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New Communications Services Sector at S&P 500 Debuts Today

The creation of a new Communications Services sector at the benchmark Standard & Poor’s 500, which debuts today, will likely increase market volatility. It also stands to change how investors think about the firms that are part of the S&P 500 and how they approach the market from now on.

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Arthur J. Villasanta – Fourth Estate Contributor

New York, NY, United States (4E) – The creation of a new Communications Services sector at the benchmark Standard & Poor’s 500, which debuts today, will likely increase market volatility. It also stands to change how investors think about the firms that are part of the S&P 500 and how they approach the market from now on.

News of the impending reshuffle helped cause the S&P 500 to lose 1.08 points, or 0.04 percent, on Friday (Sept. 21). The index closed at 2,929.67. The NASDAQ Composite, all of whose firms are also listed on the S&P 500, shed 41.28 points (or 0.51 percent) to settle at 7,986.96.

On the other hand, the Dow Jones Industrial Average rose 86.52 points, or 0.32 percent, to 26,743.5. Industrials led the Dow to this new closing high on Friday ahead of Monday’s major sector reshuffle at the S&P 500. Trading volume rose to the highest level since Feb. 9.

The S&P 500 is a market index based on the market capitalizations of 500 large companies having common stock listed on the New York Stock Exchange and the NASDAQ.

The sector reshuffle will see the three firms listed under the telecommunications group (AT&T, Verizon and CenturyLink) transferred into a new sector called “Communications Services.” The change will increase the number of firms in Communications Services to 20.

Among these firms are heavyweight companies from the technology and the consumer discretionary sectors (notably Amazon). The sector also includes media companies, video-game publishers and social media firms.

The change will give Communications Services a market value of more than $2 trillion. Of this massive total, $1.25 trillion will come from Alphabet (parent firm of Google) and Facebook. Netflix and Twitter are also part of Communications Services.

Apart from Alphabet, Facebook and Netflix, the Communication Services sector includes broadcasters like CBS and Discovery; cable and Internet firms like Comcast; movie studios such as The Walt Disney Company and video-game-makers like Activision Blizzard.

Analysts said this combination of safe and risky bets means that very volatile or cyclical companies like Netflix and Facebook are going to be very high growth oriented when the market is doing well, but will suffer when the market drops.

They pointed out the reshuffle reflects the way the communications and media industries have evolved. AT&T and Verizon were once only phone companies but are now media companies, as well. AT&T bought Time Warner (parent of HBO and Warner Brothers). Comcast bought NBCUniversal in 2013.

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Finance

European Central Bank Finally Ends Massive QE Program

On December 31, the European Central Bank (ECB) will formally end its almost four-year old quantitative easing (QE) program that prevented the euro zone economy from succumbing to its own version of the U.S. Great Recession of 2008.

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Arthur J. Villasanta – Fourth Estate Contributor

Frankfurt, Germany (4E) – On December 31, the European Central Bank (ECB) will formally end its almost four-year old quantitative easing (QE) program that prevented the euro zone economy from succumbing to its own version of the U.S. Great Recession of 2008.

ECB will stop expanding the multi-trillion Euro asset purchasing program, and will instead switch to reinvesting cash from maturing bonds to purchase additional debt. These purchases should keep borrowing costs on the low-end until 2021.

The ECB Governing Council confirmed that bond purchases will plunge from €15 billion a month to zero by the end of the year. It also left benchmark interest rates unchanged.

Introduced in March 2015, ECB’s QE program saw the bank buy more than €2.6 trillion ($2.9 trillion) in a successful bid to prevent the bloc’s banking system from unraveling. The QE measures are widely credited with helping revive the 19-member currency bloc after a double-dip recession and the holdover effects of the European debt crisis.

“With the most prominent crisis-fighting measure of the ECB now almost back in the toolbox, the big question is, what will be next?” asked Carsten Brzeski, chief economist at ING. “It seems as if the ECB wants to keep as many cards as possible close to its chest,” Brzeski said.

