Market Round Up: Bond Yield Inversion Spells Doom 💀 SoftBank Plays Hardball 👊
1. Bond Yield Inversion Spells Doom
An ominous event happened in the markets yesterday that sent stocks plummeting and investors running for the hills. We’re talking about a bond yield inversion; often cited as the doomsday bell for an immanent recession!
When investors buy a bonds, they’re lending money in the expectation they’ll get their money back, plus interest! Bonds have different payback dates, and yields (the interest rate paid back) are typically higher for longer-term bonds than for shorter-term ones to compensate for the extra risk involved due to the uncertainties of what will happen in the longer term future.
A bond yield inversion occurs when short-term bonds have a higher yield than long-term bonds. This is what occurred on Monday for the first time since 2006 (pre-crisis). Analysts have reported that every major US recession in the last 60 years has been preceded by a yield curve inversion. So investors had every right to be spooked yesterday.
The monumental sell-off that wiped 3% off the S&P 500 yesterday was likely a combination of a lack of confidence in the US-China trade deal and fears of a recession to come. Both factors came together in the form of a massive slide in stocks the world over.
This latest shake-up has battered investor confidence that had been slowly returning after October, but will evaporate again as global markets adjust to the new reality of an inverted yield curve. The implications are that markets will be under a considerable amount of selling pressure and likely head lower in the near-term.
So buckle-up, it’s about to get rough out there!
2. SoftBank Plays HardBall
SoftBank’s Initial Public Offering (IPO) of its telecommunications unit, valued at $21 billion, is set to go off without any price adjustments, despite the global sell-off. If that’s not next-level confidence, we don’t know what is!
Normally, companies will announce a pre-IPO price range as a form of safety net to give themselves some wiggle-room to account for any unforeseen market moves or drop-offs in demand. Not SoftBank.
They are 100% confident that their 1,500 Yen price-tag will hold and only increase as the company’s shares hit the open market. Their confidence is built on the assumption that most institutions will need to allocate a portion of their portfolio to include the stock, but could global fears of an impending recession burst their bubble?
The wild market decline of 2008 is still very clear in many investors’ minds and the prospect of an inverted yield curve casting doubts on global growth going forward could be the pin that pops SoftBank’s IPO bubble.
The countdown clock is ticking down to the IPO launch on 19th of December. Heads may roll if they take a beating below the 1,500 Yen mark, but we’ll have to wait and watch in anticipation…Best of luck SoftBank.
Today we are watching…
1. JP Morgan Chase (#jpm)
JP Morgan Chase were the biggest losers in the US financial sector yesterday as the markets fell into chaos. The financial giant dropped 4.47% during yesterday’s session, and may be headed for more losses as investors go into full sell-off mode. Keep your eyes peeled for more selling opportunities as they will be plentiful!
2. Micron Technology (#mu)
US tech firm, Micron Technology, was amidst the many tech stocks that got annihilated by the crazy market sell-off. The share lost 7.87% during yesterday’s trading session, and looks poised to drop further if stable footing cannot be found. The tech sector will likely be the hardest hit by the growing market uncertainty, so watch out for more wild selling to come.