Sold to the only bidder, Twitter

Stocks staged a late-session comeback yesterday, ending in the green, as Twitter’s board capitulated to Elon Musk’s hostile bid to take the company private. China is still in lockdown, causing havoc on already-volatile commodities.

It’s a small world after all. When I was younger…many years ago…the most forward-looking companies started adding the word  “international” to their names. Some did it for pure marketing purposes, I am sure, but the real trail blazers began to recognize economic benefits of producing and even selling in foreign markets. Of course, there were lots of risks. Many of these emerging producer-countries did not have well-developed industrial infrastructures. There were language and cultural barriers that needed to be overcome. Oh, and there were banking and currency conversion risks. Did I forget to mention customs, transportation, and lead-times? These are just a few of the challenges that had to be met for, at the time, the mostly manufacturing companies to take advantage of cheaper foreign labor. Most of the early movers benefitted from the move, converting risks into rewards. Then came the computer revolution which narrowed the gap significantly and opened the door for even greater international infrastructure. New companies entered the fray and first movers got better at their game. There began to emerge a global infrastructure which enabled a smooth bi-directional flow of goods and services not only from Asia, but also from South America and the Balkans, to name just a few. Notice the new adjective global in that last sentence. Yes, “international” was replaced by “global” sometime in the 1990’s and by the early 2000’s, one would be hard-pressed to find a successful company that was not global. That is also when the debate over globalization began to heat up. Sure, there were nationalistic undertones, but there were indeed very real business risks to global spread.

Basic economics covers globalization stating that places best suited for goods creation should well…create them. In other words, the US plains may be best suited for grain production, while the pacific northwest may be best suited for wine growing. The theory states that each should produce what it is best suited for, so both Kansans and Northern Californians can both enjoy a nice, reasonably priced glass of quality wine with a hearty hunk of fresh bread. All simply made possible by trade between the two regions. If you really want to get fancy, you might throw in some French or Italian imported cheese, though French or Italians probably prefer their local wines. This is where things start to get interesting.

Those Parisians sitting at cafes may not be sipping on American-made Cabernet Sauvignon, but there is a good chance that they are plying an American iPhone or Android-based smartphone. The iPhone is an American icon, but it is manufactured in Asia, while the Android phone is most likely manufactured by Samsung in Korea with an operating system developed by Alphabet/Google in the US. Indeed, the web of globalization has become quite complex, and the world has benefited a great deal from globalization…when it runs smoothly. Sure, there are hiccups now and again. Images of the ship “Ever Given” stuck in the Suez Canal blocking traffic emerge in my mind, and more recently a cargo ship carrying lots of fancy German sportscars caught fire and sank after drifting for weeks, unmanned on the high seas – it breaks my heart to think of shiny Porsches at the bottom of the Atlantic Ocean. Those things happen, but the pandemic exposed the real risks associated with a complex global economy, specifically the global goods supply chain. As a result of the stop-start-stop-start of the supply chain we experienced, Japanese autos stalled on production lines in the US because semiconductors manufactured in Taiwan were not delivered on time to mainland China to be placed in sub-assemblies which were destined for the US manufacturing plant. Talk about supply chain problems. That is just one small example of the larger challenge that has led to the inflation that we are all experiencing. Economists have been expecting those supply chain problems to abate this year, but they were most likely not expecting China to get hit by a fresh COVID wave causing manufacturing there to grind to a halt. Yesterday’s early-session drop came in response to those growing lockdowns in China. In the afternoon, stocks rallied led by tech shares and many believe the rally was ignited by news that Twitter’s board had accepted Elon Musk’s bid to take the company private. Though that may have added fuel to the rally, the real cause was more likely that investors recognized that technology companies are less reliant on the newly-gummed-up supply chain. That logic may work for a software company, but as we know, those hardware companies…well, they may be in for a rough ride.

WHAT’S SHAKIN’

Archer-Daniels-Midland (ADM) shares are higher by +3.85% in the pre-market after it announced that it beat on EPS and Revenue estimates by +34.75% and 35.72% respectively. The company expected full year results to exceed those of last year. Dividend yield: 1.75%. Potential average analyst target upside: -7.4%.  WHY IS THIS NEGATIVE?  Because the current price of the stock is higher than average analyst price predictions. While this may be interpreted as the stock being overvalued, it does not mean that the stock will not continue to climb.

Universal Health Group (UHG) stock is lower by -12.08% in the pre-market after it announced that it missed EPS by -12.27% while beating Revenue estimates by +1.39%. The company cited increased labor costs for the miss, and it stated that it may have to lower full-year guidance. Dividend yield: 0.58%. Potential average analyst target upside: +8.7%. 

ALSO, this morning: United Parcel Service (UPS), Entegris (ENTG), DR Horton (DHI), Valero Energy (VLO), Warner Bros Discovery (WBD), PepsiCo (PEP), 3M (MMM), General Electric (GE), Corning (GLW), and Waste Management (WM) all beat on both EPS and Sales. Raytheon (RTX), Roper Technologies (ROP), JetBlue (JBLU) missed on revenueswhile Polaris (PII) and Ares Capital (ARES) missed on both fronts.

YESTERDAY’S MARKETS

Stocks erased early losses for a positive close after investors grabbed shares of growth stocks in hope of being shielded by fresh supply chain problems from China. The S&P 500 gained +0.57%, the Dow Jones Industrial Average added +0.70%, the Nasdaq Composite Index traded higher by +1.29%, the Russell 2000 Index added +0.70%, and the S&P500 ESG Index advanced by +0.58%. Bonds gained and 10-year Treasury Note yields slipped by -8 basis points to 2.81%.  Cryptos traded higher by +0.63% and Bitcoin climbed by +1.70%.

NXT UP

• Durable Goods Orders (March) are expected to have grown by +1.0% after falling by -2.1% in the prior period.
• FHFA House Price Index (Feb) may have climbed by +1.5% after climbing by +1.6% in January.
• Conference Board Consumer Confidence (April) may have grown to 108.2 from 107.2.
• New Home Sales (March) are expected to have slowed by -0.6% after declining by -2.0 in February.
• Earnings after the closing bell: General Motors, Mondelez, Capital One Financial, Chipotle, Juniper Networks, Visa Inc, Alphabet, Microsoft, Texas Instruments, CoStar Group, Enphase Energy, Tenable, and Edwards Lifesciences.