Even if you’re not one of 158 million people who use Snapchat on a daily basis, you probably know that the parent company of the disappearing photo-and-video app went public last week. As it happened, Snap and its bankers priced the much-coveted IPO Wednesday night at $17 a share, only for the stock to open Thursday morning at a puffed up $24. In Street vernacular, it’s called the IPO “pop” and it’s a pretty sweet deal for the underwriters and preferred clients who scored the prize at the bottom of the IPO box.
The prototype for Snapchat was started by Stanford student Evan Spiegel as a project for a product design class
There’s no magic formula for this sort of thing, but Snap’s 41% burst is said to be right on the edge of what’s considered a successful IPO – a decent enough capital raise that keeps the newly issued stock cheap enough to create buzz when it starts trading. Then again, some might say the bankers simply underpriced the shares – $1.6 billion by credible calculations – shortchanging Snap’s original shareholders a couple of bowlfuls of breakfast goodness.
Originally called “Picaboo,” the app was launched in July 2011 while Spiegel was living at home and going to school
The even soggier part of the Snap story is that ordinary folks who actually bought the pop might have paid too much. Why? Because very few companies live up to the kind of inflated expectations attached to our featured social-network-that-calls-itself-a-camera-company. Indeed, for every Facebook, whose shares have climbed 259% since its May 2012 IPO, there is a Twitter, whose shares are down 66% from their first day of trading.
The Snapchat app icon is called “Ghostface Chillah”
Snap, meanwhile, is losing money, which is no real surprise. What’s not so satisfying is that its user growth is stalling. Fact is, not all pops are bound to crackle.
What the markets have been doing…
In a period that’s being called the eighth anniversary of the bull market, stocks managed to register slight gains across the two-week stretch, though the S&P 500 did post its first weekly decline since mid-January. On the whole, large caps continued to outperform small caps, thought the technology-heavy NASDAQ outperformed and ended within 0.9% of its record high.
Energy stocks were very much in the news with reports of rising inventories weighing rather heavily on oil prices and energy stocks. On Thursday, a report on increasing U.S. oil inventories pushed the price of a barrel of domestic crude below $50 for the first time since December. Elsewhere on the economic front, payroll processor ADP released a report Wednesday showing the biggest jump in private payrolls in over a decade. Friday’s official report from the Labor Department was not quite as robust but still strong, showing a gain of 235,000 jobs for the month.
|INDEX||Friday’s Close||Two-Week Point Change||Year-to-Date Change|
Amid growing certainty that the Fed would raise short-term interest rates at its upcoming policy meeting, longer-term Treasury yields moved upwards, with the yield on the 10-year note touching its highest level since mid-December. On the corporate side, a heavy new issue calendar dominated both the investment-grade and high-yield spaces. Municipal bonds, like Treasuries, posted slightly negative returns.
|FIXED INCOME||Period||YTD||12 Months||Yield|
|U.S. Investment Grade||-(0.9)%||-(0.1)%||4.4%||3.5%|
|U.S. High Yield||1.2%||1.8%||17.0%||2.5%|
What Fund Architects has been doing…
Equity markets continue to trade well post-Election, though the last few weeks have settled into more of a trading range. It’s reasonable to surmise that investors are taking a pause, looking for catalysts that could determine the future direction of equity prices.
For our part, the Fund Architect systematic sector identification process continues to have the Portfolios positioned to our satisfaction. On the equity side, our trade this month into Global Technology has worked out particularly well with the sector among the top performers across the board.
On the fixed income side, since we have no Treasury exposure and therefore a low sensitivity to the increasing rates, our bond allocation is looking favorable relative to both our peers and our benchmark. We’re starting to see some weakness in high yields, however, and it’s likely we’ll be selling the sector for preferred stocks.
It’s worth noting here that large-cap European equities (ticker IEV) continue to show up well in our rankings. Indeed, if we were to trade today, we would actually be selling S&P 500 (IVV/SCHB) in favor of European equities. Not everyone’s noticed, but Europe has been up nicely this year and has not shown the recent pause that U.S. equities have.
Overall, the strong bull trend continues and Fund Architect clients are participating nicely. There may be a few adjustments to our overweights in the coming weeks, so stay tuned.
Where’s the dark cloud behind this silver lining?…
Three reasons why investors should be concerned about the near-term market, according to the killjoys at Goldman Sachs:
(1) Recognition that lower corporate tax rates may not take effect until 2018,
(2) Multiple Fed hikes, and
(3) European elections.
Quote of the Week…
“We are probably not going to forecast the next financial crisis, or forecast the next recession. Our models are just not that good.”
Gertjan Vlieghe, Bank of England official
Number of the Week…
The drop in U.S. crude futures last Wednesday, oil’s biggest one-day plunge in more than a year.
The views in this commentary are those of Fund Architects. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this commentary, will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for your portfolio. Moreover, you should not assume that any discussion or information provided here serves as the receipt of, or as a substitute for, personalized investment advice from Fund Architects or any other investment professional. The information contained within this commentary should not be the sole determining factor for making investment decisions. To the extent that you have any questions regarding the applicability of any specific issue discussed to your individual situation, you are encouraged to consult with Fund Architects. Information pertaining to Fund Architects advisory operations, services, and fees is set forth in Fund Architect current disclosure statement, a copy of which is available upon request. Fund Architects, LLC is an SEC Registered Investment Advisory Firm.