The stock market investors got spooked by the Fed’s Chairman. Moreover, the FTC antitrust probe into big tech stocks didn’t help the sentiment either — more on that in the “Overall Market” section.
Beyond the overall market, a long-awaited regulatory approval came through for two companies to merge while a new regulatory probe dragged down a few tech stocks — more on that in the “What’s Up?” and “What’s Down?” sections.
Oh, and by the way, the members of the royal family of Saudi Arabia are such risk-takers — more on that in the “Water Cooler” section.
But, first, here is a recap of what happened in the market yesterday:
- U.S. markets: The three indices barely moved or didn’t move at all on Tuesday. Scroll down to the “Overall Market” section to read more.
- Cryptocurrency: It seems that every time the overall market gets worried about something, investors rush to park some money in the cryptocurrency market. After a small drop earlier in the week, the above $10,000 mark was the new norm for Bitcoin’s price.
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The Fed’s Chairman Is Worried.
The Dow flat-lined, literally. The Dow index finished Tuesday exactly where it started the day. The other two indices didn’t move too much either, just barely enough to finish the day in the green.
The Fed’s Chairman visited the Congress and warned the law-makers of the consequences of their $1 trillion budget deficit. The portion of his discussion that may have worried investors is when he talked about how the Fed is running out of ammunition and may not be able to save the economy if an economic crash occurs. He is right. The interest rate is too low, and being careless with the budget and running such large deficits makes the economy vulnerable.
To explain it better, let’s take an example. Let’s say you are driving at a fast speed, near $100 miles an hour. Instead of slowing down, you speed up. You may not crash, but if you do, nothing can save you. Moreover, even a small thing such as a phone call, or another car changing lanes may throw you off. In this example, the car is the U.S. economy, and the driver is the U.S. Congress. Jerome Powell is right. We hope Congress takes note.
Merger, Merger, …
Shares of TMobile (Ticker: TMUS) were up more than 11% on Tuesday. After a long-awaited regulatory approval process, Federal Judge Victor Marrero approved the T-Mobile and Sprint (Ticker: S) merger without conditions. The two companies have agreed to merge to lead the U.S. entry into the era of 5G wireless.
A few months ago, several states had blocked the merger sighting the lack of competition in the wireless industry as the main reason. However, if you think about it, the merger of these two smaller carriers gives them the strength and power to compete with the two already dominant players in the market (talking about AT&T (Ticker: T) and Verizon (Ticker: V) and should be better for consumers. It looks like Judge Victor Marrero agreed with us.
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So, what happened?
Shares of Facebook (Ticker: FB) were down more than 2% on Tuesday. The decline in the stock price wasn’t specific to what Facebook has done. Instead, it’s the direct result of the FTC probe into technology companies such as Facebook. The Federal Trade Commission has opened an antitrust probe into Facebook and other technology companies, and that’s what has got investors worried.
What you need to remember is if this FTC probe ends up splitting these big tech companies into smaller ones, the result will only be higher valuations for investors. Imagine Facebook splits Instagram as a standalone company. Investors will have a chance to invest in two independent, rapidly growing cash-generating stocks. The media will paint a doom and gloom picture, but splitting big tech firms is only good for investors.
So what happened?
The Kingdom of Saudi Arabia is one of the biggest investors in Softbank’s venture capital fund that has invested in several failed or failing startups. We are not strangers to WeWork’s IPO failure last year. Just yesterday, another Softbank startup, Brandless, closed its doors. With every failed investment the riches of the Saudi family shrinks. Not that you need to be worried about whether they have any money left, but, they seem to be bad investors. They also seem not to be learning from their mistakes.
What did they do again?
The sheiks are now investing in risky companies such as Beyond Meat (Ticker: BYND), biotech start-up TurtleTree Labs and animal-free Bond Pet Foods, according to a report by CNBC.
We have no idea how diligent they are in their investments. However, from the looks of it though, they haven’t made too many good decisions. The moral of the story is that even investors with a ton of money to invest may get too excited about the hype cycles.