Friday Charts: Boom and Bust IPOs, Artificial Intelligence and an Ominous Divergence
If you’re new to the Wall Street Daily Nation, here’s the rundown…
Each Friday, I embrace the adage that “a picture is worth a thousand words” and hand-select compelling graphics to put important investment news into perspective.
All it takes is a quick glance and you’ll be up to speed.
This week, I’m dishing on tech IPOs, artificial intelligence and a rare and potentially ominous divergence between stocks and bonds.
Hot or Not
Snap (SNAP) is officially out of the gates!
The company behind popular messaging app Snapchat priced its IPO on Wednesday and began trading yesterday.
As Reuters reports, “Investors set aside concerns about its lack of profits and voting rights for a piece of the hottest tech IPO in years.”
Silly rabbits! As I previously warned, Snap is hardly a “fist-pounding buy.”
And let’s get real, Reuters. One day of trading is hardly long enough to characterize Snap as the “hottest” IPO in years. It takes months of trading to make that determination.
And the long-term performance of tech IPOs is a mixed bag, at best.
You’ll notice the most hyped offerings tend to fare the worst.
You’ll notice Facebook (FB) tops the list. But its performance is deceiving.
After pricing at $38 per share in May 2012, shares stumbled out of the gates — dropping as much as 54% in the first three months or so.
Obviously, shares eventually recovered. But it took an eternity. Almost 15 months passed before IPO investors broke even on their “sure thing” investment.
In other words, the smart money isn’t always that smart.
From Dumb Money to Smart Machines
When it comes to finding the next big technology trends, we scour patent filings, monitor venture capital financing data and attend key industry trade shows — among a litany of other things.
Sometimes, though, the next big trend is hiding in plain sight. That is, in companies’ quarterly reports.
When every company is talking about the same thing, it’s likely a key technology focus for the coming quarters and years. And right now executives can’t keep their mouths shut about artificial intelligence. Take a look!
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Forget Stocks, Look at Bonds
Stocks can’t be stopped!
Case in point: The Dow recently capped off its longest consecutive-day winning streak since 1987.
Interestingly enough, though, investors have recently started buying bonds, too. And that could foreshadow trouble ahead.
As you can see in the chart, stock prices and bond yields, which rise when investors sell bonds, were moving in lock step. But now they’re diverging, indicating that some investors are starting to question how quickly and/or significantly the economic promises and policies of President Trump will have a real-world impact.
Then again, it could also be a symptom of investors doubting that stocks can keep surging indefinitely. Even I’ll concede that the current bull market has defied all expectations.
But if that’s the only reason investors are rotating into bonds, they’re making a dangerous bet.
After all, in the famous words attributed to John Maynard Keynes, “The market can stay irrational longer than you can stay solvent.”
In other words, don’t try to fight the tape or you might not live to fight another day.
Time will tell who’s right (and solvent). It goes without saying that we’ll keep monitoring this divergence for insights on where stocks might be headed next.
Ahead of the tape,
Investment Director, Wall Street Daily