The timing of the ECB’s move, however, is contentious. Political developments in the United Kingdom over Brexit; Italy over excessive government spending and France over street violence seems to question the wisdom of ending QE by year-end.

The ECB meeting comes a week ahead of the U.S. Federal Reserve’s December meeting where it is expected to raise interest rates one-quarter point, its last for the year. Slowing growth in the U.S. and worldwide, due partly to Trump’s trade war, has some economists expecting the Fed to forego the next quarter-point rate hike in March.

The U.S. economy is showing clear signs of slowing down while its three equities markets have been wracked by extreme volatility linked to Trump’s trade war for the past two months.

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California’s Housing Crisis Spiraling Out of Control

California’s four decades’ old housing shortage now threatens to strangle the high-tech industries on which it relies for prosperity while hurling more people into poverty and inflating the ranks of the homeless.

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Arthur J. Villasanta – Fourth Estate Contributor

Sacramento, CA, United States (4E) – California’s four decades’ old housing shortage now threatens to strangle the high-tech industries on which it relies for prosperity while hurling more people into poverty and inflating the ranks of the homeless.

The current housing shortage has been estimated at 3 to 4 million housing units, or some 20% to 30% of California’s current housing inventory of 14 million. That’s not enough for the new jobs being created at Silicon Valley.

San Francisco Bay area cities added 400,000 new jobs but only issued 60,000 permits for new housing units from 2012 to 2017. As a result, the housing crisis is damaging the state’s high-growth economy as employers now have to contend with an increasing shortage of skilled workers who can’t find housing.

State officials estimate that California needs to build 180,000 new units of housing every year. Housing has topped 100,000 units in recent years, but that’s far short of the demand

This shortage is especially acute in coastal areas where the housing squeeze is the tightest. This supply dearth is worsened by stiff local resistance to housing construction. Several California counties such as Ventura County and a number of cities have adopted Save Open Space and Agricultural Resources (SOAR) restrictions that make it almost impossible to build housing on agricultural land.

Worse, the wildfires that devastated communities in Ventura County and other regions are adding to the housing squeeze.

One of the dire consequences of this huge imbalance between supply and demand is that California now has the 49th lowest ratio of housing units per resident in the United States. The worst result is sky high real estate prices. Median home prices now stand at $1.3 million in San Francisco and $1 million in San Jose, for example.

Worse, the housing crisis has exacerbated old social ills. Homelessness per capita is now the third highest in the U.S. while less than a third of Californians can afford a median priced home. California’s has the country’s highest level of poverty.

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U.S. CEOs Predict Economic Recession by Year-end

It’s the post-Christmas “gift” no right-minded person wants to receive — but a recession might be in the offing before this tumultuous year ends.

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Arthur J. Villasanta – Fourth Estate Contributor

New York, NY, United States (4E) – It’s the post-Christmas “gift” no right-minded person wants to receive — but a recession might be in the offing before this tumultuous year ends.

A demoralizing new survey shows American CEOs think a recession might strike as early as the year-end only two short weeks away. Economists and investors alike have been sounding the alarm for months about the likelihood of an economic recession, one of whose main triggers is the economic uncertainty caused by Trump’s trade war.

A New York Times survey surprisingly revealed that almost half of the 134 business leaders at the Yale CEO Summit expected a recession to strike by the end of the year. It said this finding was the direst yet, and shows just how worried corporate executives are about an imminent recession.

A full 67 percent of the leaders cited U.S. political instability — especially Trump’s poor performance as president — and Trump’s trade war with the world as the major triggers for the upcoming recesison.

The U.S. has enjoyed a record 10 years of economic growth since the Great Recession of 2008, and by all measures, is due for a recession. Analysts said the gnawing fear about the oncoming recession is reaching fever pitch.

“The end is near for the near-decade-long burst of global economic growth,” predicted John Graham, a finance professor at Duke and overseer of the survey.

The findings from the New York Times survey also coincide with a Duke University Fuqua School of Business survey earlier this month that found nearly half of all U.S. CFOs also believe a recession is near but predicted it will hit by the end of 2019.

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