Market Share Newsletter Vol 3 Issue 11

Source: Bloomberg

Equities

• AT&T has recently announced that they are looking to spin off their media. In other words, they are looking to unwind their widely-criticized $85 billion acquisition of Time Warner in 2018. AT&T and Discovery Media announced May 17 that they would combine their streaming and cable businesses—including HBO, CNN, TNT, Food Network, Animal Planet, and HGTV. This would form a new publicly traded company and AT&T would receive approximately $43 billion in cash and securities. AT&T has already stated they plan to cut their dividend post spin-off to reflect their smaller size.
• Energy and financials have been the best performing sectors within the S&P 500 year-to-date as energy has gained 37.6% and financials have gained 27.7% through May 25. Cyclical stocks have performed very well this year as they depend on the economy doing well and investors, including us, believe that the U.S. economy will continue to expand at a robust pace. The worst performing sectors year-to-date have been consumer discretionary and utilities.
• Based on Bloomberg data, foreign investors purchased a record amount of $3.4 billion in Chinese stocks on May 25. Investors have moved into Chinese stocks as the Chinese government is trying to maintain better control over commodity prices and announced plans that they will attempt to make Shanghai a global financial hub where multinational companies would set up regional centers.

Source: Bloomberg

Fixed Income, Commodities and Currencies

• The 5-year breakeven inflation rate, which measures inflation expectations in the bond market, reached its highest level since April 2005 of 2.82% on May 18. The 5-year breakeven rate is the inflation rate that bond investors will need to average in order to have bonds linked to inflation equal to the yield on a 5-year U.S. Treasury note that pays a fixed interest rate.
• Despite rising rates over the past few months and a strong increase in inflation expectations, there is still $12.7 trillion of global bonds that carry negative yield to maturities. As we have addressed repeatedly, Switzerland’s 50-year government bond continues to trade with a negative yield and currently yields -0.01%.
• The largest countries from around the world have again started negotiations with Iran to revive an agreement that puts caps on how much uranium Iran can stockpile, as it recently became 15 times larger than allowed, based on data from the International Atomic Energy Agency. Iran holds the world’s second largest natural gas reserve and the fourth largest oil reserve.