Chipotle Mexican Grill founder Steve Ells will step down as CEO due to the rise in competition, fall in share price, and repeat food-safety violations. As the company searches for a new CEO, Ells will be demoted to executive chairman. While Ells was able to change the fast food industry by removing artificial ingredients from food, he could not escape the food-safety issues from 2015 resulting in the company losing more than half of it’s value. With same-stores sales growth falling from 17% to 4.3% and neglecting customer service through the E.coli, Salmonella, and norovirus outbreaks, investors thought it was time for a change. Ells role will shift to a product innovator, while activist investor William Ackman has taken a stake in the company and is part of searching for Chipotle’s new CEO that will focus on customer service and instituting a customer-loyalty program. Chipotle shares were up 3.2% from this news and investors expect the new CEO to make improvements immediately.
Verizon that first started as a telecommunications company has been slowly moving to differenct sectors. Over the past few years, Verizon acquired Aol and Yahoo to create a new unit called Oath, indicating its desire to be seen as a major player in the add and media sectors. This year, Verizon announced that it signed a contract with Sacramento to allowe the city to use its telematics product and also its 5G network to provision traffic and pollution control. Verizon’s strategy is not only to diversify its revenue sources but to become a key player in the future of connectivity in a very socially conscious way. However, the company is facing very strong competition from the other telecom giants. For that reason Verizon decided to rethink its strategy and market its products in addition to consumers also to Wall Street analysts and investors. On Sunday, the company announced that it is launching a new advertisement campaign called “Humanability,” and it tells stories about the effects Verizon’s technology are having on traffic flow in Sacramento, Calif., keeping fish fresh in transit, and supporting advancements in virtual surgery and health care. The ad will combine three videos, first being a sweeping view of traffic in Sacramento, second one being about “reinventing healthcare” through the 5G network and third being the transit of fish, promoting Verizon’s ability to track and capture data on the temperature and freshness of the fish in an effort to ensure food safety. All the ads are going to be debuting on Sunday, during the football game. It will later run on Bloomberg, CNBC, Fox Business Network, the Washington Post and CNN and also distributed on LinkedIn, Twitter and Facebook.
On Wednesday, Technology, which is the biggest sector in S&P 500, had its worst day since June and went down by as much as 2.6%. Big name such as Facebook, Netflix, Apple and the hottest stock of the year Nvidia all declined by more than 3.5%. Surprisingly, there is no fundamental reason for the decline. Some investors and analysts believe that it could be a rotation from popular “momentum.” However, the volatility is not a surprise given the sector has doubled the performance of the S&P 500 in 2017 and seeing decline is not an anomaly. Besides, the sector is driving S&P 500 to its fifth uninterrupted quarter of earnings growth. Google parent Alphabet went up by 31% in 2017 with 33% profit surge. Similarly, Microsoft Corp. reported revenue increase of 12% due to its growing cloud computing, while Intel Corp. also beat analysts’ expectations. The S&P 500 technology sector increased by 36% this year, jumping past the broader index’s 17% gain. That would mark tech’s best annual performance since 2009.
Drugstore giant CVS Health agreed to buy Aetna for $69 billion. The rationale behind the merger is to bring pharmacy benefit management or PBM and insurance under the same roof. The strategy of combining those two together was proven to be efficient by UnitedHealth Group that bought Catamaran in 2015 to bulk up its PBM business and increased its revenue significantly since. Besides, healthcare companies are trying to bulk up before Amazon’s becomes a substantial threat after obtaining wholesale pharmacy licenses in at least a dozen states. However, it is not clear whether the e-commerce giant is planning a move into the prescription drug delivery business, territory currently dominated by a very few companies. The merger will reshape the CVS business by allowing it to use its chain’s walk-in clinics to deliver care for patients. In addition, last week, Anthem declared that their contract with Express Scripts Holding expires in two years and after that it would start its own in-house PBM.
The deal of $69 billion would out CVS in a big risk given it already has $25 billion in net debt as of end of June. However, this acquisition might lead to significant synergies that might justify the risk.
Bitcoin has had a volatile few days, as the cryptocurrency broke $10,000 for the first time on Nov 29. After reaching its peak of $11,039, it fell sharply only to rebound again over the past few days. It jumped 8% and reached another all-time high on Sunday, only to fall sharply again. This is a 30.5% gain since Thursday, and investors are unsure of what to do next. John Mcafee, founder of the cybersecurity firm of the same name, is bullish, and predicts it will reach $1 million in 2020. Others however, are not so eager, and Michael Novogratz, of Fortress Investment Group, warns that this bubble will burst, Jaime Dimon and Lloyd Blankfein agree. Bitcoin’s rise has also prompted other cryptocurrencies such as Bitcoin Cash to rise 13%, and Ethereum to rise by 3.5% There is potential for Bitcoin to rise even further, as the CME is introducing bitcoin derivatives, which are expected to start trading on December 18. The Japanese yen accounted for around 58% of Bitcoin’s trading value, compared to the dollar’s 23%, suggesting that Japan has much more to lose if this bubble bursts.
In a vote that went down to the wire (51-49), Senate Republicans managed to muster up enough support to get the Tax Reform Bill passed. This controversial proposal will be the biggest tax overhaul the country has seen in decades, and although this bill has significant differences vs the one that the House passed, it is on the road to becoming law. The bill includes around $1.4 billion in tax cuts, and lowers the corporate tax rate from 35% to around 20%. The Congressional Budget Office estimates that this bill will increase the deficit around 1.47 trillion. A big aspect of the bill was the reduction of taxes multinational companies have to pay. At the current state, international American companies have to pay American taxes if they wish to do business overseas. Republicans want to make it into a territorial system, in which companies will have to pay a one time low tax rate on their overseas profits. (14.5% on cash assets and 7.5% on non-cash assets) The bill is expected to make huge changes to healthcare, and in a win for oil companies, also opens up Alaska’s National Wildlife Refuge to drilling.
Once again crude-oil prices are rising, but this time it’s due to OPEC’s new agreement with other big producers to limit their output of oil for another nine months. OPEC hopes that this extension to limit their output will continue to raise oil prices and take them out of a three-year slump. This lead to an increase in crude prices by 1.7% to $58.36 a barrel on the New York Mercantile Exchange. People have predicted the extension, which is why the reaction is very large as oil prices are at their highest levels. Many were skeptical at first due to the history of OPEC members cheating, but because of strong compliance and global economic growth, the price of oil has risen. The market is tight and market participants are not hiding oil away, which allows for the rebuilding of the sector. Investors are confident that the reduction of production by OPEC and other producers is keeping the price of oil at a level that everyone is comfortable with.