 The Market Sum | Insight after the bell
By Caleb Silver, Editor in Chief Friday's Headlines 1. Markets Fade on Chip Concerns 3. It's a Funky IPO Party 5. Congrats to the Champs! Markets Closed
Year-to-Date
 Stocks Fade to Close out the Week A choppy week for U.S. markets ended on a down note today with all three major indexes closing slightly lower. The financial press pointed to weakness in the semiconductor market following cautious remarks from Broadcom, yesterday. Broadcom gave a trepidatious forecast for the rest of the year, citing concerns around its business with Huawei and uncertainty in the Asian markets.
Chip stocks have a way of weighing down the market, since they are a key component of the technology supply chain.
All eyes are on the Federal Reserve, which will meet next week on interest rates. We shouldn't expect the Fed to adjust rates at that meeting, but Chairman Powell's language about the future direction of interest rates will be key to investor sentiment. He has already indicated that the Fed will be accommodative and wants to keep the economic expansion alive and kicking, which many investors have interpreted as at least one, if not two rate cuts in 2019.
The U.S. stock market is still near record highs despite all the uncertainty around rates and the trade war with China. It's even more remarkable given all the outflows from stocks and into bonds and other asset classes in 2019.
As we approach the midpoint of the year (June 30th), here are the scores on the doors, as they say:
2019 Year to Date:
What's remarkable is that stocks continue to outperform, even as investors pull money out of equities and put it into bonds and money markets.
2019 Year to Date Flows:
Money market funds (funds that invest in cash with low yields) now have about $3.2 trillion in them, according to Bank of America. That's a 9-year high.  Why is this Happening? Uncertainty, in a word. The stock market has been very unpredictable for the past two years given geo-political uncertainties. When investors are uncertain, they park their money in cash (money markets), gold, bonds, and safer stock sectors like utilities and consumer staples. Stocks are still near record highs, though, because central banks in the U.S. and around the world have kept interest rates very low to stimulate their economies. That makes money cheap for companies to borrow for growth or share buybacks. Buybacks are up 18% so far this year, and 2018 was a record year.
These are strange days, indeed.
Read more: Why do Companies Buy Back their own Shares?
The IPO Party This Spring has been a bonanza for Initial Public Offerings (IPOs). Despite the well publicized flops of popular companies like Uber and Lyft, there have been several surprising and high-performing public debuts. We've written a lot about Beyond Meat (BYND) and its stunning success, up as much as 500% since its debut. Those returns are a bit absurd - especially for a company that lost $30 million last year on sales of just $88 million.
Still, other companies like Zoom (ZM), CrowdStrike (CRWD), Shockwave Medical (SWAV) and even Fiverr (FVRR), the poster child for the Gig Economy, are all trading well above their IPO prices.
Renaissance Capital, which has made a fortune investing in IPOs over the past two decades, has an ETF that holds new public companies. Conveniently, its ticker is IPO, and it's up 35% so far this year.
chart courtesy tradingview.com  Chewy Time We happen to be down at the NYSE today where Chewy, the online pet food and supplies retailer went public this morning. The stock raced out of the gate today, jumping as much as 85% in its debut. Chewy is no Pets.com (1999 reference). It's a legitimate e-commerce company that generated $3.5 billion in sales in 2018, according to its S-1 filing. It still lost $268 million, to be sure. It's 70% owned by PetSmart, a brick and mortar retailer that acquired Chewy.com a couple years ago as its retail business was floundering. Pet supplies is a $70 billion market, and Chewy.com has taken a nice bite out of it.
photo courtesy@NYSE  Perspective This IPO mania we are in won't last. This is not to say that several of these companies won't go on to be very successful public companies that change their industries and deliver healthy returns to shareholders for years to come. Some will.
Remember, it took Facebook 15 months to trade above its offering price.
Most won't. Professor Jay Ritter from the Univ. of Florida has studied the IPO market for decades. He analyzed more than 8,363 IPOs from 1980 to 2017 and showed that more than 60% had negative absolute returns in the three years following their first day of trading. Their average return was a paltry -17.9%.
Proceed with caution.  Next Week Is all about the Federal Reserve and the tea leaves it drops on the future direction of interest rates. As we have written all week, options traders and economists are expecting at least one rate cut in the July meeting, and at least two by the end of the year. The meeting takes place June 17 and 18.
We'll also get several reports on the U.S. housing market next week. Lower interest rates have driven mortgage rates down with them, sparking new home sales and a wave of refinancing. That is putting more money in consumer's pockets, which drives spending and the economy.
In Europe, ECB President Mario Draghi speaks on Tuesday. He's already indicated that the ECB will keep rates low and make attractive loans to European banks to keep the liquidity moving through the continent.
Keeping an Eye on Oil After rising 2% yesterday following the attacks of two oil tankers in the Gulf of Oman, oil futures crept up a bit on Friday, but still ended the week lower. The IEA released its forecast today which showed global demand falling to its lowest levels since 2011. We expected that, but the fallout from those tanker attacks is far from over.
chart courtesy www.koyfin.com  Facebook's stock rose more than 2% today on news that the company had plans to unveil its cryptocurrency next week, with some big companies signing on (Visa, Mastercard, Paypal).  F5 Networks fell more than 5% today, bring its year-to-date decline to 16.28%.  Word of the Day Yesterday, following attacks on two tanker ships off the coast of Iran in the Gulf of Oman near the Strait of Hormuz, oil futures spiked 4% before settling into a 2% gain. As noted above, oil futures continued rising today, but still ended the week lower. Futures rising came in spite of the fact that the IEA released its forecast today showing global demand falling to its lowest levels since 2011. Why is that?
Because yesterday's news was a supply shock: "A supply shock is an unexpected event that changes the supply of a product or commodity, resulting in a sudden change in price. Supply shocks can be negative—decreased supply, or positive—increased supply; however, they're often negative. Assuming aggregate demand is unchanged, a negative supply shock causes a product's price to spike upward, while a positive supply shock decreases the price." Today in History June 14th 2000 - The U.S. SEC, FBI, and the U.S. Attorney for the Southern District of New York crack down on more than 100 alleged mobsters and their cronies, claiming that the Mafia -- in cahoots with brokers, investment bankers, a money manager, and a retired New York City cop -- manipulated the prices of 19 stocks, defrauding thousands of investors out of an estimated $50 million. Much of the alleged fraud occurred in dotcom stocks, and prosecutors suggest that the Mob -- shut out of gambling, drugs, and prostitution -- has moved into the hottest new vice, Internet stock trading.
The Wall Street Journal, June 15, 2000, p. C1  Congrats to the Champs! Many people may not know that our roots are in Canada. Nearly twenty years ago, a few smart people got together with the idea to launch a website with a financial glossary and test preparation for the securities industry. Turned out to be a pretty good idea. We still have an office in Edmonton and a whole bunch of smart and fun Canadians on our team.
We celebrate with them, and all the Canadian fans on their NBA championship. Congratulations to the Raptors.
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Friday, June 14, 2019
Chewed Up
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