Stock markets rise again, but Wall Street hates this new ex-Blue Chip plan

The stock market continued to gain ground on Wednesday morning, with investors looking on the bright side as they consider what the short-term future is likely to bring. The latest inflation reading was relatively benign, with core inflation excluding food and energy rising just 0.1% in February. At 11:30 am EST, the Dow Jones Industrial Average (DJINDICES: ^ DJI) was in record territory, having shot another 390 points to 32,223. THE S&P 500 (SNPINDEX: ^ GSPC) rose 28 points to 3,904, and the Nasdaq Compound (NASDAQINDEX: ^ IXIC) stayed behind, but still rose 81 points, to 13,155.

Stock market investors are showing a new appreciation for stocks in the old economy, which tend to move in line with the business cycle. With the expectations of explosive economic growth inspired by vaccines, many of these cyclical stocks are expected to gain a lot. However, what was once a giant among cyclists, General electrical (NYSE: GE), was falling on Wednesday morning, while shareholders considered the industrial conglomerate’s last attempt to execute its recovery efforts and become a first-rate action again.

General Electric continues to divest

GE’s shares fell nearly 6% as of 11:30 am EST. Investors reacted negatively to the company’s prospects in general and, in particular, to two moves the company made to try to sustain its future.

First, the conglomerate said it agreed with AerCap Holdings (NYSE: AER) to merge its GE Capital aviation services business into AerCap. However, this will not be a direct merger; General Electric will withdraw about $ 24 billion in cash, which it expects to use to continue its efforts to reduce debt and, after the deal is closed, GE will have a 46% stake in the combined company.

The move continues a long-term trajectory for GE, moving away from its once massive capital lending business. In the period leading up to the financial crisis, GE Capital became so large that it had an exposure comparable to that of some of the largest financial institutions in the industry. Still, when the financial crisis hit, it confused GE Capital and also hurt the rest of the company’s industrial businesses.

CEO Larry Culp argued that this last step in GE’s transformation will continue to make the company less risky. By focusing on aerospace manufacturing instead of aviation leasing, GE hopes to take advantage of improved conditions in the commercial aircraft industry once the pandemic is under control.

Is GE really on the road to recovery?

General Electric also released a detailed outlook for 2021, arguing that it sees a positive path for its various businesses. It sees the main industrial business showing organic revenue growth in single-digit percentages. The best growth is likely to come from renewable energy, but even so, the company expects only half-digit percentage gains. Slower health and aviation gains are still better than the average single-digit percentage decline expected for GE Power.

Perhaps worst of all, GE said it will seek approval to do a reverse 1 to 8 split. The result will be to bring GE’s share price to around $ 100 per share, but with investors holding only one share for every eight they currently own. For many companies, the reverse stock split was a last-ditch effort to remain viable businesses. This is not exactly the case for GE, which still boasts a market capitalization of more than $ 100 billion, but investors still prefer to see companies raise their share prices through real appreciation, rather than split devices.

GE has experienced many indignities in the past 20 years, culminating in its removal from the Dow Jones Industrial Average after more than a century as a venerable market benchmark. Despite the industrial conglomerate’s own optimistic outlook, Wall Street is far from convinced that General Electric will regain its status as a first-rate stock again.