Verizon Forks Over $4.8 Billion for Yahoo – Yahoo has been desperately seeking a buyer for months, as the struggling internet company has watched its market value decline precipitously from its peak in 2014. The stock reached a high of $51.75 in November of 2014 and has not come close to that level since, as it still looms under $40/share. The S&P 500 is trading higher over the same time frame. The deal has Verizon set to pay about $4.83 billion to scoop up Yahoo’s core Internet assets as well as real estate. This will ultimately add Yahoo’s consumer services—search engine, email service, news, sports, finance, video and the Tumblr social network—to Verizon’s existing portfolio which includes AOL as well as popular sites such as The Huffington Post. With the acquisition of Yahoo, Verizon not only gets a well-known brand, but it also gets Yahoo’s advertising technology and 22 years of consumer data.
Fed Leaves Rates Unchanged – not surprisingly, the Federal Reserve decided this week to leave interest rates unchanged, as they reacted mostly to global volatility in the wake of the surprise Brexit outcome. Had they focused solely on domestic measures, the outcome may have been different. A very strong June jobs report had the unemployment rate below 5%, and inflation while soft is still ticking up slightly higher than 1%. The base case at this stage, in Zacks Investment Management’s view, is for two rate hikes later this year—one in September and one in December. Though the Fed’s recent history suggests that any number of things could change that trajectory, even general election volatility – which the Fed should not concern itself with, but does anyway.
Wild Swings in Crude Prices – many reports emerged this week that crude oil is headed for another bear market, but investors should not get spooked—crude oil prices are historically volatile and undergo much wilder swings in prices than equities. Crude fell to below $30 at one point, climbed up to higher than $50 and has now fallen another 20% from that level. Inventories are higher and demand weakened slightly as uncertainty set-in late in the quarter, but we expect prices to stabilize within this $40-$60 range (as we’ve written before). Don’t expect gangbusters earnings recoveries from Energy companies, but we also wouldn’t expect another Energy-driven earnings recession either.
Summer Tourism Season Impacted in Europe – in spite of weaker relative currency in the Euro area, tourism is feeling a hit as a string of terrorist attacks has understandably left travelers reluctant. With attacks in popular tourist spots like Nice, Paris, and the latest in Germany, industries such as hotel chains, airlines, restaurants, and luxury retail are feeling the pinch. Tourism makes up a significant portion of total GDP for many European countries, and a slow season could increase the likelihood of a shallow recession in the area over the next few quarters. Brexit worries that lead to slower or delayed investment could also prove a relevant headwind for the already fragile area. At Zacks Investment Management, our primary focus remains on domestic (U.S.) investment and the relative strength of the U.S. on a global scale.
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