Weekly Market Commentary November 20, 2017

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Global stocks retreated marginally for the second week in a row. The S&P 500 fell 0.1%, and the MSCI ACWI slipped 0.2%. Bonds rose as the Bloomberg BarCap Aggregate Bond Index shed 0.2%.

Markets were disrupted by news from manufacturing giant GE that it plans to restructure its business. The company will focus on three segments: aviation, power and health care. Investors reacted negatively as GE’s stock decreased by 9.5% for the week. Meanwhile, Tesla announced it is releasing a new semi that will offer far superior fuel economy to existing trucks.  Other economic data pointed to continued, moderate inflation, healthy growth in the fourth quarter, and a likely interest rate hike in December.

Key points for the week

  • We believe the Federal Reserve will raise rates in December.
  • Data indicates inflation remains moderate but higher than expected.
  • Growth estimates for the fourth quarter remain robust.
  • General Electric (GE) is undergoing a massive restructuring.
  • Disruptive innovations, such as self-driving trucks, pose risks and benefits to the economy.

What are we reading?

Below are some areas of the market we paid particularly close attention to this week. For further information, we encourage our readers to follow the links.

GE’s Horrible Week Just Gets Worse

On Monday, November 13, GE announced plans to restructure its business. While anticipated, investors reacted negatively to the news as GE announced a 50% cut in its dividend and projected 2%–4% organic growth over the next few years. To make the week worse for GE, Moody’s downgraded its credit rating from A1 to A2, pushing investor optimism even lower. GE is now down 42% so far this year.

US consumer prices rise marginally, core CPI firming

The Labor Department’s Consumer Price Index increased by 0.1% in October after a 0.5% jump in September. The flat month was largely due to gas prices stabilizing after a hurricane-related boost. After increasing by 13.3% in September, gas prices fell by 2.4% in October. Despite the decline, CPI still grew with health care and rent prices accounting for most of the growth.

Tesla unveils new electric semi-truck

We continue to monitor key innovations for potential disruption to existing business models. On Thursday, Tesla revealed a new fully electric semi-trailer truck that can travel 500 miles on one charge, while hauling 80,000 pounds of goods. The semi features the second generation of Tesla’s semiautonomous technology, Enhanced Autopilot, which will allow the truck to partially drive itself on highways.


Fun story of the week

9-Year-Old Girl Books Family Trip

Fraud is never a joking matter, but in this case we will make an exception. A 9-year-old girl recently booked a family trip to Disneyland Paris by logging into her father’s PayPal account. The girl, Susan Wilson, guessed her father’s password and booked the family into the Paris resort along with VIP passes to see the Eiffel Tower. Her dad finally noticed a couple days later when checking his account balances. He said Susan didn’t understand the enormity of her actions and that she was sorry. PayPal called it a case of “friendly fraud” and gave the family a full refund.


 

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