foxex: STAY THE COURSE

The Market Sum | INVESTOPEDIA

Insight after the bell

By Caleb Silver, Editor in Chief

Wednesday's top stories:

1 - Stocks slip as Fed stays the course on planned rate hikes

2 - Some FB investors don't want Zuckerberg as chairman

3 - Chart: Meanwhile… in China

Final Numbers:

DJIA: - 0.36%

S&P500: - 0.03%

Nasdaq: - 0.04%

#1 - Stocks slip as Fed stays the course
Yesterday's rally is firmly in the rear view mirror as stocks faded after a choppy session following the release of the Fed minutes. It's not like the Fed revealed anything surprising in the blow by blow recap of the September meeting when it raised the target federal funds rate range by a quarter percentage point and promised two or three more hikes by year-end. We have pointed out that rising interest rates don't necessarily spell bad news for the stock market, but either investors simply don't believe it or they were looking for more reasons to sell today than to buy. That happens. In general, companies continue to report strong earnings, except for IBM, which missed on revenue and profits and noted a slowdown in its software business, which includes Watson, it's Artificial Intelligence system, and its cloud computing business. Former Wall Street darlings like IBM, GE and Intel have had a hard time resonating with investors who have been favoring growth stocks like the FAANGs, and 2018 has been a year they would like to forget.

Still, the investing landscape today is no different than yesterday, or from last week for that matter. The fact that we have experienced such volatility over the past six trading days is a symptom of investor anxiety. Like a nasty fall flu, it happens to spread a lot in October. If you happen to feel a little sick, drink your fluids, get your rest, and stay the course.

Why it Matters: Our fight or flight instinct makes us want to sell into big sell-offs. I've felt the pull like Sauron's eye on Frodo in the Lord of the Rings, but luckily I was too busy to deal with it. Nick Maggiulli, the uber-talented blogger behind @dollarsanddata , wrote a very insightful piece about investor threshold for stomaching losses or enjoying gains. In What's Your Financial Tipping Point?, Maggiulli poses the questions we should all be asking ourselves every day:

Consider your current net worth (all of your assets minus all of your liabilities). What number would your net worth have to reach, as a result of a market crash, for you to give up all hope and sell your equities?

There have been many tests on this, and it turns out that the average number most investors land on is 70 percent. It depends on where you are in your life cycle, of course. If you are closer to retirement or you need the money you have invested sooner than expected, your threshold might be lower. On the flip side, we need to ask ourselves how much is enough if we are winning? If you've been long the stock market over the past year, two years or ten years, you have been winning. How much is enough?

What's Next: More and more earnings for the next three weeks. American Express reports tomorrow, and that report always provides a good focus on the high-end consumer. We know consumer spending remains robust, but higher borrowing costs, higher gas prices and inflation fears have a way of slowing that spending down. We'll also get weekly jobless claims tomorrow, which should also show a strong job market. I failed to point out the JOLTS number yesterday, which shows the amount of available jobs in the labor market. It showed a staggering 7.136 million openings right now. With unemployment so low and the economy so strong, companies can't fill open spots and may have a hard time holding onto talent. The economy is strong… stay the course.
Read More:
Every Fed Policymaker Was On Board for Sept Rate Hike -Minutes
How Federal Reserve Activity Impacts Investment Portfolios

#2 Facebook investors want to split Zuck's role
The State treasurers of Illinois, Rhode Island and Pennsylvania, and the city comptroller of New York joined a shareholder proposal originally filed by Trillium Asset Management, to remove Mark Zuckerberg as Chairman of the company he founded. They argue that recent scandals require the company to have more oversight, and he can't provide that as both CEO and Chairman.

Read Trillium's press release

Why it Matters: Facebook is coming under increased regulatory and investor scrutiny following the Cambridge Analytica scandal and the recent disclosure of a data breach that affected 30 million users. The social network has made more than a few trips to Capitol Hill this year to defend its practices and Europe's competition commissioner, Margrethe Vestager is losing her patience and potentially preparing fines. Not to worry, Facebook has a very skilled legal team that will keep the regulatory wolves at bay as it promises to clean up its act because 'our privacy is very important to them…' We know.

Zuckerberg is no fool. He set up the corporate structure at Facebook so that he controls almost 60 percent of the voting shares of the company in addition to being its largest shareholder. A similar proposal was floated last year and was shot out of the sky like a wounded mallard during hunting season. This will probably suffer the same fate.

What's Next: This vote will come up at Facebook's annual meeting next May. If the regulatory scrutiny intensifies, shareholders continue to bail and users un-friend the platform, this may become a bigger deal, but will ultimately fail. Zuckerberg may decide that it's in the company's best interests for him to give up the Chairman's throne as a sign of good corporate governance, but nothing he has done in his history as an executive should lead you to believe that he will.
Read more:
Facebook Shareholders Back Proposal to Remove Zuckerberg as Chairman
The Top Shareholders of Facebook
Facebook Seen Rebounding 9% Despite Falling Profits

Chart of the Day: China's bear market breaks down to new lows

Not since November 2014 has the Shanghai Composite Index, the primary benchmark of China's stock market, shown such weakness. Late last week, the index gapped down below its key 2650 support level and has continued to drift mostly lower since, establishing nearly a four-year low in the process.

A combination of rising global interest rates, lower economic growth projections for China and growing U.S.-China trade disputes, have all contributed to weighing down Chinese stocks in recent weeks and months.

Since the massive rise in the Shanghai Composite in 2015 to its June 2015 peak at 5178, the index has plunged by just over 50% to 2561, as of Wednesday's close. This year alone, it has dropped by more than 22% year-to-date, well below its 200-day moving average.

Given that China's growth prospects have declined substantially and there appears to be no end in sight for U.S.-China trade conflicts, the breakdown and extended bear market in China stocks is likely poised to continue.