Federal Reserve keeps rates steady

16th September 2023 – 22nd September 2023 | Another week in the markets

S&P 500	Nasdaq	VIX	DJIA	Russell 1000	NYSE
4,320.06	13,211.81	17.20	33,963.84	2,365.71	15,569.51
-2.93%	-3.62%	24.73%	-1.89%	-2.99%	-2.53%
Nifty 50	Gold	Silver	Brent crude	USD-INR	EUR-INR
19,674.25	$1944.90	$23.82	$92.43	83.12	88.51
-2.57%	-0.04%	2.21%	-1.95%	0.02%	-0.09%

Source: MarketWatch 

Hello Saturday,

This week, media mogul Rupert Murdoch steps down from Fox News and News Corp, United Auto Workers expands its strike against General Motors and Stellantis, and Cisco agrees to buy Splunk for $28 billion. 

• The Federal Reserve holds interest rates steady in its policy meeting this week; the central banks of the UK and Switzerland also pause interest rate hikes as inflation goes down. 
• Rupert Murdoch steps down as chairman of Fox News and News Corp after an influential career of over seven decades; he will now serve as chairman emeritus, and his son Lachlan Murdoch will take over. 
• The United Auto Workers (UAW) strike will be expanded to 38 locations, and will also target General Motors and Stellantis.
• The ongoing Writers Guild of America (WGA) strike has cost the industry an estimated $5 billion; writers and producers are expected to arrive at a deal soon. 
• Cisco Systems will buy cybersecurity firm Splunk in a $28 billion deal, making this its biggest acquisition ever. 

Taking stock | Hikes take a hike | Succession | Brakedown | Showstopper | Security setting | Invest wisely

Taking stock

Stocks ended lower on Friday, capping a volatile week. Investor worries were sparked by the looming US government shutdown along with the Federal Reserve’s hawkish pause in interest rate hikes. All major indices logged weekly losses, with the S&P 500 and the Nasdaq registering their biggest weekly decline since March, at 2.93% and 3.62%, respectively. The Dow lost 1.89%. 

Hikes take a hike

The Federal Reserve left interest rates unchanged in its policy meeting this Wednesday, as was expected by the markets. Despite holding the rates steady for the second time after first hitting pause in June, the Fed indicated that one more hike was likely before the year ended. Currently, the Fed’s rate is in the range of 5.25% to 5.5%, the highest in about 22 years. The Fed also indicated that it was planning to keep rates elevated for a longer period, which sparked investor worries and triggered a selloff in US stocks this week.

The US central bank was not alone in such a move. The Bank of England, too, left its rates unchanged this Thursday — the first halt in its rate hiking cycle in nearly two years. The Swiss National Bank also left its policy rates unchanged this week. But inflation in all three countries still remains higher than the ideal level, so future hikes are not completely off the table.

Succession

On Thursday, media mogul Rupert Murdoch announced he would be stepping down as chairman of his companies, Fox Corp and News Corp. At 92, this move will end his influential career of more than seven decades. His media empire not only publishes several globally popular broadsheet newspapers like The Wall Street Journal and the New York Post, but also has a significant amount of influence in the Republican Party. 

Fox News has had a reputation for being conservative in its political positions and in favour of the Republican party and Donald Trump. The channel has a strong presence in the US and is one of the most trusted news outlets in the country, as per a 2022 American Values Survey by PRRI. 

Source: TIME

The news of Murdoch stepping down comes as the channel prepares for the 2024 election. His son, Lachlan Murdoch, will be taking over as the chairman of News Corp and will continue to serve as the chair and CEO of Fox News. 

Brakedown

Last week, the United Auto Workers (UAW) launched a targeted strike against one US assembly plant of each of the Detroit Three automakers: General Motors, Ford Motor, and Stellantis. For several months now, the union has been demanding a wage hike of over 40% over four years, along with cost-of-living allowance and pensions for its workers. Auto companies, however, have only offered raises of about 20%. As of now, the UAW has come down to a 36% wage increase but is not willing to go any lower.

In the strike last week, about 13,000 workers walked out of three assembly plants, and the union threatened to broaden this strike if substantial progress was not made by auto companies by this Friday. Only Ford managed to make some progress in its negotiations with the union by this deadline, while the other two automakers failed. Now, the UAW has decided to expand its strike to 38 locations across 20 states, targeting General Motors and Stellantis. 

If the automakers agree to the 36% wage hike, it will add about $1.7 billion to $2.4 billion in costs to each company over the four-year contract period, as estimated by Wells Fargo. Not only this, but it’s likely that a portion of the profits they intend to use for the transition to electric vehicles will have to be redirected to fulfil these demands. If there is a prolonged strike, however, it would not only hurt the three automakers but would also have a ripple effect on the economy. Smaller businesses and auto parts suppliers would be especially harmed and would take a massive revenue hit. 

Showstopper

Another ongoing strike in the US that may be close to a resolution is the Writers Guild of America (WGA) strike. In May this year, the 11,500 writers represented by the WGC went on strike and were soon joined by Hollywood actors as well. The primary reason for the WGA strike is the fact that writers’ compensations come nowhere close to being commensurate with the revenue generated by media companies in the current streaming era. The WGA is also demanding better residuals, minimum staffing requirements, and job protection against the use of AI. 

The strike has been on for more than 100 days, has halted the production of several TV shows and movies, and has already cost the industry about $5 billion, according to estimates. This strike is negatively impacting media companies that are struggling to get people back in theatres and trying to get streaming profits amidst fierce competition. 

Earlier this month, Warner Bros. Discovery warned investors of how this strike would weigh on its earnings — the company expects to take a hit of $300 million to $500 million. However, this week, writers and producers met again for negotiations, and the industry is hopeful of finalising a deal soon. 

Security setting

This Thursday, Cisco Systems announced that it was buying the cybersecurity firm Splunk for $28 billion. This deal will help Cisco capitalise on the AI boom while strengthening its software business. Cisco is acquiring Splunk for $157 per share, which represents a premium of about 30% of the company’s current share price. Is that good news for Cisco’s investors? Yes and no. 

While the acquisition price is 30% higher than Splunk’s current share price, it’s also almost 30% lower than its all-time high of $223, which it reached in September 2020. At that time, like most tech companies, Splunk was riding the pandemic high, but in 2021 it started to hit a few road bumps, and by 2022, it was struggling with a cloud transition and losing money. 

The two tech companies have had merger talks in the past, too, but no deals ever went through. This deal, however, is going to be Cisco’s biggest ever acquisition, and will greatly help the company reduce its reliance on its network equipment hardware business, which has seen a slowdown in recent years. 

Invest wisely 

One of the primary reasons why companies across industries undertake M&A deals is to diversify the markets they’re in, grow revenue, and reduce costs. As an investor, you can achieve all of this for your investment portfolio by adding international exposure to it. By investing in the US stock market, you can potentially maximise your returns and minimise risks. Download the Appreciate App to gain seamless access to the US market today! 

Warm regards,
Another week
in the markets