“Vortex of negative headlines” — Bank of America’s Savita Subramanian, warning of upcoming extreme volatility likely to impact markets in June. That’s thanks to the perfect storm of a potential Brexit, the U.S. election and the June Fed meeting.
- It was a two-crazy Tuesday: U.S. stocks bolted higher, with the Dow rising 222 points to reach its highest level in (you guessed it) two months, helped by oil’s rise and a strengthened dollar
Alternatives to Watch
- Gains in oil, you say? Yep, oil rose 3% as Canadian output continues to run short of 2.5 million barrels per day due to damage from the wildfire
Has the magic finally worn off for investors? Disney reported subpar revenue and profit (a rarity) due to large declines in its cable TV and consumer product divisions, sending shares down a not-so-magical 5% after hours. The cable TV culprit: ESPN (yes, Disney owns sports). Why? Younger TV viewers have been dropping cable channels in favor of streaming services like Netflix, and it’s taken a toll on subscription revenue. Other costs due to the pre-opening of Disney’s $5.5 billion Shanghai resort also dragged down profits. However, there were some good signs from the successful animated hit “Zootopia” and “Star Wars: The Force Awakens.” Hopefully Disney can get back on its A-game—with or without ESPN.
Staples X Office Depot Swatted Down
It was the office-supply merger to end all office-supply mergers: Staples and Office Depot, joining forces in a $6 billion deal…until yesterday. A federal judge swatted the deal away over antitrust concerns. Translation: the merger would have eliminated competition for pens, paper and maddeningly-expensive printer ink (making it even more maddeningly expensive). Shares tumbled 10% (Staples) and 26% (Office Depot) on the news of the blocked merger. What was the reason for it in the first place? Anyone who’s never felt the need to visit a Staples or Office Depot knows the brick-and-mortar office-supplies industry is in turmoil—mostly due to the rise of e-commerce (cough Amazon cough)…which motivated the two to try joining forces. But that’s when the government stepped in, and not for the first time either: the exact same merger was blocked in 1997. Some things never change (for everything else, there’s Amazon).
Amazon Looking for a Fight
Speaking of Amazon, the e-commerce giant isn’t here to make friends—and its strategy of picking on the top dogs in media and entertainment isn’t ending anytime soon. Amazon first let the world know it meant business when it unveiled its own month-by-month streaming video service that undercut Netflix’s pricing…by a dollar. Yesterday, Amazon got even bolder, announcing its own YouTube-like video service. That’s right, Amazon is launching its own YouTube that lets anyone upload clips—but it’ll be an uphill battle eroding YouTube’s decades worth of market share.
Credit Suisse Makes it Work
Another day, another disappointing earnings release by a big bank. Yesterday, it was Credit Suisse, which posted its worst Q1 earnings since the financial crisis…how comforting. Volatile financial markets have led the bank to hone in on wealth management and cut back on investment banking, but this strategy wasn’t quite enough to bolster earnings. Luckily, Credit Suisse had prepared its investors for the absolute worst prior to the earnings release, so shares were up 5% following the announcement. Now that’s how you manage expectations.
- Anheuser-Busch renames Budweiser as ‘America’
- Uber to start guild for drivers in New York City
- Walmart slaps Visa with lawsuit over chip cards
- Treasury calls for new regulations for online lenders
- Monday: Teva Pharmaceuticals (+), Tyson Foods (+), Hertz (-) Earnings
- Tuesday: Disney (+/-), Allergan (+), Credit Suisse (+/-), Nokia (-), Electronic Arts (+), Sun Life (+) Earnings; Job Openings and Labor Turnover Survey
- Wednesday: Macy’s, Wendy’s, Jack in the Box Earnings
- Thursday: Nordstrom, Ralph Lauren, Kohl’s, Shake Shack, NVIDIA Earnings; Weekly Jobless Claims
- Friday: Honda, J.C. Penney Earnings; Retail Sales; Producer Price Index; Consumer Sentiment
Looking to be the next big IPO that will have you retiring in your early thirties? Good luck, but amateurs and IPO experts alike can recognize that Saudi Aramco is a big deal. The state-owned Saudi Arabian oil behemoth is set to slam the New York, London, Hong Kong and Riyadh markets with an IPO as early as 2017. It may sound crude, but that’s because it is:
- Deputy Crown Prince Salman (side note: what a name) estimates that the IPO will be valued at more than $2 trillion. Many are skeptical, but if the number is true, Saudi Aramco would be four times the size of Apple.
- Saudi Aramco produces 12% of global oil production, or one out of every eight barrels of oil in the world. Who’s Exxon again?
- Think a 35% corporate tax rate is bad? Since Saudi Aramco is state-owned, its estimated tax rate is 93%, as most of the revenue goes to the royal family. Cha-ching!
- Just how dominant is Saudi Aramco? The world’s top oil exporter sells 75% of its oil to foreign nations, including the U.S., which buys one million barrels a day.
INTERVIEW QUESTION OF THE DAY
100 people are in line, boarding an airplane with 100 seats, one at a time. They are in no particular order. The first person has lost his boarding pass, so he sits in a random seat. The second person does the following:
- Goes to his seat (the one it says on his boarding pass, i.e. person two has seat #2)
- If unoccupied, sit in it
- If occupied, find a random seat to sit in
Everyone else behind him does the same. What is the probability that the last person sits in his correct seat? (Hint: consider a two-seat airplane, then grow it from there.) (Answer)
BUSINESS PERSON OF THE DAY
Taylor Rosenthal, age 14, recently unveiled his start-up, RecMed, even turning down a $30 million buyout offer. So what is RecMed, you ask? It’s a vending machine that serves first-aid kits instead of snacks. His idea may seem simple, but investors are buzzing around this young vending-machine mogul who raised $100,000 in angel investments and was the youngest person to be accepted to TechCrunch Disrupt. Not bad for a 14-year-old.
FOOD FOR THOUGHT
The top hedge fund managers continued to get richer in 2015 despite overall rough performance and lots of investors pulling their money from the space. In fact, the top 25 managers brought home about 10% more than they did in 2014, realizing about $13 billion combined.
QUIZ PRIZE WINNER
Congrats to Aaron B., a student at the University of Southern California, for winning last week’s Morning Brew quiz prize! Fight on—or as we like to say, Brew on! And make sure to open this Friday’s issue for an all-new quiz!
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