“I want to start off by once again apologizing to our customers and reiterating that your experience throughout the past 24 hours is not the service you should expect” — Southwest Airlines’ communications VP Linda Rutherford in an apology to customers. Southwest cancelled 1,150 flights in 24 hours. That’ll ruin anyone’s day.
MARKET SNAPSHOT
Big Picture
- U.S. markets finally finished lower after seven straight record-setting highs for the Dow, due to lagging oil prices and antsy anticipation of a series of central bank announcements scheduled for next week
Alternatives to Watch
- After initially plummeting, the value of Japan’s yen rebounded early Friday after the Bank of Japan’s governor shot down speculation that the bank would be introducing “helicopter money”, a policy aimed at increasing consumer spending and bolstering economic activity
CORPORATE PRIMER
DoJ Says No
…To health-insurance megamergers. Quick refresher: two multi-billion dollar acquisitions have been waiting for approval from the U.S. government—Anthem buying Cigna and Aetna buying Humana. Yesterday, the Department of Justice finally got to announcing that the U.S. government had filed lawsuits to block the deals. Why, you ask? If the mergers were to happen, the top five national health insurers would morph into three giant companies with over $100 billion in revenue. In other words, smells like a monopoly. The DoJ is worried that less competition will lower premiums and eliminate high quality care for insurance holders. Time to lawyer up.
GM Doubles Down
…Its profits. The Detroit-based automaker just posted its best quarterly earnings report since it went bankrupt seven years ago. The numbers blew analysts’ expectations out of the water, as GM doubled profits and increased revenues by 11% year over year. How? GM’s success was driven by sales increases in China and by high demand in the U.S. for trucks and SUVs. The CFO did mention that Brexit could potentially hurt GM to the tune of $400 million in the second half of the year—but that’s next quarter’s problem.
The Caffeine is Wearing Off
…And Starbucks needs a boost. America’s go-to coffee chain has made some big changes in the past few months, aggravating loyal customers and tainting third quarter earnings. Rising prices and a more stringent rewards program has led to dipping sales across the board. Starbucks is hoping next quarter will be different, as its recent investment in Italian bakery Princi could give a much needed boost to its food business. To boot, the Seattle-based chain is planning a new brand of upscale stores that will offer premium reserve coffee. If nothing else, there’s always free Wi-Fi.
WORLD MACRO
Please Hold
…While the EU considers the future of Europe’s economy. The European Central Bank announced yesterday that it would be keeping interest rates unchanged in its first meeting since Britons voted to leave the European Union. ECB President Mario Draghi cited Brexit (of course) and slow growth in emerging markets as reasons for the hold. Fair enough. European markets had mixed reactions, as Draghi still left the door open to more policy stimulus. What’s next? The ECB will kill time until its next policy meeting in September, when the economic costs of Brexit are more well known.
OTHER STORIES
- Tinder users can now swipe right on group dates
- Amazon Prime’s latest perk is discounted student loans
- Tesla is expanding into pickups, heavy trucks
- Edward Snowden proposes a smartphone spy catcher
ECONOMIC CALENDAR
- Monday: Bank of America (+), IBM (+), Netflix (+), Yahoo (-) Earnings
- Tuesday: Goldman Sachs (+), Johnson & Johnson (+), Microsoft (+) Earnings; Housing Starts (+)
- Wednesday: eBay (+), Morgan Stanley (+), American Express (+) Earnings
- Thursday: AT&T (+/-), Chipotle (-), General Motors (+), Starbucks (+/-), Intel (+) Earnings; Weekly Jobless Claims (-); Existing Home Sales (+)
- Friday: General Electric, American Airlines Earnings
TURKISH DELIGHT
If you thought only Turkey was in trouble, think again. Dozens of major Western companies and brands might also be hit hard by last week’s failed coup attempt. The Turkish government has imposed a three-month state of emergency, leaving many Western companies with business in Turkey with billions of dollars at risk. Let’s take a look:
- Take Ford, for instance, a company that has spent an impressive $1.6 billion building factories in Turkey. Not only does Ford have a partnership with KOC Holding AS, a Turkish holding company, but with over 10,600 Turkish staff, it is also the biggest employer within the Turkish automotive industry.
- General Electric’s future in Turkey isn’t looking too bright either. Just four years ago, General Electric announced its three year, $900 million investment program in Turkey. The company has also provided turbines for wind farms in the country, set up local manufacturers of aviation engine blades, and built locomotives.
- And the list of Western companies that have invested in Turkey goes on: Unilever, Siemens, Mondelez International, PepsiCo… let’s just hope these companies’ investments don’t plummet like the lira did.
INTERVIEW QUESTION OF THE DAY
What are the advantages of an index tracking mutual fund over an ETF? (Answer)
BUSINESS TERM OF THE DAY
After-Hours Trading (AHT) — AHT is trading after regular trading hours on the major exchanges. Interestingly, lower liquidity and wider bid-ask spreads are common and usually differentiating features of AHT. As financial markets become increasingly globalized, AHT is likely to expand past the heavy first few hours after markets close.
FOOD FOR THOUGHT
Since early February, Amazon has skyrocketed compared to the S&P 500, up 54.4% versus the Index’s already respectable 16.8%. Meanwhile, somewhere in Seattle, WA, Jeff Bezos (Founder and CEO of Amazon) is popping bottles after squeezing past Warren Buffett today “to become the third-richest person on Earth”.
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