• York Investment & Finance

Global Markets Overview: North America

Updated: Sep 11, 2020

By Hal Bartlet, Analyst at the York IFS Global Market Telegraph

From 31 August to 6 September 2020

North American markets slipped this week to their lowest point since March [1] as a result of numerous technology stocks sliding as part of a greater investor sell-off after huge gains in recent weeks. The S&P 500, NASDAQ-100 and Dow Jones Industrial Average (DIJA) ended lower this week at 2.1%, 4.0% and 1.0% respectively.

Tesla has seen fantastic success and an ever-increasing valuation over the past months, with more and more discussion around whether it should be included in the S&P 500. After becoming the world’s most valuable (by market capitalization) car manufacturer, Tesla has been left out of the latest additions to the S&P 500. The current eligibility requirements for companies to enter the blue-chip index is to have four profitable quarters in succession. It is currently sitting as the sixth-largest component of the Nasdaq Composite index and the only company in the tech industry benchmark not to be included in the S&P 500 [2]. A potential reason behind the postponement of Tesla in the index could be down to its profit sources. The company has made a significant portion of its profits from selling regulatory credits to other carmakers, which executives have stated are not going to be a source of profit in the long-term and as a result, things bring up potential doubts over whether Tesla can not only continue profitability but keep up their stellar market valuation.

The popular trading platform Robinhood is reportedly under investigation relating to disclosures around its practice of selling clients’ orders to high-frequency traders [3]. The Securities and Exchange Commission’s (SEC) investigation into the unicorn, if found to be true, could cost the company up to $10 million if Robinhood comes to a settlement. The practice of selling order flow itself isn’t illegal, however a substantial portion of Robinhood’s revenue is derived from the practice over other dealings. Investors flocked to the platform over the pandemic, as an app favoured by millennials for its easy-to-use format and commission free trades. Robinhood saw 3 million new accounts in the first four months of 2020 and $180 million in trading revenue in the second quarter, up double from the first. 

Airbnb have walked away from talks with Bill Ackman and his company Pershing Square Tontine Holdings over the opportunity to go public with the company via a merger rather than a traditional initial public offering (IPO), which is the route they are subsequently taking. After raising $4 billion for his acquisition company, Ackman is on the hunt for a ‘mature unicorn’ [4]. One of the selling points for Ackman’s merger was the greater certainty amidst the risk of greater market volatility following November US presidential elections.

The US and Taiwan are currently working together to relocate supply chains away from China, as the Coronavirus pandemic and the US-China trade war exposed the risks of relying on China in global supply chains [5]. The majority of western governments agree that there is an urgent need to rebuild manufacturing capacity, especially for medical supplies and diversify the supply chains for security related products, however many are concerned about leaving China out altogether. Taiwan is also working with Japan to support companies from both countries to move partnerships from China to south-east Asia. Europe is being more cautious however, with critics saying that there is a ‘political push’ involved with the move.

By Hal Bartlet, Analyst at the York IFS Global Market Telegraph

This article was first published in University of York Investment and Finance Society's Global Market Telegraph (GMT) Edition 6 in early September 2020

Reference list:

[1] https://finance.yahoo.com/news/stock-market-news-live-september-4-2020-221302791.html?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAAA7IlherRmlgD8OxYFPK7taieVecdwLD11oYCVLh08K1uT3TM7EFB7mi0J9b3AHIwMB9LR3i07o9dNWMjXaOpZhks0k2dLhRzJfidk-XKPtGyvH7p0IVGsJ-KXBDFpraVNqhz29REtimYAiN1xXz29wtqYbucQSThXrdxaKe8u0n

[2] https://www.ft.com/content/1dacdd06-38e6-4cd5-9e4c-a06144310478

[3] https://www.wsj.com/articles/robinhood-faces-sec-probe-related-to-deals-with-high-speed-traders-11599074891

[4] https://www.ft.com/content/2f440306-3c1b-4ba0-9ec3-3f6beb0b8bed

[5] https://www.ft.com/content/64be66cd-91eb-4862-a8fe-7c998b2e4770

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