Weekly Market Update: Friday, May 15th 2020
“A Tale of Two Metrics” could be a fitting title to this week’s market update. On one hand, most of the economy is still being shuttered by the coronavirus. Small businesses are suffering and the unemployment rate jumped to 14.7%, the highest it’s been since the Great Depression. On the other hand, the stock market has rebounded significantly since it’s low in March (the S&P is up 20% since March 20th.
Jerome Powell rules out negative rates
Jerome Powell, the chairman of the Federal Reserve (the central bank of the United States) spoke Wednesday and stated that they are not considering dropping the interest rate to a negative rate.
What is the interest rate?
● The “interest rate” is the rate at which banks can borrow money from each other and is determined by the Federal Reserve.
● This rate usually acts as a benchmark for other rates such as credit cards, mortgages, and bank loans.
● A lower interest rate = more incentive for people to borrow money (because it will be cheaper to repay).
The Fed cuts the interest rate in hopes that it will spur people to go out, spend money, and borrow money to buy things or open new businesses. It’s a way to jump-start a struggling economy.
What does this mean?”
● Earlier this year, in a historic move, the Fed announced that they will drop interest rates effectively to 0%.
● Now, they’re saying that they won’t go any lower than 0% and markets responded by dropping slightly on Thursday.
The Bitcoin “Halvening”
If you like to keep up with cryptocurrency then you probably were aware of the bitcoin halving process that took place this week (it’s only the third halving ever).
What is a bitcoin halving?
● This is an event where the rate at which new bitcoins are created is cut in half.
● This happens approximately once every 4 years and is done so because the total number of bitcoins is finite.
While some investors were hoping otherwise, this event came and went without a huge shock to bitcoins price. Most likely because investors have been anticipating this event for some time and have factored that into bitcoin’s price.
Fun Fact: Paul Tudor Jones, a billionaire hedge fund manager, praised bitcoin this week and said that he holds 2% of his fund in cryptocurrency.
Uber offers to buy Grubhub
You don’t need to be a Harvard MBA to guess that Uber’s business is bleeding with everyone staying at home. Honestly, it’s been bleeding since before the Coronavirus (they lost $1.1 billion in the last quarter of 2019).
However, that hasn’t stopped them from going on a spending spree.
● Last week, they made a $170 million dollar investment in scooter competitor Lime.
● They just offered to acquire Grubhub.
If it goes through, this deal could really shake up the Delivery Wars between Grubhub, Uber Eats, and Postmates.
Twitter announces permanent WFH
Twitter made the announcement this week that all their employees can work from home, permanently. This sounds like a win-win-win situation.
● Employees - Get the flexibility and can live in cheaper areas (instead of being forced to live in expensive downtown SF to commute to Twitter HQ).
● Twitter - Fewer employees coming in every day can mean smaller (and cheaper) offices as well as happier employees.
● Society - If everyone starts to WFH it could mean less commuting, traffic, gridlock, pollution, etc.
It will be interesting to see if this sets the precedent for other companies to offer similar deals to their employees. If it does, it could change the landscape of how Americans work.
That’s it for this week! Join us next week for another market update.
Securities and investment advisory services offered through NEXT Financial Group Inc. Member FINRA/SIPC. Sierra Ridge Wealth Management and Chris Simpson are not an affiliate of NEXT Financial Group Inc. This material is not intended as an offer or solicitation for the purchase or sale of a security or an other financial instrument. Past performance does not guarantee future performance. All the views expressed are those of Chris Simpson and not those of NEXT Financial Group Inc.
The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy.
The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks.