The Only Thing Constant is Change

in Market Commentary by

Stocks delivered a rare loss this week, but it was a small one, and volatility remained mostly absent. Markets dealt with modest selling pressure late in the week as it became clearer that passing tax legislation this year will be difficult. Talks of delaying corporate tax cuts to 2019 also weighed. M&A was active, led by an unsolicited $105 billion takeover bid for Qualcomm by Broadcom.

Weekly Returns:
S&P 500: 2,582 (-0.2%)
FTSE All-World ex-US: (+0.5%)
US 10 Year Treasury Yield: 2.40% (+0.07%)
Gold: $1,276 (+0.4%)
EUR/USD: $1.166 (+0.4)

Major Events:

  • Monday – Broadcom proposes to acquire Qualcomm for $105 billion.
  • Monday – Walt Disney was said to have held talks to buy a large portion of 21st Century Fox’s entertainment division.
  • Tuesday –Snapchat disclosed that China’s Tencent recently bought a 12% stake.
  • Wednesday – The Saudi government was said to be aiming to confiscate up to $800 billion of cash and other assets in the wake of numerous arrests of high profile individuals over the weekend.
  • Wednesday – Regulators suggested AT&T may have to sell its Turner television unit or DirectTV in order to win approval to acquire TimeWarner.
  • Thursday – The Senate unveiled its tax plan, including delaying corporate tax cuts to 2019.
  • Friday – Hasbro, maker of Nerf and Monopoly, was said to have made an offer to acquire Mattel, maker of Barbie and Hot Wheels.

Our take:
This week featured significant M&A activity, highlighted by Broadcom’s unsolicited $105 billion bid for Qualcomm. Another big one that is further down the road is AT&Ts acquisition of Time Warner. Somehow, as tech stocks dominate this long bull market, it feels appropriate to look back 17 years ago to when AOL was consuming Time Warner. To many, the deal marks the end of the dot.com bubble and goes down as one of the worst in history. But at the time, AOL seemed flawless. I remember working with client accounts at the time and AOL was the single most popular stock held in retail portfolios. People were very emotionally attached and often upset at the suggestion of selling. It was hard for many to fathom at the time that things could change fast. But they can, and nothing about that has changed.

Here is an interesting quote from Gerald Levin, who was CEO of Time Warner at the time: “I think it’s something that no one could have foreseen, and to this day, whether Apple is going to dominate entertainment or whether Amazon is going to dominate publishing, all the old business plans are out the window. AOL was the Google of its time. It was how you got to the Internet, but it was using some old media business ideas that were undone by the Internet itself, and that’s why Google came along.”

While AOL was never the most valuable company, it illustrates how hard it is to stay at or near the top. Just ask General Electric which lost its status as most valuable public company in 2008 to Microsoft which stayed on top for four years before Cisco overtook it. For what it is worth, Apple surpassed Exxon in 2012 as number one and hasn’t looked back.

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Craig Birk, CFP®

Craig Birk, CFP®

Craig Birk leads the Personal Capital Advisors Investment Committee and serves as the Chief Investment Officer. His focus is translating improvements in technology into better financial lives. Craig has been widely quoted in the Wall Street Journal, Bloomberg, CNN Money, the Washington Post and elsewhere. Prior to Personal Capital Advisors, he was a leader within the portfolio management team at Fisher Investments, helping assets under management grow from $1.5 billion to over $40 billion. Craig graduated from the University of California at San Diego and has earned the Certified Financial Planner® designation.

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