Daily Capital

Weekly Market Digest: Morgan Stanley Announces it Will Buy E*Trade

It was a short week for trading that ended with a risk-off tone. Defensive sectors like consumer staples and utilities held in relatively well, while more cyclical sectors like technology and consumer discretionary took a beating on Friday. Global financial markets digested new information regarding the increase in Coronavirus cases surfacing outside of China. The virus is seen to be at a pivotal point for containment that could go either way.

Weekly Returns

S&P 500: 3337.75 (-1.25%)
FTSE All-World ex-US (VEU): (-1.49%)
US 10 Year Treasury Yield: 1.46 (-0.13)
Gold: $1,642.6 (3.77%)
EUR/USD: 1.0848 (0.14%)

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Major Events

  • Monday – Jeff Bezos, CEO of Amazon, announced he is launching a new fund called the Bezos Earth Fund, a $10 billion initiative to fund efforts toward climate change.
  • Tuesday – Shares of Apple stock took a hit Tuesday after warning disruptions in iPhone manufacturing, due to the Coronavirus, would cause it to miss its revenue guidance for the quarter.
  • Wednesday – Fed minutes showed officials were content with no change to current monetary policy.
  • Wednesday – The IMF reiterated their view of stabilizing global growth but cited the coronavirus as one of the main concerns that could alter the outlook.
  • Thursday – Morgan Stanley announced its plan to buy discount broker E*Trade.
  • Friday – The 30-year U.S. Treasury yield dropped near all-time lows Friday as fear of broader contagion outside of China dominated headlines.

Our Take

If the sudden rise of cases of coronavirus outside of China continues to escalate, it would jeopardize what appears to be a recent bottoming in global growth which is already on rocky ground. So far it has been a solid corporate earnings season, but the virus has already created supply chain disruptions causing concern on what the actual fallout will be. Most agree the risk of the virus on the global economy is real and developments are being followed closely.

What has been interesting is that equity market reactions have been relatively muted. Financial Media is compelled to put a narrative to every intraday market move, so it is hard to say for sure. Perhaps the market was also just taking a breather after recently surging to all-time highs? There does appear to be somewhat of a disconnect from fundamentals especially in certain areas of the market like technology and mega-cap growth stocks. But we know better to try to time or forecast the reversal! All we know is these trends eventually come to an end, we just don’t know when.

Big News on Wall Street this Week

On a lighter note, remember the cute little E*Trade baby trading in front of a webcam that ultimately turned E*Trade into a household name? If you want to feel old, that was 2007, meaning that little baby is about 13 years old now. Just this week, it was announced E*Trade will be purchased by Morgan Stanley in a $13 billion all-stock deal. The deal marks the largest acquisition by a Wall Street bank since the 2008 financial crisis.

There are many opinions on what this means and whether it is a good move. The recent Schwab and TD Ameritrade deal played a role as competition in the discount broker space has been heating up for years now over the race to zero commission fees. On the other side of the equation we have seen big banks like Goldman Sachs and JP Morgan make moves to diversify their revenue sources away from traditional net interest margins in such a low interest rate environment. Add in a relaxed regulatory environment and you get prime conditions for a big merger. We expect this trend to continue and more shake-ups to follow. As far as whether it is a good decision?… Only time will tell!

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The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.

Lacey Cobb, CFA, CFP®
Lacey Cobb serves as the Director of Advice Solutions at Personal Capital. She has 10 years of financial industry experience, with a background in portfolio management, trading, research, investment analysis, and financial planning. Prior to Personal Capital, she was the Head of Trading and Research at Polaris Greystone Financial Group, where she managed the portfolio management team and served on the investment committee. She started there as a financial planner and helped grow AUM from $250 million to $1.5 billion. Before that, she worked for State Street as a fund accountant. Lacey graduated from the University of California, Davis, and holds both the Chartered Financial Analyst® designation and Certified Financial Planner™ designation.

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