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Stocks Keep on Sliding – Are We Heading for Bear Country?



bear market

US stock markets took a heavy beating today, as the treasury bond yields show no sign of cooling. October, especially the 10th, has an ominous history for US markets. Today’s selloff carries on that tradition.

All major indices are down at least 2%, with the S&P 500 3.2% down to 2814.00 and the Nasdaq Composite down a whopping 4.06% to 7510. The Dow30, thought to be a safe haven during a tech selloff, is down over 3.11% as well.

Today also comes as the fifth day of a steep losing streak for US equities. Thursday last week saw the yields on the 10-year and 2-year spike to 11-year highs, which marked the start of the current rout. The 10-year bond yield has hovered around 3.21-3.23%.

US 10-year yield / S&P 500 / source:

Some clear inverse correlation can be seen between the 10-year yield and the S&P500 as shown in the chart above. However, even as the short-term bond yields have remained relatively flat since yesterday, the markets today have seen their steepest selloff over the 5-day rout. In fact, the total drops rival those we saw earlier this year in February and March, which quickly recovered.

Bullish investors are hoping to see a similar recovery here.

Tech Selloff Drags Indices, but the Bleeding is Across the Board

The coveted FAANG stocks saw steep loses. (AMZN) is down nearly 5.50%. Apple (AAPL), which reached its $1 trillion market value in September, is down nearly 3.5%. Other big tech firms suffered similar bleeding. While most analysts warned that tech stocks were overvalued, their selloff drags down major indices that are heavy in themselves, such as the S&P 500.

However, the decline could be seen across all industries. Transports (DJT) dropped roughly 3.4%. Banks also saw selling. Chip makers like AMD and NVIDIA dropped, with the SOX ETF dropping over 3.80%.

Additionally, a large spike in trading volume was seen today, much higher than the 2018 average, accompanied by a spike in the fear and gauge index (VIX). These factors show that there was perhaps a panic sentiment taking hold of investors and hedge fund managers alike.

In an interview with CNBC, Jeremy Klein, chief market strategist at FBN Securities, said, “Portfolio managers tend to move to the sidelines in a skittish tape out of fear of suffering from a quick and sharp pullback.”

Going Forward

The climate is now showing signs that investors could be getting defensive. Precious metals are rising, and there’s an influx into “cash-like” vehicles such as Treasuries. It remains to be seen whether this is a pattern that will quickly bounce back as we saw in Q1 and Q2, or if it marks the start of a bearish trend for stocks.

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Is Starbucks a Buy? Depends on How Much You like Coffee



Starbucks shares are approaching a 52-week high after activist investor Bill Ackman announced a $900 million investment for accumulating 15.2 million of the company’s shares.

Starbucks has a market value of $29.2 billion and is the third-largest restaurant chain in the world. The company has 28,218 locations in over 75 markets, and more than 238,000 employees worldwide.

Ackman Says Starbucks Is a Good Bet

Ackman believes Starbucks shares could double in value in the next three years. According to the investor, the company has many business opportunities ahead, both in the US and in the Chinese market.

Moreover, Ackman didn’t forget to mention Starbucks’ plans for some serious share buybacks of $14 billion in the next few years. Doing the simple math, earnings per share have a growth potential of between $3.70 and $4.35 by 2021, from $2.40 in 2018.

Such a performance would push the Starbucks stock to a value of $93 to $117, by 2021. The company has already started with a $5 billion accelerated share repurchase agreement.

Besides, coffee is still a strong business worldwide. Despite its domestic performances, Starbucks has seen significant revenue growth, and has a financial position widely-recognized as reliable; its earnings per share have a notable record.

Starbucks earnings per share

Starbucks earnings per share / Nasdaq

Starbucks has 3,300 stores in China and continues to open about 50 new ones each month. The company’s market share in China reached 80% last year, in a coffee shop market estimated at $3.4 billion.

Things aren’t all smooth for the company, though. As the Chinese market is expected to grow, more competitors are looking to overtake Starbucks, the most important being the Chinese chain Luckin Coffee and Coca-Cola’s Costa Coffee.

Starbucks Is Making Significant Changes in Europe

With so many events ahead, Starbucks is planning a revolution across its business operations. CEO Kevin Johnson announced changes starting next week, as the company enters a new era of challenges due to the inactive domestic market, a mammoth expansion into the Chinese market, and harsher competition. CEO Kevin Johnson said:

“Starting next week and into mid-November, there will be leadership shifts and non-retail partner impacts as we evolve the direction of teams across the organization in size, scope, and goals.”

The first strategic move will happen in Europe as Starbucks sells 83 stores to Alsea, its South American partner. The Mexico City-based company that already owns 900 stores across Central and South America will add coffee shops in Belgium, Luxembourg, France, and the Netherlands to its portfolio. However, the roasting plant in the Netherlands will continue to be owned by Starbucks.

The company is planning to close outlets in Amsterdam and focus on its presence in London instead. The management encourages its 186 employees who will suffer from this move to apply for jobs available in London. If Brexit doesn’t stop them in their tracks.

Is Starbucks a Buy?

Starbucks has enough room for growth, despite competitors, the restructuring in Europe, and a possible slow down in the Chinese market. So, even if Ackman’s predictions don’t come true, the company is probably still a good bet for long-term investors who don’t get scared off by temporary downward trends.

Featured image from Shutterstock. 

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