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Will Washington reach a deal on a new stimulus spending package? The markets are pricing it in

August 5, 2020, 9:10 AM UTC

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Good morning. Global equities are climbing, as are U.S. futures, on optimism Washington will cinch a deal on a new stimulus package.

Let’s see where investors are putting their money.

Markets update

Asia

  • The major Asia indexes are mixed with the Hang Seng leading the way, up 0.6%.
  • This won’t go over well in Washington: China so far is not living up to its end of the bargain on the Phase One trade deal. It’s committed to purchase $25.3 billion worth of U.S. energy this year, but has so far bought just 5%. The two sides will meet mid-month to assess progress so far.
  • The clock continues to tick on the Microsoft-TikTok courtship. The big obstacle Microsoft faces: how to value the video-sharing app.

Europe

  • The European bourses jumped out of the gates this morning with benchmark Stoxx Europe 600 up 0.5% at the open, before climbing.
  • The EU opened an antitrust probe into Google’s proposed $2 billion deal to acquire Fitbit. “The gist of the probe is that Google—already the leader in online advertising in Europe, where it also has a 94% share of the search market—could further fortify that position by getting access to the health data that Fitbit holds,” Fortune‘s David Meyer writes.
  • It’s still unclear whether the deadly explosion yesterday at a major port in Beirut, the Lebanese capital, was an accident or an attack. Even before COVID, Lebanon’s economy was on the rocks. The price of crude climbed on concerns the region would sink into further instability.

U.S.

  • The major U.S. indexes look to extend the rally on Wednesday as futures all point higher.
  • The GOP and Dems are still about $2.5 trillion apart in talks on a new coronavirus stimulus package, but U.S. Treasury Secretary Steven Mnuchin says there will be a deal imminently, by the end of the week. According to a new Fortune-Survey Monkey poll, U.S. adults are overwhelmingly (80%) in favor of a second round of stimulus checks.
  • Disney shares are up more than 4% in pre-market trading today after the company reported its streaming subscribers number topped 100 million. Its cruise and amusement park business, in the words of Fortune‘s Aric Jenkins, “took a hammering.”
  • Remember last week when Kodak’s shares took off? The SEC is now investigating the circumstances around the company’s disclosure it had landed a $765 million federal loan, money needed to make a big pivot into pharma, the Wall Street Journal reports.

Elsewhere

  • Gold hit a fresh record, up near $2,050.
  • The dollar is down.
  • Crude is up in volatile trade.

***

Retail army

App-wielding day traders are becoming a market force. According to Goldman Sachs, June was another record month for retail trading with the top four online brokers—Schwab, E-Trade, Interactive Brokers and TD Ameritrade—registering over 8 million trades in the month.

Presumably, they didn’t lose their shirts as the major indexes all performed well in June. But we’ve seen time and again in recent months the impact of retail trading on oddball corners of the markets with wildly volatile swings in select stocks. Hertz and Kodak come to mind.

Just last week, Kodak shares rocketed 25% higher to, at one point, $60, after the company announced it had secured a federal loan worth $765 million. Where’s it trading today? It’s below 15 bucks.

Hertz has been another roller-coaster. It’s essentially a penny stock now. Any move in or out of the stock will trigger big dips or gains. Retail traders bid up the stock in early June. Over the span of two days it more than doubled, then crashed. It’s down 73% since that blip. In the stock chart below, you can see the surge in volume followed by sporadic trading. This is not for the faint of heart.

The retail army is hardly an American-only phenomenon. Retail traders have lately been piling into India’s most indebted, beaten-down firms of late, too.

But lest you think this is a fringe part of the market, Goldman Sachs has more data for you to chew on. Household investors, a grouping that includes retail traders, now accounts for 36% of the $55 trillion U.S. equities market. Household investors as a trading block are three times bigger than ETFs and private mutual funds.

As the biggest single entity in the market, household investors have the power to move stocks up or down in big ways. And, no doubt, they will continue to confound the investment pros.

Note: I admit to not fully understanding some of these nutty stock swings that are presumably fueled by retail traders—the Robinhood crowd, as they’ve become known. If you are one of these traders, please drop me a line. I’d like to hear more about your investing philosophy.

***

Have a nice day, everyone. I’ll see you here tomorrow. 

Bernhard Warner
@BernhardWarner
Bernhard.Warner@Fortune.com

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Today's reads

Key money. President Trump's suggestion (threat?) that a TikTok buyer would have to pay the U.S. government the equivalent of "key money" continues to baffle the business world. In legal circles, "key money" is a code word for a bribe—and yes, "that violates housing laws." But what about in the world of M&A? It's not just unethical, Carl Tobias, a law professor at the University of Richmond, tells the Wall Street Journal, it "is probably illegal." 

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