U.S. stocks struggled to gain ground last week as economic and political uncertainty continued to weigh on sentiment. The S&P 500 was the week’s biggest loser with a 0.6% loss, while the Dow was the top performer after losing just a fraction of a percent.
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Futures are down sharply in the pre-market and it appears the market is headed for a significant sell-off today. We’re seeing broad declines across several sectors, and the CBOE Volatility Index just hit its highest level in over two weeks.
Asian stocks were mostly down overnight with Hong Kong’s Hang Seng Composite declining by over 2.0% while Japan’s Nikkei 225 broke from the pack to post fractional gains. In Europe, stocks are down sharply across the board. The FTSE 100, DAX, and CAC 40 are all posting losses greater than 3.1%, and the Eurozone Stoxx 600 is down 2.8%.
Fed Chairman Jerome Powell painted a hazy outlook for the U.S. at his press conference last week, and his comments set the tone for a pessimistic market. Chairman Powell is expected to speak again this week, and experts believe he will continue his push for additional stimulus and underscore the uncertainty facing the U.S. economy.
Political uncertainty is also beginning to make its presence felt in the market. U.S. Election Day is less than six weeks away and the country has yet to have a presidential debate.
Most polls point to Democratic hopeful Joe Biden as the likely winner, and that could become a point of concern for investors who fear Biden’s high-tax policies. Widespread mail-in voting could also cause logistical issues and court challenges that could easily turn the election into a prolonged fiasco.
The earnings schedule picks up this week with reports from several major companies. We don’t have any major reports on the docket for today, but we’ll hear from Costco [COST], Aurora Cannabis [ACB], Autozone [AZO] and more later in the week.
Here’s what’s moving the market this morning:
Oracle Corp. [ORCL]
President Trump gave his blessing to Oracle and Walmart [WMT] to proceed with a proposed deal to acquire 20% of TikTok Global. American investors will own the majority of the newly formed business, which will provide TikTok services to users in the U.S. and globally. Under the terms of the deal, Oracle will also become TikTok’s secure cloud services provider in the U.S.
TikTok Global will have posession of all of TikTok’s technology, and all U.S. user data will be move to Oracle’s cloud. The companies involved in the deal say TikTok Global will also list via a U.S. IPO within 12 months.
At first, it looked like the Oracle deal wasn’t going to pass the White House’s muster, but a few modifications seemed to have satisfied the president. Oracle is trading actively in the after-hours session and it’s currently up 4.1%.
Nikola Corp. [NKLA]
Nikola is selling off in the pre-market after the company announced its executive chairman and founder, Trevor Milton, is resigning from the electric vehicle firm, effective immediately. Mr. Milton will be replaced by a board member and former General Motors’ (GM) exec Stephen Girsky.
Mr. Milton stepped down from his position after short seller Hindenburg Research accused the company of making false statements to investors. Hidenburg says Mr. Milton and Nikola misrepresented the readiness of the firm’s technology and exaggerated how much of its product design was proprietary.
The company has called the Hindenburg report false, but the market seems to be taking Mr. Milton’s resignation as confirmation of the short seller’s claims. NKLA is one of this morning’s most active stocks and its currently down 30.1% in the pre-market.
Illumina says it will pay $7.1 billion in a cash-and-stock deal to acquire Grail Inc, a startup with a gene sequencing technology that promises to detect cancer early. The acquisition deal comes as Grail was preparing to go public some time in the near future.
Illumina founded Grail as a separate company about four years ago, so they already have a large ownership stake. However, the company will acquire the remaining outstanding shares for $3.1 billion in cash and another $4 billion in Illumina stock. It will be Illumina’s largest-ever acquisition deal.
By early 2035, early-detection testing could comprise $46 billion of a projected $75 billion global market for cancer genetic sequencing, and the sector is growing at a compounded annual rate of 27%, according to Illumina.
The market doesn’t appear to be impressed with the deal. ILMN is trading actively but it’s currently down 2.7% in the pre-market.
HSBC Holdings (HSBC)
Shares of the Hong Kong-based bank just hit a 25-year low after an investigative report accused the bank of money laundering and other shady behavior. The reports cited more than 2,100 reports filed by financial institutions to the U.S. Treasury Dept.’s Financial Crimes Enforcement Network.
HSBC agreed to a deal with U.S. regulators that would put criminal charges against the bank on hold in exchange as long as it stepped up its efforts to combat money laundering. The bank says its made significant efforts to combat money laundering over the past eight years.
China’s Ministry of Commerce said over the weekend that entities engaging in shady dealings could face restrictions on doing business in mainland China. Some experts fear that HSBC could be headed for China’s ‘unreliable entity’ list, and those fears are exacerbating the sell-off.
HSBC is currently down 5.9% in the pre-market.