foxex: The Year of the Pig

The Market Sum | Investopedia

Insight after the bell

By Caleb Silver, Editor in Chief

Monday's Headlines

1. Markets climb higher and Google has a rare miss as Chinese New Year starts.

Markets Close

Dow
25,239.37 +0.70%

S&P
2,724.87 +0.68%

Nasdaq
7,347.54 +1.15%

VIX
15.73 -2.54%

INV Anxiety Index
100.78 Neutral

US 10-Yr Yield
2.724 +1.23%

Markets Today

U.S. markets slowly meandered their way into positive territory today, shaking off the haze of pretty uneventful Super Bowl Sunday. It's hard to believe that a 30-second Super Bowl Ad costs $5.25 million in 2019 and I can only remember a couple of them. Too much guacamole, maybe. The Washington Post's ad was memorable and important. Alphabet (GOOGL) (Google's parent company) reported earnings after the close. It grew revenue and profit 23% and 21%, respectively, from the same period a year ago. But the stock was selling off in after-hours trading as margins weakened given rising costs and headcount. At the end of 2018, Alphabet employed 98,771 people compared to 80,111 at the end of 2017. Alphabet provides free meals to its employees. You do the math. Here's Alphabet's earnings release.

More reading:

Top Companies Owned by Google

Top Google Shareholders

Facebook Turned 15 Today

Its founders never imagined the profound impact it has had on our lives, our politics and the way we interact. This was the original homepage from The Facebook, as it was called in the early days at Harvard. Notice how Mark Zuckerberg made sure his name was attached.

Facebook went public on May 18th, 2012. It has over 2 billion active users across the world.

Its shares have appreciated 333% since then, or 47.5% a year.

Netflix went public on May 23, 2002. It has 148 million subscribers worldwide.

Its shares have appreciated 3300% since then, or 194% per year.

One company makes money off of our personal information and attention.

The other makes money by distracting us with entertainment.

Value is a funny thing.

Inflows at Multi-Year Highs

Six straight weeks of market gains have brought the money back to the market. $11 billion moved into equity mutual funds in January - the most in 5 years, according to TrimTabs. What's strange is that U.S. equity ETFs had their biggest monthly outflows in January, shedding $26.1 billion.

Why it Matters

Mutual funds, by definition, are actively managed by portfolio managers inside money management firms. ETFs (Exchange Traded Funds) behave more like stocks and are considered 'passive' investments. More on that here.

As ETFs have grown in number, assets and popularity over the past two decades, the battle between active and passive management has reached a fever pitch. Those who support active management believe that fund managers have the secret sauce to outperform the market or a benchmark index and are therefore worth the extra fees that ultimately get subtracted from any gains or added to any losses the fund may incur. The late Jack Bogle, founder of Vanguard, railed against actively managed mutual funds his entire professional life. He shared some choice words with us on the topic.

ETFs, on the other hand, are passive investments in that there is no active management of the fund once it is composed of the stocks or securities inside of it. They trade throughout the day like stocks and carry fewer fees than mutual funds. There are over 2200 ETFs available to investors and the market has exploded in the past decade. But most ETFs have never been through an extended downturn or bear market. They are untested.

Of the $26.1 billion that came out of ETFs, $25 billion came from the two oldest and biggest ETFs, SPY and IVV. Both track the S&P 500. These are typically two of the most stable exchange traded products on the market, so the extreme outflows are surprising. We are going to keep an eye on this.

Chart of the Day: Pigs are Outperformers

James is out today, so I'll take this opportunity to wish a Happy Chinese New Year to all those who celebrate. It's the Year of the Pig. In Chinese culture, pigs are a symbol of wealth. If you look at the chart shared by Jeffrey Kleintop, Chief Market Strategist for Schwab, you'll see that the Year of the Pig has always delivered generous returns for global markets. However, that's just another market myth like the Super Bowl Index, which tells us that the market underperforms when a team from the AFC wins the Super Bowl. Since that happened last night, let's hope it's wrong.

Back to the Pig...

As Schwab's Kleintop puts it, the Pig is actually untested over time since the MSCI World Index, the broadest measure of global markets, has only been around for four of the Pig Years. Let's see how it fares in 2019.

Wishing you an abundance of health and laughter.

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