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- It's Russell rebalancing day. Stocks will be dropped and added to FTSE Russell's widely followed equity benchmarks, likely causing a flurry of late trading. (WSJ)
- Jony Ive, Apple's chief design officer, will leave the company later this year to form an independent design company. (Apple)
- The operator of Legoland Resorts and Madame Tussauds wax museums will be acquired for $7.6 billion by the Danish family that controls toymaker Lego, Blackstone and a Canadian pension fund. (FT)
- Global M&A volume reached $842 billion in Q2, down 13% from Q1 and 27% from its Q2 2018 level, as total deal count globally fell to its lowest since 2008. (Reuters)
- Hundreds of thousands or even millions of jobs will vanish as conglomerates are forced to kill their traditional business model for the new technological age. (Axios)
1 big thing: Breaking down the inverted yield curve
The U.S. Treasury yield curve has now been inverted for more than a month, with the 3-month bill paying a higher interest rate than the 10-year note.
Why it matters: An inversion is a near-perfect recession indicator that economists at the Federal Reserve recently called "the best summary measure" for an economic downturn.
- The yield curve inverted in March and May, but for very short periods of time, while other parts of the curve inverted as far back as December.
How it works: An inversion of the Treasury curve means that investors see a higher chance they'll get paid back in 10 years than in 3 months by the U.S. government, the world's most secure borrower.
Yes, but: Many market watchers, including top economists and some of the world's biggest asset managers, believe that the extraordinary measures the Fed took after the Great Recession have fundamentally altered the market and things are different this time.
- However, many of them said things were different when the yield curve inverted in 2000 and 2006, too.
There is a bright spot: An inversion doesn't signal a recession is coming immediately. Typically, it takes 6–24 months after an inversion for a recession to begin, and stocks usually perform well in the interim.
2. Investors move into riskier bonds in search for yield
The inverted yield curve on U.S. government bonds comes as central banks around the globe have signaled their intent to lower rates and ease monetary policy.
- Analysts at Deutsche Bank note that this week stocks, bonds and just about every other asset classes rallied, with major pickups in gold and oil (again up 30% year-to-date), while the dollar fell significantly.
Be smart: Positioning in global bonds "is already ... around half the levels associated with a full recession," Deutsche Bank analysts said in a recent note to clients, noting that the market has been "chasing rate cuts."
- "This week was an inflection point for fixed income investors," analysts at Bank of America-Merrill Lynch said in a note on Monday, as negative yielding bonds rose to 25% of total fixed income.
The big picture: Fixed income investors are moving into Italian bonds, which have record low yields but are at least still positive, and other government bonds from countries that are facing significant budgetary and financial challenges in Europe, chasing any return they can find.
3. A year of negative confidence
Consumer confidence in the EU has officially been negative for a full year, as the measure fell to an expected -7.2 reading Thursday.
4. IPOs had a major rebound in the second quarter
Data from hedge fund Renaissance Capital shows that the second quarter was significantly better than the first for the IPO market.
Between the lines: The second quarter's strong numbers were masked by the ugly showing in Q1, when IPO activity was slowed significantly by the U.S. government shutdown. Capital raised for both domestic and cross-border IPOs during the first half of the year fell by 37% year-over-year, with volume down 34%, according to data from law firm Baker McKenzie.
What the data says:
- 62 IPOs raised $25 billion in Q2, a 5-year record.
- Uber, Pinterest, and Chewy were among 5 billion-dollar IPOs during the quarter.
- Average IPO returns were 30% as Beyond Meat and the tech sector took flight.
The last word: Renaissance Capital CEO Bill Smith expects 2019 to be a "banner year," as Endeavor, WeWork, and Peloton are expected to come to market.
5. Oracle's new all-time high
Shares of Oracle closed at another record high on Thursday, continuing to build on momentum from the company's strong earnings report last week. Thursday's gains show investors are still high on the software giant, even after its 8% jump following the earnings report.
- Co-CEO Safra Catz said during a call with investors that she expects earnings of $0.80 to $0.82 a share and flat revenue growth, warning that currency headwinds from the strong dollar could weigh on profits.
- Of the 32 analysts who cover Oracle, 8 have overweight or buy ratings, 22 have hold ratings and 2 have sell ratings, MarketWatch reported.
6. Walmart woos gourmet food makers
Axios business managing editor Jennifer Kingson writes: A delegation of Walmart food buyers went to the Summer Fancy Food Show in New York this week to sing the praises of cauliflower-crust pizza and tell small entrepreneurs: "We're eager to work with you."
- "Our customer is asking for change, asking for top brands, asking for new foods," Laura Rush, Walmart VP and frozen foods buyer, told the specialty food makers.
Why it matters: Walmart has been ardently courting “the wealthy shoppers in superstar cities who traditionally shop on Amazon,” as Axios' Erica Pandey writes. Going toe-to-toe with Amazon’s Whole Foods means cozying up to mom-and-pops who sell artisanal halva, Malaysian condiments, organic cotton candy and other items at the trade show.
- Unlike in times past, Walmart is willing to work with small-batch food makers to figure out packaging, supply chain, and inventory issues.
- "We heard you guys say it's not easy to get into a Walmart, so we are evolving," Rush said. "We're changing our process."
Mythbusting: Many of the 2,400 exhibitors at the trade show would be hard-pressed to supply 4,000 Walmart stores, noted Kevin Head, VP and divisional merchandise manager for breakfast and bread. “We have items that are in 10 stores,” he assured them.
Groceries, your way: Head described Walmart's big forays into home delivery, curbside pickup, and autonomous vehicles. "When that technology is ready, we will be ready," he said.
Trendy liquid: Among the hottest comestibles-of-the-moment is ... water, according to the Specialty Food Association, which runs the trade show. "Specialty waters are the top category forecast to grow over the next five years," according to a release.
- Jerky and meat snacks, vegetable-based carb substitutes, plant-based snacks and dairy alternatives, and African foods also top the trends list.