Futures for the S&P 500 index, Nasdaq 100 and Dow Jones industrial averages fell modestly Sunday night after the major market averages fell more than 1% last week on rising trade tensions. A Group of 20 meeting begins Monday, with Trump’s steel and aluminum tariffs sure to be a topic of discussion. Meanwhile, Trump is setting his sights on punitive tariffs vs. China, while Europe eyes a “digital tax” that would large affect U.S. internet giants such as Facebook (FB).
S&P 500 index futures fell 0.2% vs. fair value, after the benchmark index just crept above its 50-day moving average on Friday. Dow Jones futures lost 0.3%. Nasdaq 100 futures were off 0.5%.
Facebook as a new buy point, but the FANG internet giant hasn’t been a market leader for months, unlike fellow FANGs Netflix (NFLX) and Amazon (AMZN) and, to a lesser extent, Google-parent Alphabet. Meanwhile, CACI (CACI) is making a bid for larger defense IT contactor CSRA (CSRA), which already has accepted a takeover by General Dynamics (GD).
Facebook Is Not A Market Leader
Facebook has a 186.20 cup-with-handle buy point that kicked in after Friday’s close. Shares ended the week at 185.09.
But the relative strength line, which tracks a stock’s performance vs. the S&P 500 index, hasn’t made headway since late July, trending down since start of November. You want to see a stock that is truly leading the market. Why else invest in a specific stock, with all that company risk, if it’s not providing a return over the general market. Still, the RS line, the blue line in the chart below, isn’t too far off its consolidation highs.
In contrast, Alphabet, which is in a consolidation and may soon have its own handle. Alphabet shares have only risen 8% to Facebook’s 5% — a far cry from Netflix’s 66% and Amazon’s 33% — but its RS line has been performing better.
Meanwhile, Facebook’s growth story may be winding down. The social networking giant has acknowledged that users spent less time on the main Facebook site in the fourth quarter, and that’s before new changes to the News Feed that will likely reduce engagement. User growth is slowing, with North America daily active users falling sequentially for the first time.
At the same time, Facebook is ramping up spending on staff and other resources to curb fake news and prevent the platform from being exploited by Russia or others during political campaigns. That spending may be necessary, but it won’t help profits.
This week, the European Commission is expected to propose a 3% tax on digital revenue, including on online advertising, selling digital data and “intermediary services” in which platforms allow users to buy and sell goods and services to each other. The digital tax would hit Facebook, Google, Amazon, Twitter (TWTR), Apple (AAPL), Uber and others, mostly U.S. internet firms.
Facebook announced late Friday that it had suspended Cambridge Analytica, which helped President Trump’s election campaign, for not deleting data on some 50 million Facebook users. But the news also highlights how Facebook provides user data to third parties. That will be fodder for critics, which range across the political spectrum and around the globe, who worry about Facebook’s size and how it oversees its massive influence on competition, news and privacy.
CACI Seeks To Trump General Dynamics-CSRA
CACI bid some $7.2 billion, or $44 a share, for CSRA, consisting of $15 in cash plus 0.184 CACI share. CSRA had previously accepted a $40.75 all-cash offer from General Dynamics. CSRA said its board will evaluate the CACI offer.
Given that acquiring companies often see their stocks decline, it’s unclear how much of a premium CACI will actually be offering after Monday’s stock market trading. Military contractor giant General Dynamics also might be able to nudge its offer higher if necessary.
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