US economy

Trade, Buybacks and Brexit: DealBook’s Closing Bell


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A quick take on some of the important finance and business stories of the day.

Tesla just can’t move beyond Elon Musk’s tweet: Tesla said on Tuesday that the Justice Department had contacted the company for information after its chief executive, Elon Musk, abruptly announced last month that he had lined up funding to take the electric-car maker private. Shares of Tesla fell more than 3 percent and are off nearly 25 percent since Aug. 7, the day Mr. Musk made the announcement on Twitter.

Investors are more worried about trade than it appears? Major stock indexes in the United States finished solidly higher Tuesday despite the escalating trade war between the United States and China. The Standard & Poor’s 500-stock index has rallied about 7 percent since the end of May, when President Trump put tariffs on steel and aluminum in place. But don’t take that to mean investors aren’t worried. Trade topped the list of concerns for a fourth straight month in Bank of America Merrill Lynch’s monthly survey of fund managers, although investors are somewhat less worried about it than they were in August.

So why haven’t the markets pulled back more? The United States economy is seeing strong growth and corporate earnings are booming. That comes at a time that the global economy is cooling. How long can this divergence continue? Nearly half the fund managers in the Bank of America survey said they expected domestic growth to slow, bringing the United States back to the pack. Only 24 percent of respondents expected the United States to continue to perform better.

The tariffs will have more of an effect on inflation than on economic growth. By the calculations of Ian Shepherdson, the chief economist at Pantheon Macroeconomics, the tariffs on $200 billion of Chinese goods could shave 0.25 percent off United States gross domestic product growth. The levies could add 0.5 percent to the inflation rate. “That’s enough to matter, both to the Fed and to the public, who will notice when prices in Walmart start to jump,” Mr. Shepherdson writes.

Corporate America’s tax windfall is going more to buybacks than capital spending: Republicans sold the 2017 tax law as “rocket fuel” for American investment. They said that corporations would channel money back into the economy by building factories and offices and investing in equipment. Critics contended that companies would funnel the money to shareholders through buybacks and dividends. One camp was more right than the other. Through the first six months of 2018, capital spending did increase to $341 billion, up 19 percent from the same period a year earlier, according to Goldman Sachs. But companies were spending even more to repurchase shares. Buybacks jumped 48 percent to $384 billion in the first six months of the year, and for the first time in 10 years, buybacks are accounting for the largest share of cash spending by companies in the S. & P. 500.

Trade? Brexit? Deal makers aren’t concerned: Rising affections for protectionism hasn’t reduced the appetites of corporate deal makers. Cross-border acquisitions are running at a historical high, according to Dealogic. The country most often targeted? Britain. Acquisitions of British companies by foreign buyers stands at $260 billion, a record for a full year. That’s despite continued uncertainty about Britain’s economic and trade relations with the European Union because of Brexit.



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