Plus, the Fed delivered a quarter-point cut, the OECD reduced its global growth outlook for 2019, and Airbnb is going public.
Stocks traded slightly higher to start Thursday with to Dow adding 39 points, or 0.1%, at the open. The S&P 500 traded 0.1% higher, while the Nasdaq gained 0.2%.
This morning’s mild optimism came as a new round of face-to-face talks between American and Chinese officials are set to begin in Washington later today. This round of negotiations are in preparation for the high-level talks planned for early October that will help to determine whether the two countries can make progress toward a trade deal. “In general, the market in September can be characterized as more rational: We’re at or near all-time highs and haven’t really budged from that in September,” Art Hogan, chief market strategist at National Securities, said. “We’ve got U.S.-China becoming more constructive and there’s evidence as there’s been no escalation, there’s a little de-escalation. All of that becomes a positive and the market seems to be OK when we can compartmentalize trade. When relationships were deteriorating, the market made that the No. 1 enemy.”
The market gave the cold shoulder yesterday after the Federal Reserve announced another quarter-point “insurance cut” in rates as forecasts showed officials were split over the need for further easing. Chairman Jerome Powell refused to say where he thinks rates should go for the rest of the year in his post-decision press conference, while the central bank’s “dot plot” showed no further cuts for this year even as the markets are pricing in a roughly 65% chance of another move lower by the end of 2019. Three of the Fed’s voting members voted against the cut, as both Boston Fed President Eric Rosengren and Kansas City Fed President Esther George opposed for the second time. This differing of opinions among members of the FOMC helped to drive the spread between the 2- and 10-year Treasury yields near inversion again as the shorter-term yields rose while the longer-term slipped.
The Fed injected a third dose of liquidity into the money market for a third day, offering up to $75 billion to prevent rates from spiking again. The so-called overnight repurchase agreement operation follows yesterday’s move by the FOMC to reduce the interest rate on excess reserves, or IOER, by more than their main interest rate in an attempt to sooth money-market stresses. The Fed’s operations over the last three days have calmed the funding market, with repo rates falling back to more normal levels after jumping to 10% Tuesday. But even as the central bank cut the rate on excess reserves yesterday, many analysts are calling for more aggressive steps like a standing fixed rate repo facility or balance-sheet expansion. “The Fed definitely did not completely squelch it,” said BMO senior rate strategist Jon Hill. “Let’s say it has a better grip on it. Calm and being back to normal are two different things.”
The OECD cut its world growth forecast to 2.9% for 2019, a drop from its 3.2% outlook just four months ago. The OECD said intensifying trade conflicts have sent global growth momentum tumbling toward lows not seen since the financial crisis and governments aren’t doing enough to prevent long-term damage. “Our fear is that we are entering an era where growth is stuck at a very low level,” said OECD Chief Economist Laurence Boone. “Governments should absolutely take advantage of low rates to invest in the future now so that this sluggish growth doesn’t become the new normal.”
Shares of software-as-a-services company Datadog debuted this morning, pricing in above the high end of its estimated range at $27 per share. Bloomberg reported yesterday that Cisco Systems recently approached Datadog with a takeover offer higher than the $7.8 billion valuation the company achieved in its initial offering. Datadog refused Cisco’s offer believing that it could be worth more as a public company over time, according to anonymous sources. The talks between Cisco and Datadog are no longer active. In other IPO news, Airbnb said this morning that it plans to go public some time in 2020. The home rental and travel unicorn was valued at $31 billion earlier this year. According to Reuters, Airbnb is widely considered to go the direct-listing route, helping the company to save millions of dollars in underwriting fees. Airbnb has said that its earnings were positive for 2017 and 2018, and said Wednesday that it raked in more than $1 billion in revenue for the second quarter of 2019.
Stocks We’re Watching
CDW Corporation (NASDAQ: CDW): Shares of CDW are up nearly 2% this morning and 6.7% over the last week after it was announced the IT solutions company will join the S&P 500 index beginning on Monday, September 23. CDW will replace Total System Services in the benchmark. The company earns more than half of its revenue from small- to medium-sized businesses, had net sales of $4.63 billion in Q2, and earned $196.6 million in net income. “We delivered excellent topline growth and profitability in the quarter while continuing to invest in the future and deliver shareholder value,” said CEO Christine Leahy in a statement announcing Q2 results. “These results reinforce the strength of our strategy and power of our business model – underpinned by balanced performance across our customer end markets, the breadth of our products and solution portfolio and the ongoing execution of our strategy for growth.”
Microbot Medical (NASDAQ: MBOT): Shares of this medical device company are up 271.51% so far this year, and 3.29% Thursday morning. Earlier this month, Microbot demonstrated a working prototype of its Self-Cleaning Shunt at the Rodman & Renshaw Global Investment Conference. The Self-Cleaning Shunt is Microbot’s first product candidate and is designed for the treatment of hydrocephalus and Normal Pressure Hydrocephalus. A day after the demonstration, HC Wainwright reiterated its Buy rating for the stock and issued a price target of $10 – 52% higher than the current price.