Market Morning: Brexit Finale, Microsoft Momentum Stall, $2.4 Trillion Spending On Tap

Market Morning

One More Week of Brexit Negotiations?

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With three weeks to go until Brexit becomes final, we are now in the final weeks of negotiation between the European Union and the United Kingdom on a deal. The mood, apparently, is “downbeat”, but an unnamed UK government insider, in a fit of originality and inspiration from a 17th century quote, paraphrased, “Often the darkest hour comes just before dawn.” The issues of contention continue to be exactly what they’ve been for months, namely fishing rights, competition rules (meaning state subsidies of industry) and enforcement mechanisms. The BBC is speculating that a deal is out of reach at the moment, and that somebody has to budge in the next few days or there will be no deal. What no deal would do to the markets, nobody knows, but it would likely not add any stability.

Apple and Microsoft Losing Momentum?

It’s been 5 months since either Apple (NASDAQ:AAPL) or Microsoft (NASDAQ:MSFT) hit new highs. This has been the longest period of no new highs since October to March 2019. Normally this is no big deal but as both stocks are heavily owned on Robinhood by momentum chasers, it could be a bit more of a big deal this time due to the amount of speculative money involved. Plus, the call options trading craze, as CNBC calls it, has not abated at all, and call buyers continue to pump momentum stock prices higher as the sellers of these contracts must buy the underlying stock in order to take a short position.

Meanwhile, other tech stocks that aren’t direct beneficiaries of the call option buying craze are languishing by comparison. VMWare (NYSE:VMW) for one, which leads Microsoft handily in key niche areas like Hypervisor market share, hasn’t seen a new high since March. Microsoft’s Hyper-V product, which requires a hyper-v backup, commands only about 11% market share compared to VMWare’s 68%.

New Covid Bailout Circa $2.4 trillion?

Though not technically entirely Covid bailout related, the next big chunk of federal spending looks like it will be somewhere around $2.4 trillion. According to Fox, House Speaker Nancy Pelosi and Senate Majority Leader Mitch McConnell have initiated late-game negotiations for a relief package of $1 trillion plus $1.4 trillion in a separate spending bill. It is not clear if a direct payment of $1,200 to all American adults will be included in either bill. Bailouts to local and state governments are a sticking point, but it is possible that Republicans want the bill passed before President Trump leaves office so as not to lose leverage with an incoming President Biden, who would probably have more leverage to spend even more than $2.4 trillion, though no word on exactly where all this money is going to come from just yet.

GM Dealers Close Doors on Electric Cadillacs

General Motors (NYSE:GM) is undergoing an exodus of Cadillac dealers who don’t want to spend $200,000 upgrading their dealerships to accommodate electric car sales. That accounts for 17% of US Cadillac dealers, who chose instead to be bought out by GM. This is perhaps a worrying signal that electric vehicle investors may be counting their drivers before they get behind the wheel, clearly spooked about the prospect of recouping costs in the current environment and would rather take the money and run. On the other hand, this could simply be a shift away from the dealership model and towards direct sales as Tesla (NASDAQ:TSLA) has championed, with some struggles against regulations that prohibit this in some states in order to protect politically connected dealers.


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