Recent Headlines Have One Thing In Common, Which May Not Be Good
As we plug along the longest economic expansion in history, now in its 11th year, there's a common phrase that keeps popping up in headlines. Over the last month or so, variations such as "the worst since 2009" or "for the first time since 2009" have become commonplace.
On Tuesday, U.S. manufacturing, as measured by the ISM manufacturing PMI, fell to its lowest level in September since 2009. The new export orders index also fell to the lowest level since 2009, likely a result of the ongoing trade war between the U.S. and China. FedEx, which expects global trade volumes to contract this year for the first time since 2009, directly cited global trade disputes as the culprit. Another victim of the trade war has been the U.S. service industry, as IHS' Markit Survey showed service-sector jobs contracting for the first time since 2009 in September.
These headlines aren't only popping up in the U.S. A couple of weeks ago, China's National Bureau of Statistics' data showed industrial production growth slumped in August to the lowest level since the global financial crisis in 2009. On Tuesday, German data showed factories recorded their weakest performance in September since 2009. Also last month, the Australian Bureau of Statistics released data showing Australian GDP growth slowed to the worst level since 2009. Even the semiconductor industry, which represents more than $400 billion in global sales, posted the worst six months since 2009.
The stock market is finally catching up to the realization that the global economy may be heading into a recession. Just two days into the fourth quarter, the Dow Jones Industrial Average and S&P 500 are already on pace for their worst quarters since 2008 and 2009, respectively. The tech-heavy NASDAQ and Russell 2000, which is comprised of small-cap stocks, are both on track for their worst quarters since 2009. The volatility index, or VIX, which measures expected volatility and is considered a "fear gauge," has increased 29% through two days, its largest rise to a quarter on record.
With warning signs flashing all over, it will likely come down to central bank policy makers opening their tool kits in an attempt to stimulate the economy and prevent the stock market from crashing. They've already intervened in money markets over the last few weeks for the first time since 2008. Coincidentally, today is the 11th anniversary of President Bush signing into law the Troubled Asset Relief Program (TARP), which allowed the U.S. Department of the Treasury to purchase or insure up to $700 billion of "troubled assets."
"Can you endorse me on LinkedIn?" The pace of hiring among U.S. private sector companies slowed in September to the slowest rate since June. The annual monthly average for the year fell to 145,000 per month, well below the 214,000 per month at this point last year. August's number was also revised down to 157,000 from an original 195,000. Moody’s Analytics' chief economist said “Businesses have turned more cautious in their hiring. Small businesses have become especially hesitant. If businesses pull back any further, unemployment will begin to rise.”
They had no choice. As predicted yesterday, E-Trade gave in and is the latest brokerage to slash commissions on stocks, ETFs and options to zero. The company estimates the move will impact quarterly revenues by $75 million. It's been a blood bath for brokerages this week. The returns of Charles Schwab, E-Trade and TD Ameritrade this week, respectively, are -12%, -19% and -29%. That leaves two questions. First, will Robinhood be the next unicorn to fall? Its private valuation has gone from $5.6 billion last year to $7.6 billion this year. Second, that leaves Fidelity as the only major brokerage yet to cut commissions to zero. Judging by their response, they may hold out longer than the others, unless #boycottFidelity gains steam.
Facebook may censor this. According to a survey from Pew Research Center, an increasing number of Americans are getting news from social media while their concerns about these sources are growing. The top three social media sites for news, in order, are Facebook, YouTube and Twitter. A majority of those surveyed believe social media companies have too much control over news users see and that their roles in what they see results in a worse mix of news. A staggering 88% of respondents believe that social media companies have at least some control over the mix of news users see. Almost as surprising is 12% think social media companies have no control over what news they see.
Who needs scientists when you have computers? Pharmaceutical giant Novartis and Microsoft are teaming up to use artificial intelligence to solve some of the toughest problems in medicine. Under the five-year agreement, Microsoft will work on new AI capabilities designed to help Novartis' business from research through commercialization. They'll also use deep learning to improve the speed and accuracy of developing new medicines. The cost of researching and commercializing a new drug, which hasn't changed much in decades, takes an average of 14 years at a cost of up to $2.5 billion.
Cut, clarity and crime. Italian prosecutors have completed their probe into a long-running case in which some of Italy’s largest banks are suspected of colluding with diamond brokers to scam bank clients. They allegedly sold diamonds at inflated prices while telling clients they were sound financial investments. Executives from various banks, including Italy's largest, UniCredit, have been named in the prosecutors' documents. 87 individuals from five banks and two diamond brokers are named in the probe. In February, prosecutors seized more than 700 million euros from the entities being investigated.