Investment Commentary – August 7, 2018

Year to Date Market Indices as of Market Close August 7th, 2018
Dow 25,628 (3.68%)
S&P 2,858 (6.91%)
NASDAQ 7,883 (14.20%)
Gold $1,218 (-8.30%)
OIL $69 (17.20%)
Barclay Bond Aggregate (-1.40%)
Fed Funds Rate 2.0% (last increase was 6/13/18)

Stocks close higher as earnings news trumps trade-war fear; Tesla soars 11% on Musk’s going-private tweet

U.S. stocks closed higher Tuesday as investors continued to brush aside anxiety over the trade war between the U.S. and China and instead focus on positive corporate earnings.
The Nasdaq rose for a sixth day in a row, its longest winning streak since March, led by Tesla Inc., which spiked following a tweet from Chief Executive Elon Musk that he was considering a move to take the company private, which was followed by confirmation from the company.

How did the main benchmarks fare?

The S&P 500 index SPX, +0.28% rose 8.05 points, or 0.3%, to 2,858.45, gaining for a fourth session in a row as energy and industrial sectors led. The benchmark index is only 0.5% below its record close of 2,872.87 reached on Jan. 26.

The Nasdaq Composite Index COMP, +0.31% gained 23.99 points, or 0.3%, to 7,883.66, while the Dow Jones Industrial Average DJIA, +0.50% advanced for a third session, adding 126.73 points, or 0.5%, to 25,628.91.

The CBOE Volatility Index VIX, -3.02% , known as Wall Street’s fear index, is near its lowest levels of 2018 at 10.97. The gauge, which reflects bullish and bearish bets on the S&P 500 in the coming 30 days, tends to fall as stocks rise.

Musk Mulls Taking Tesla Private, Valuing Company at $82 Billion

Elon Musk said he’s considering taking Tesla Inc. private in a radical step that, if successful, would ease pressure on the money-losing automaker.

The announcement, made initially via Twitter, stunned investors and sent Tesla’s stock price soaring as much as 13 percent. It followed the news that Saudi Arabia’s sovereign wealth fund had built a less than 5 percent stake in Tesla worth about $2 billion.

And yet it also left many questions unanswered, namely how Musk — who owns almost 20 percent of the company — would be able to come up with the $66 billion necessary to complete the transaction. At $420 a share, Tesla would have an enterprise value of about $82 billion including debt. To take it private, the billionaire would have to pull off the largest leveraged buyout in history, surpassing Texas electric utility TXU’s in 2007.

Best Environment

“The reason for doing this is all about creating the environment for Tesla to operate best,” Musk, 47, wrote in an email to employees. He said wild swings in the stock price are a “major distraction” to workers and that being public “puts enormous pressure on Tesla to make decisions that may be right for a given quarter, but not necessarily right for the long-term.”

Around the Web:

Fed stays the course: The U.S. Federal Reserve wrapped up its two-day policy meeting on Wednesday, issuing a statement that suggested a September rate hike was likely given the strong labor market and continued economic expansion.

Tough talk from China: Beijing threatened $60 billion in retaliatory tariffs should the United States move ahead with its own plans to tax Chinese imports. The latest saber rattling in the ongoing trade spat between the two nations left investors wondering what’s next.

Big Apple: After a strong quarterly earnings report, Apple became the first U.S. company to see its market cap break the $1 trillion mark. The company reported solid demand for its iPhone product line while app sales reached an all-time high.

Other Notable Indices (YTD)
Russell 2000 (small caps) 10.45
EAFE International -1.88
Emerging Markets -3.90
Shiller Annuity Index 10.52

The views presented are not intended to be relied on as a forecast, research or investment advice and are the opinions of the sources cited and are subject to change based on subsequent developments. They are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investments.