STIMULUS AND ANTI TRUST LITIGATION

In my view the market had little reaction to what Bloomberg writes “is the most significant monopoly case filed in the US in perhaps 100 years.”  The US Justice Department is poised to sue Alphabet for allegedly violating antitrust laws by abusing its power as the world’s largest search engine.

The lawsuit comes on the heels of a report by the House antitrust panel that found Google and three other tech giants—Facebook, Apple and Amazon—all abused their power as gatekeepers in the digital economy to thwart competitive threats.

In rare bipartisan spirit both Republicans and Democrats are unified in their view that the social media giants have too much power and influence.

As noted the other day, I believe this is one of the biggest risks facing the indices given the massive concentration of wealth in these four names, amounting to about 19% to 20% of the S & P 500 capitalization.

There is ample precedent that such a frontal legal attack impedes further business and wealth creation for the companies/sectors involved.

Markets however focused upon stimulus talks.  The 10-year Treasury touched its highest level in four months.  Equities were volatile ending moderately higher. Even if a stimulus is not approved before the election, one is all but assured after.

What will happen today?  After the close, Netflix reported results that disappointed Wall Street as subscriber growth missed estimates.  The Company stated “our record first half paid net additions would result in slower growth in the back half of the year.”

As written several times, many companies have front loaded six years of growth in six months because of the pandemic.  Is Netflix a harbinger of earnings reports to come to validate the preceding statement?

We will know that answer by the end of the month.

Last night the foreign markets were mixed. London was down 1.12%, Paris down 0.93% and Frankfurt down 0.83%.  China was down 0.01%, Japan up 0.31% and Hang Sang up 0.75%.

The Dow should open flat amid flat amid continuing stimulus discussions and high-profile earnings miss in a widely owned “stay at home stock.”  The 10-year is yielding 0.81%, the highest level in over four months.

At some juncture the rise in rates will begin to affect equity prices, but the question is at what level?  In every sell off since 2009 for the exception of March, the selloff was the result of higher interest rates and a potential change in monetary policy.  The major issue today is that rates are so low that any uptick is large on a percentage basis.

 

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