“Stocks Slide As Tech Companies Cool”- Weekly Market Update Sept 11, 2020
The stock market hit a slight correction this week as all of the major indexes slumped slightly (the tech-heavy NASDAQ dropped by almost 6%). While this is never good news, it’s not entirely surprising.
Stocks have been rallying back harder than ever since their low in mid-March and lots of that growth may have turned into a slight euphoria as investors rushed to get into tech companies who suddenly found themselves more valuable in the corona-economy (e.g. Amazon, Fiverr, Shopify, Zoom, etc.). The correction came early in the week and things appeared to have gotten back on track since.
Let’s take a look at some of the biggest business updates from this week.
The U.S. gets into debt trouble
For the first time since World War 2, the United States debt is set to exceed the size of its economy. The debt has been growing steadily over the past few years but has skyrocketed over the past few months (due to coronavirus spending). From April-June America’s debt became bigger than its economy on a quarterly basis.
● The national debt currently sits at $27 trillion (about $82,000 per person)
The debt problem that stemmed from the coronavirus is double-sided. On one hand, government spending skyrocketed due to relief packages and stimulus checks. At the same time, government income fell because there were fewer corporate profits which means fewer taxes.
Right now, the extra government spending is somewhat acceptable to prop up the economy. However, tomorrow’s generations will be responsible for repaying today’s debt.
LVMH plans to sue Tiffany
French company Louis Vuittion Moet Hennessy (LVMH for short) announced that they plan to sue the jewelers Tiffany’s over a troubled merger. Let’s recap the situation:
➢ LVMH had plans to acquire Tiffany’s for $16.2 billion (the largest ever in the luxury industry).
➢ The French government then came in and requested a delay on the deal. Afterwards, LVMH start questioning Tiffany’s business, their struggles during the coronavirus, and said that they wanted out of the deal.
➢ Tiffany’s then sued LVMH to force the agreement to go through.
➢ Now, LVMH is suing Tiffany’s accusing them of dishonesty and mismanaging the coronavirus crisis.
These types of issues are usually to be expected when there is $16 billion dollars on the line. This is especially true given the fact that both governments are initiating different taxes and tariffs on each other (France taxed American tech companies and the U.S. responded with tariffs of their own.
It will be interesting to see if the merger goes through, and if it does, for how much.
Another winner of the corona-economy
It’s easy to think that with gyms and yoga studios shut down that the “gym-and-yoga” apparel company Lululemon might be struggling. Well, turns out that their athleisure apparel is actually just as good for Zoom calls and at-home workouts as it is for gyms.
➢ Their online sales rose 157% and online now makes up 61% of their total sales (compared to just 25% this time last year).
Lululemon is in an interesting position where they’ve just proved that they don’t really need physical stores anymore. They could technically make a full transition to a direct-to-consumer company if they wanted. However, they’ve stated that they’re committed to opening more stores. Lululemon also recently acquired the fitness technology start-up Mirror (keeping in line with their aspirations to be a technology company).
A few other updates:
➢ Another victim of the retailpocalyspe: fashion retailer Century 21 files for bankruptcy.
➢ Slacks stock drops 20% even though they had 50% sales growth last quarter.
➢ The newest player in CBD? Martha Stewart.
➢ Despite record unemployment, Amazon is looking to hire 33,000 new employees (a mix of hourly factory workers as well as corporate. They currently have about 602,000 employees in the U.S.
That’s it for this week -- Join us next week for another market update.
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This material is not intended as an offer or solicitation for the purchase or sale of a security or any other financial instrument. Past performance does not guarantee future performance.
All the views expressed are those of Chris Simpson and not those of Sierra Ridge Wealth Management or NEXT Financial Group Inc.
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