Movin' Along

by Ralph Cole, CFA Executive Vice President of Research

After another positive week, the S&P 500 finished the quarter up almost 4 percent and is up 8 percent for the year. The 10-year Treasury finished the week in the middle of its recent trading range at 1.59 percent. Mixed economic data kept the Fed on hold for another quarter and put a bid into equities.

What a Bargain

OPEC surprised investors by agreeing to reduce oil output by one million barrels. They will now limit production to 32.5 million barrels per day. Most pundits thought they would continue to produce at all-out capacity, thus keeping a lid on oil. It is in OPEC’s best interest to cut some production in order to lift overall oil prices. By agreeing to cut three percent of production they have increased prices by 10 percent. It is clear that many investors were short exploration and production stocks because they experienced outsized positive returns for the week.

Trapped Cash?

The Wall Street Journal reported this week that Qualcomm is in talks to purchase NXP Semiconductors (NXPI). Qualcomm is just one of many U.S. corporations sitting on over $2 trillion in cash that has been “trapped” overseas. It is considered “trapped” because repatriating the funds to the U.S. would cause a tax burden of between 25 and 34 percent depending on foreign taxes paid on the money. We have speculated that U.S. companies would use those funds to invest overseas. Qualcomm is just one example by possibly using its “trapped” $29 billion for its purchase of NXPI. Markets agreed taking Qualcomm’s stock up over 10 percent this week and NXPI up over 20 percent.

Our Takeaways for the Week

  • Decent economic data and accommodative Central Banks led to positive returns for equities around the world in the third quarter
  • We would expect more U.S. companies to use their overseas e funds to purchase foreign companies