[Market Madness] Edition 0113
The Markets are Sensitive
Stumbling around
Administrative topics and a general market recap
Well folks, another week is in the books and it was not boring one bit! We had IPOs, an important FED meeting, a handful of up and down days on the markets, and, of course, a boatload of TikTok news. Looks like Oracle, partnered with Walmart (??), are going to head up U.S. operations for the company and the global business is going to launch its own IPO.
Here are some general themes that we will cover off on in this edition:
Fed Notes
Macroeconomics
Snowflake IPO
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In the meantime, if you are interested in my thought process throughout the week as I collect news and ideas for the Sunday publication, please check out my Walling page where I brainstorm and mind-map each week’s edition!
Fundamentals
Where did the markets end last week?
U.S. Indices 5 Day Performance
Dow Jones: +1.33%
S&P 500: +0.58%
NASDAQ: -0.09%
Asia and Europe 5 Day Performance
Nikkei 225: +0.36%
Hang Seng: +0.11%
FTSE 100: +0.78%
DAX: -0.01%
Rates, Spot Prices, and ‘Good to Knows’
U.S. Dollar Index: 93.00
US 10 YR: 0.701%
Crude OIL: $40.88
Spot Gold: $1,950.30
Market Madness Portfolio: +4.32% YTD (Will be closing my position in Apple and getting into $ARKK — Ark Innovation ETF for similar tech exposure with less single-stock volatility)
TEDRATE: 0.14
LIBOR (3 month): 0.227%
COVID 19 Global Cases: 26,918,965 (updated Sept. 20, 2020)
Markets and Economics
U.S. indices gave up the early week’s gains following the Fed’s announcement Wednesday and a general weakening of the tech sector, which is volatility we’ve been seeing over the past few weeks. The more forward we progress, the more interesting it is to look back at the stock market jump up and what that continues to mean moving forward. We know that when things go bad, they do so in a big hurry, as we saw with the March selloff (limit down day after day).
The WSJ put out a nice summary piece detailing the market’s rise back to the top and the five big reasons it gained so quickly:
Stimulus from the Fed and Congress
Expectations of a strong recovery
Dominance of tech giants
The return of individual investors
Momentum trading
I’d say that they are spot on. They all have deep interrelations that have fed into the market environment that we have been seeing. And since we’ve been on this stock party for so long, it almost seems that the expectation was for it to just continue on indefinitely. And now, we are seeing the stalling of the party as we come to terms with everything that still plagues us.
From an economics front, it seems that we’re in a similar stall as well. Jobless claims have remained steady but still overall at a high number each week. August’s production figures were at a slower pace than in previous months, signaling that although there is some forward progression, it has also begun slowing down.
The challenge then becomes how to make sense of it all. Where do we place our eggs when we make bets moving ahead. As we will touch on next, we are in for low interest rates for the next several years, making for portfolio management challenges with stock/bond allocations.
Read more here, here, and here.
The Good ‘Ole Fed
Building off of the last article, we have the Fed’s actions this week. The Fed will keep rates unchanged until 2023, signaling a low interest rate environment for several more years to come. Additionally, they will work to maintain an adequate level of inflation, although potentially high as the Fed works to combat the high unemployment rates we are dealing with as well.
It is going to be a bloody battle for the Fed in the years to come. There is pressure on all fronts. Maintaining their dual mandate is proving no easy task in the age of COVID. Projections looking forward suggest that the Fed is targeting a 4% unemployment rate by 2023 and an inflation rate of 2%. We’ve been targeting 2% inflation for a long time, but we’ve been unable to reach that point as of yet. Where we sit now, it will also be a challenge moving forward to stimulate enough economic activity to revitalize jobs and bring about enough to move unemployment back down to 4%.
Read more here, here, here, here, and here.
Snowflake or snow-flop?
I was not privy to Snowflake before all the buzz surrounding their IPO, but they are a really cool company. A quick glance at their website tells me they mean business in the realm of cloud data management. The market ate up Snowflake like chocolate chip cookies at a middle school dining hall. Their shares were initially priced at $120 and began trading at $245, over 110% increase. On day one, the company 5x its value from its original valuation of 12.4 billion in February to over $70 billion. These figures make Snowflake ($SNOW) the largest software IPO ever.
But all that glitters isn’t snow. There are some other conversations being had about the potential “what if” regarding this and other IPOs: “did we underprice too much?” Companies hope to price their IPO in the proverbial ‘sweet spot’ where it is not too cheap but also not too expensive as to dissuade potential investors. Since the company over doubled their price on day one, it has left some market experts thinking that they were too conservative in their pricing, causing artificial scarcity around the shares, leading to such a large bounce in the secondary market where traders and investors buy and sell. Regardless, Snowflake fits right in line with the tech-frenzy that has been going on this year, and will no doubt be an interesting company to continue following in the future.
Read more here, here, and here.
Quick Takes
To fill in the gaps
What’s been going on behind GM’s doors? (via WSJ)
Amazon to hire 100,000 workers between U.S. and Canada. (via WSJ)
A word of caution on IPO investing. (via CNBC)
Lawmakers might pass a spending bill to avert government shutdown, stimulus nowhere to be found. (via WSJ)
TikTok global operations set to IPO if sale to Oracle gets approved. Walmart getting their hand in the cookie jar too. (via CNBC)
Islamic State chock full of cash. (via WSJ)
Justice Ruth Bader Ginsberg passed away Friday evening. (via CNBC and via WSJ)
Treasury Secretary urges folks not to worry about budget deficit or Fed balance sheet at this moment in time. (via CNBC)
Kraft Heinz cutting part of its cheese business. (via WSJ)
Saudi royal family at odds over potential agreement with Israel. (via WSJ)
General Banter
What’s on my mind
It is going to be a nightmare set of months until the election. Economic uncertainty, an uneasy stock market, a vacant Supreme Court seat, Russian bounties for dead American soldiers, and a looming pandemic that has plagued over 195,000 American lives definitely does not make for a comforting backdrop to one of the most critical elections in modern history.
Reader’s Corner
A place for suggestions
The reader is proud to share an amazing piece of work from Corey Hoffstein and his whole team at Newfound Research titled “Liquidity Cascades: The coordinated risk of uncoordinated market participants.” It is a really interesting and thought provoking piece about modern market interactions. Find Corey here on Twitter.
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Behind the Madness
You’ve made it through the madness. I’ve worked really hard to ensure that you leave this page having learned something, and I hope that benefits you in your daily adventure. Thank you again for checking in.
Publishing Schedule: every Sunday
In the meantime, if you are interested in my thought process throughout the week as I collect news and ideas for the Sunday publication, please check out my Walling page where I brainstorm and mind-map each week’s edition!
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