By William Davis


You might have heard that Spotify, the ubiquitous music-streaming service, is a Swedish company with a worldwide business. It is. And you might have heard that the still unprofitable firm – which is said to be valued somewhere around a thousand million billion dollars – is preparing to go public this year. It is. You might have also heard that it’s all music to Wall Street’s figurative ears. It’s not.

During the Roman Republic, the publicani sold public shares that traded in a type of over-the-counter market in the Forum, near the Temple of Castor and Pollux

Fact is, the Spotify noise in and around the investment banking community couldn’t be more muted. Why? Cuz’ the tuneful startup is seriously considering a public offering that’s not really a public offering. Instead, the money-losing unicorn – said to be valued at somewhere around a million billion trillion dollars – is exploring the possibility of “direct listing” its shares on an agreeable exchange. That means that instead of raising money in the traditional IPO fashion, the firm would simply transfer shares currently in the hands of the company’s founders, employees, and investors to an agreeable exchange and let the market do the rest.

The first modern IPO occurred in March 1602 when the Dutch East India Company offered shares to the public in order to raise capital

Surprisingly, maybe, the New York Stock Exchange has asked the SEC for consent to change/loosen/drop its formerly blue-chip listing standards in order to compete for direct business. More specifically, direct listing business of unicorns like Spotify and Uber, with estimated valuations of a billion trillion gazillion dollars or more. Doesn’t sound real good for Wall Street, where underwriting has been a big-commission, high-volume business for a very long time.

In the U.S., the first IPO was the public offering of Bank of North America around 1783

Removing the investment banks’ stranglehold on the IPO market is a win for companies. Removing investment banks from the allocation of shares is a win for retail investors. Neither needed a roadshow to begin with. At least that’s what we’ve heard.

What the markets have been doing…

Amid lots of noise and little market-moving substance, equities produced fairly good gains for the period, good enough at least to push the S&P 500 and the NASDAQ to record highs. The S&P – far and away investors favorite benchmark – closed out the two-week run with its seventh consecutive daily gain. Overall, growth-oriented technology and consumer discretionary stocks performed particularly well.

Traders showed little reaction to Wednesday’s release of the minutes from the Federal Reserve’s May meeting. By most interpretation, the notes did little to change minds about the likely path of further interest rate hikes. Market watchers tend to the central bank will delay its next hike until September

INDEX Friday’s Close One-Week Point Change Year-to-Date Change
DJIA 21080.28 +183.97 +6.67%
S&P 500 2415.82 +24.92 +7.91%
NASDAQ 6210.19 +88.96 +15.36%


Despite the pressure on interest rates for the longer term, Treasury yields went mostly nowhere in the short term, and did so on light volume. Investment-grade corporates, meanwhile, benefited from heavy demand. Investors also responded well to a slug of new deals in the high yield space. Municipal bonds, too, were supported by demand that outpaced new issuance.

FIXED INCOME Period YTD 12 Months Yield
U.S. Treasuries
1.7% -(0.3)% 2.2%
U.S. Investment Grade +0.1% 3.1% 3.9% 3.2%
U.S. High Yield -(0.2)% 4.7% 13.6% 5.5%
U.S. Municipals -(0.2)% 3.6% 1.2% 2.2%

What Fund Architects has been doing…

Amid all the noise, investors have continued to selectively bid up stock prices. While broad measurements like the S&P 500 and the NASDAQ moved higher, the real action’s been at the segment level – technology, consumer staples, and utilities sectors have led the way, while the energy sector and financials have lagged so far this year.

All of this played particularly well for the Fund Architects Multi-Factor SECTOR TRADING portfolios. On the equity side, we can’t help but be especially pleased that our May positioning had us in Global Technology (IXN) and Global Consumer Staples (KXI), two of the top-performing areas of the market for the month. Given our strategy of taking large positions in our top-ranked sectors, it’s no surprise the Global ETF Portfolio performed well for the month.

On the fixed income side, both our Convertible Bonds (CWB) and Emerging Market Sovereign Debt (EMB/PCY) positions performed relatively well. It’s worth noting, too, that the Global Conservative ETF Portfolio’s qualitative component, where we utilize Guggenheim BulletShares ETFs for bond laddering purposes, has provided good support.

As we look to next month’s trades, it’s fascinating that our rankings at this hour are showing utilities moving ahead of technology. Unlike technology, which has been on a tear for months, the utility sector was hit hard post-Election. We’ll let the process guide the way, but we wouldn’t mind being in sector that seems to have more room to run.

What the pundits have been saying…

“This corresponds with a period of extreme overvaluation in pretty much every asset class – stocks, bonds, real estate (in some sectors). I could not think of a clearer sell signal for a country. This is like Japan 1990 but with political nonsense to go along with it.”

Jared Dillian, editor of The Daily Dirtnap, a daily market newsletter for investment professionals, continuously published since 2008.

What people have been saying…

“Right now we don’t know whether we are friendly with Mexico, whether we are friendly with Canada, whether we are friendly with China, whether we are friendly with Russia.”

Alan G. Hassenfeld, former chairman and chief executive officer of Hasbro Toys

What the numbers are saying…


The increase in aggregate first-quarter earnings for S&P 500 companies, the fastest pace in nearly six years.

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.