Zacks Investment Management

In this week’s edition…

• The Federal Reserve Needs a “Little Bit More TIme”
• Focus on Trend-lines, Not Headlines
• Megabrewery in the Works
• Lyft Challenging Uber ini China with Didi Kuaidi Partnership

The Federal Reserve Needs a “Little Bit More Time” – those were the words Janet Yellen used when outlining the Fed’s case for keeping interest rates steady. She expressed some concerns about the inflation outlook and recent market volatility as reasons to delay rate hikes further, which is essentially no different than what the narrative’s been all year. Yellen hopes further saturation in the labor market will get inflation back on track, since low unemployment tends to lead to wage growth over time. In my opinion, there’s too much focus on the old view of jobs and wages.

With technology’s continuous contribution to higher productivity at lower costs, lower unemployment doesn’t necessarily call for higher wages and those inflation pressures may continue to be elusive. If the Fed is waiting for inflation numbers to tick up before feeling comfortable with a rate hike, we may not see a rate hike this year at all.

Focus on the Trend-lines, Not the Headlines – the S&P 500 erased the week’s gains on Friday, following the Fed’s decision to keep rates steady once again. A quirky feature of investing is that in spite of solid economic data all week – and the market’s incremental gains in the first four trading days – investors will only remember the one down day. It’s hard-wired into our brains to dislike losses about twice as much as we enjoy gains. As a result, sentiment is likely to remain pessimistic about the market’s future from here, which makes us even more optimistic. The market is still negative on the year (nearly -5%) but I don’t think it will finish that way.

Ice Cold! A “Megabrewery” appears to be in the works, with the world’s largest brewer (AB InBev) targeting a takeover of rival and second-largest brewer SABMiller. If they become one, then their sales of tasty brews like Budweiser, Corona, Stella Artois (InBev) and Miller Lite, Pilsner Urquell, and Peroni (SAB Miller) would be responsible for generating around half of the industry’s profit. AB InBev has yet to make a formal offer for SABMiller, but rumors are about that it will. Under British law, it must do so by October 14th.

The Sharing Economy Grows and Grows – it’s seems increasingly likely that it’s just a matter of time before “hailing a cab” will become an extinct practice. Earlier this week, China’s ride-hailing service called Didi Kuaidi announced a deal with American counterpart Lyft to combine services, allowing passengers to hail rides from drivers of the other app, but to pay for the service in local currency. This pits Lyft and Didi squarely against Uber, who just recently raised nearly $1 billion to expand operations internationally as well as to explore other revenue streams within the service economy, such as food delivery. Other countries are getting into the game as well: France’s BlaBlaCar, which is already present across Europe, Russia and India, recently closed a new funding round with a valuation of an eye-popping $1.5B. Catching rides is big business.

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