Market Digest – Volvo’s EV Announcement Means Competition Is Heating Up

It was a short week for U.S. markets given the July 4th holiday, which was marked by a number of geopolitical events, including North Korea’s missile launch and President Trump’s private meeting with Vladimir Putin. Domestic and foreign stocks were modestly down through Thursday, but a stronger-than-expected U.S. jobs report on Friday sent equities higher. Virtually all major asset classes ended the week lower, including bonds, real estate, gold, and commodities.

Weekly Returns:
S&P 500: 2,425 (+0.1%)
FTSE All-World ex-US: (-0.5%)
US 10 Year Treasury Yield: 2.38% (+0.08%)
Gold: $1,213 (-2.3%)
EUR/USD: $1.140 (-0.3%)

Major Events:

Monday – Tesla announced second-quarter sales were negatively impacted by production shortfalls

Tuesday – The United States celebrated its Independence Day

Tuesday – North Korea successfully tested an Intercontinental Ballistic Missile (ICBM), which landed in the waters between Korea and Japan

Wednesday – Volvo announced that by 2019, all cars in production will be fully electric or hybrid

Friday – U.S. non-farm payrolls increased by 222,000 in June, well ahead of the 174,000 estimated by economists. The unemployment rate ticked up to 4.4% as more people joined the workforce

Friday – President Trump and Vladimir Putin held a highly anticipated meeting at the G20 in Germany

Our take:

An interesting announcement was made by Volvo this past week. The company stated all new cars from 2019 will either be fully electric or hybrids. This is somewhat of a landmark moment, as Volvo is the first major automaker to totally abandon internal combustion engines – at least as the sole powering mechanism for cars. It seems only logical that other automakers will follow suit. And while this broader trend will have a significant global impact (in numerous ways), it puts another carmaker directly in the crosshairs: Tesla.

Tesla has been revolutionary in its development of pure electric vehicles (EVs), and it still enjoys a technological advantage over other pure EVs in the market. But with Volvo’s announcement, the competition is clearly heating up. The situation is a bit reminiscent of Apple’s iPhone and its impact on the mobile phone market. When it debuted in 2007, it was ground-breaking technology with respect to its design, touchscreen interface, and user-friendly software. And within a relatively short number of years, it experienced mass adoption.