target, revealing his concerns regarding the profitability of the multinational. The darling stock has lost its appeal in the last months as investors fear the arrival of new big players in the industry such as Apple TV and Disney. Only two months ago, the stock flirted with new highs. However, the loss of subscribers and the rise in competition erased the 46% gains accumulated since the beginning of the year. These profits were the result of a rise in monthly prices that Netflix had introduced in January, pushing the stock up.

The platform also lost rights to “The Office” and “Friends,” two popular shows on Netflix. Tuesday, the stock fell more than 2% at the opening and ended the day down 4%. Netflix has lost more than 30% since its last high on July 10th.

BlackBerry
The company released on Tuesday disappointing quarterly results, announcing losses of $44 million. This news hurt the stock who tumbled Tuesday, losing more than 17% in the first thirty minutes of trading to finally close the session down 22%. According to CEO John Chen, this decrease in revenue is due to a segment providing software to organizations requiring secure communications, such as government agencies and financial services.
“All of our businesses performed at or better than our revenue expectation, except for enterprise software and services,” Chen said in a conference call with analysts. “We are all disappointed with the short-term results,” he continued. The Canadian company reported second-quarter sales of $244 million compared with $210 million in the same period last year. Its stock had its worst performance on Tuesday since 2015 and lost more than 44% in the last twelve months.

 

 

Pratte Portfolio Management is a firm registered with the Autorité des marchés financiers (AMF) and the Ontario Securities Commission (OSC).
Intended to provide general information about markets and securities and not to meet your specific needs, this report is the result of the author’s only work. The opinions (including any recommendations, if any) expressed in this report are those of the author only and do not necessarily represent those of Pratte Portfolio Management and do not constitute securities investment advisory activities designed to meet your specific needs.
The information contained in this report is derived from sources believed to be reliable, but the accuracy and completeness of this information can not be guaranteed and, in providing the information, the author and Pratte Portfolio Management assume no liability whatsoever. This information was current as of the date indicated in this bulletin, and neither the author nor Pratte Portfolio Management assumes any obligation to update it or to report any new developments with respect to this information. This report is intended for distribution in jurisdictions where the author and Pratte Portfolio Management are registered for trading in securities. Any distribution or diffusion of this report in another territory is forbidden. The author, Pratte Portfolio Management, its affiliates and their respective directors, officers and employees, and the companies with which they are associated may, from time to time, hold securities referred to in this report.
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