The Sadomasochistic And Foolish Trade Conflict Is Setting The U.S. Up For A Recession

The Dow dropped 210 points, or -0.82%, at the open, while the S&P 500 dropped -0.73%, and the Nasdaq fell -0.85%.

“The bear is alive and kicking,” said Morgan Stanley’s Mike Wilson. “We think the failed breakout last week for the S&P 500 confirms we are still mired in a cyclical bear market.”

Here’s what else is happening today:

If last week was all about the trade war, this week may turn out to be all about revised forecasts for the rest of this year. Late Sunday, Goldman Sachs Group lowered its fourth-quarter growth forecast by 20 basis points to 1.8%, citing a larger than expected impact from recent events in the U.S.-China trade dispute while also raising concerns of a U.S. recession. The firm no longer sees a trade deal happening before the 2020 elections.

Goldman Sachs isn’t the only voice sounding the alarm. Former U.S. Treasury Secretary Lawrence Summers called the fight with China a “sadomasochistic and foolish trade conflict,” and told Bloomberg that the current risk for recession is “much higher than it needs to be and much higher than it was two months ago. …You can often play with fire and not have anything untoward happen, but if you do it too much you eventually get burned.” On the upside, Summers said it “would be a great surprise” if a new recession matched the magnitude seen during the financial crisis.

CBS and Viacom are closer to agreeing on a price for their long-awaited merger. The two companies negotiated late into the night Sunday, and a deal is expected early this week. A deal would unite the most-watched broadcast network in the U.S. with the owner of the Paramount movie studio, as well as cable channels such as MTV and Nickelodeon, and would end years of failed merger attempts and infighting at both companies. Both stocks were down Monday morning, with CBS down -0.43% and VIA down -2.93%.

Cloudera announced an agreement with Carl Icahn that will see the activist investor awarded two seats on the company’s board. Icahn disclosed his 18% stake in the enterprise cloud software company earlier this month. “Since the disclosure of his stake in Cloudera, we have been engaged in very constructive conversations with Carl and his colleagues,” said Cloudera Chairman and interim CEO, Martin Cole. “Based on the strength of our product portfolio, our impressive enterprise customer base, and the potential of our forthcoming new Cloudera Data Platform, Carl has indicated that he believes Cloudera is undervalued – and we fully agree.” Along with the two board seats, Icahn agreed to not seek further board representation and will limit his ownership to no more than 20%. CLDR was down nearly -5% Monday morning.

Roku shares were boosted early Monday after analysts at Needham said the streaming hardware company was a better bet than Netflix. “Roku is the dominant internet aggregator for streamed TV & movie content… at about 1/20th the valuation,” the analysts wrote. Roku shares are already up an impressive 309% so far this year. Needham gave the stock a Buy rating and raised its price target from $120 to $150, indicating possible upside of 12% over the next year.

As earnings season winds down, retailers are set to take center stage this week. Heavy-hitters Walmart and Macy’s are expected to report in the week ahead. The Street is projecting earnings declines for both companies, echoing the downtrend seen across the retail sector. JCPenney, which is in danger of being delisted for trading too low, is also expected to report this week. Analysts at Morgan Stanley say Walmart—which is scheduled to report Thursday morning—could see U.S. e-commerce losses amounting to $1 billion this year as the retail giant tries to bolster its online business against Amazon. 

Stocks We’re Watching

Paylocity Holding Corp (NASDAQ: PCTY): Shares in this payroll services company jumped to an all-time high last week after delivering a fiscal fourth-quarter earnings report that showed strong customer growth. Paylocity added 3,500 customers in fiscal 2019, ending its June quarter with 20,200 – a jump of 21% over the year prior. “Paylocity ended the year with 382 sales reps, up 23% from 310 at the end of fiscal 2019,” analysts at Jeffries wrote in a note. “Management noted that the sales organization was fully staffed ahead of the start of fiscal 2020, which we think should allow it to enter the peak selling season in full stride.”

Cutera Inc (NASDAQ: CUTR): Cutera is up nearly 34% in the last week after crushing earnings estimates last Thursday. The company reported earnings of $0.31 per share, beating the consensus estimate of $0.01 per share, and representing an earnings surprise of 3,000%. The laser skin treatment company posted revenues of $47.77 million, compared to $42.55 million in the same quarter last year.