Catch up on this week’s top stories around volatile markets, Apple’s cash plan, and cryptocurrency meltdowns. Plus what it all means for you and your investments.
1. The volatile market day we’ve been waiting for
It was a tough start to the week for the stock markets globally. In fact, when the US stock market fell 4% on Monday, it was the largest one-day drop in 6 years.
Despite the dramatic plunges of Monday and Tuesday, key global stock markets have still delivered strong performance over the past couple of years.
What does this mean if you’re invested in the stock market?
Stock markets never go up in a straight line; there are always bumps along the way.
The stock markets were overdue for a sell-off given the consistent highs of 2017 and beginning of 2018.
What triggered the volatility seems to be the prospect of rising interest rates. Interest rates are effectively the “cost of money”, so any increases tend to worry investors since it may negatively impact corporate profits.
However, the prospect of higher interest rates in the US is no surprise – it has been talked about for quite some time. We believe the sell-off seen this week is a by-product of investors realising some profits from their investments, rather than any material, negative changes in global economic conditions.
2. Apple plans to return cash to shareholders
In an interview with the Financial Times, Apple’s finance chief indicated the company plans to reduce its net cash balance to “approximately zero”.
The tech giant is set to announce their capital allocation plan i.e. whether it will go towards acquisitions, stock buybacks or dividends when March quarter earnings are released.
What does this mean if you’re invested in Apple shares?
Apple’s business model makes a lot of cash. In the past 3 financial years, it has generated over US$60 million in cash each year from its operating activities.
As at 31 December 2017, the company had US$163 billion of liquid assets and cash (less debt).
With an aim to bring this enormous cash balance to zero, Apple could significantly increase dividends and share buybacks to provide more cash returns to shareholders.
This is a major change from when Steve Jobs was running Apple, who once said the company’s big cash balance “gives us tremendous security and flexibility”.
3. Is it all over for cryptocurrencies?
Bitcoin prices sank below US$6,000 during the week, yet traded close to US$20,000 less than 2 months ago.
It’s been a rocky 2018 for Bitcoin; the value of the cryptocurrency has dropped over 50% since the start of the year. It makes the recent decline in global stock markets seem like the size of a mosquito bite.
What does this mean if you’re invested in cryptocurrencies?
In mid-January, we wrote about our concerns for crypto investors in light of likely governments crackdowns on the use of cryptocurrencies – signaling it could negatively impact coin prices. It appears we were right in that prediction.
When we wrote that article, Bitcoin was trading at over US$11,000. Less than a month later, it has dropped another 40%.
Recent reports have indicated governments will ramp up plans to regulate cryptocurrencies, we believe it will continue to be a very speculative investment.
Depending on the type of regulation that eventuates, there is a real possibility that cryptocurrencies in their current form today might end up being worth very little.
For more global market insights, visit our blog.
Kent Kwan is a co-founder of AtlasTrend. He was formerly a Chief Investment Officer of an ASX listed company and prior to that was an international equities fund manager with JPMorgan.