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Big News Day for Giants: GE’s Done Banking, Apple Makes ‘Em Wait

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April 10, 2015

Good old fashioned deal-making could lift the mood on Wall Street in this week’s final trading day. General Electric (GE) makes what some Street analysts claim is the company’s most significant strategic move in years—it’s largely leaving the banking biz behind and its shareholders couldn’t be happier. There’s even a deal among the deal-makers: Excel Trust (EXL) will be sold to Blackstone (BX) for $2 billon cash.

And if U.S. investors look abroad for a little inspiration, they’ll see that Europe’s major stock averages are on track for their best week since January. Hong Kong’s winning streak continued, while Japan’s Nikkei struck a major milestone at 20K. Elsewhere, crude oil futures are lower but holding above $50 a barrel. Treasury yields hit their highest since late March this week. And, the U.S. dollar firmed against most major counterparts, set to log its strongest week in about a month in a move that could temper some of the Street’s enthusiasm. As for the broad S&P 500 (SPX), its quiet rally this week leaves the index knocking on the door of 2100 yet again. I say “quietly” because this move doesn’t feel like a rally. In fact, across most media platforms, plenty of pundits and investors alike are talking the market down. Fridays had tended to feature a slow, low-volume advance or a late reversal on profit-taking as these lofty levels leave some traders pretty twitchy heading into the weekends. But today is a “newsy” day. Perhaps the atmosphere will reflect that.

FIGURE 1: MOSTLY GREEN FOR THE BLUE-CHIPPER? Dow Jones Industrial Average ($DJI) component General Electric (GE) is a strong early gainer on restructuring news but its impact on the price-weighted blue-chip index will be muted because of GE’s stock price. Still, most analysts expect a broader-market boost from GE’s news on Friday. Data source: Dow Jones Indexes. Chart source: TD Ameritrade’s thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

GE Slims Down. The mammoth U.S. conglomerate is parting ways with the bulk of GE Capital, the finance arm that churned out nearly half the parent company’s profits but carried risks that often spooked investors and, according to Street analysts, has held back GE stock. Much of the $500 billion GE Capital will be sold or spun off over the next two years. GE also has agreed to sell $26.5 billion worth of office buildings and commercial real estate debt to Blackstone, Wells Fargo & Co. (WFC), and other buyers. That follows plans to spin off its private label credit cards and retail finance businesses as a separate company called Synchrony Financial. GE says in a release that hit has the potential to return $90 billion to shareholders through 2018. GE shares are up sharply in early Friday trading but here’s a little reminder: the Dow Jones Industrial Average ($DJI), the index that counts GE in its ranks, may get only limited boost from GE’s move because the Dow is a price-weighted index and GE is its lowest-priced stock (figure 1). Sometimes even the mighty barely make a ripple.

Line Forms to the Left. It’s here! Pre-order season that is. The Apple Watch pre-order period kicked off at 12.01 a.m. Pacific today via the Apple Online Store, with delivery slated for April 24. High demand expectations pushed the company to allow only online orders for this pre-release stretch and company officials said in a release that demand is expected to outrun the tech giant’s supply in this initial phase. But as of April 24, some of the largest Apple Stores the world over will stock the watch. No updates on the product itself with this latest news. As previously announced, the watch will be available in three styles: Apple Watch Sport, which will cost $349 and $399; Apple Watch, which will cost from $549 to $1,099; and Apple Watch Edition, which will be made from custom rose or yellow 18-karat gold alloys, with a price that starts at $10,000. What do shareholders think? AAPL shares—up some 15% so far this year and handed at least one analyst downgrade to Market Perform this morning—are tipping lower in early action.

What’s the Hawk Say Now? Richmond Federal Reserve President Jeffrey Lacker, who is considered one of the most hawkish members of the Fed and a voter this year, said in late March there’s a strong case for an interest-rate hike in March. That was before a big hiring data miss for March was released earlier this month. Lacker spoke this morning, too. Has he changed his tune? Nope. Lacker says the inflation-cooling effects of a strong dollar and falling oil are temporary. The labor market’s upward angle is intact. The case for a June hike remains “strong,” he says.

Good trading,

JJ

@TDAJJKinahan

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