Quote of the Day
The stock market is a device for transferring money from the impatient to the patient.”
Warren Buffett
Market Snapshot
- U.S. indexes surged more than 1.5% after a wild day.
- European and Asian stocks continued their sell-off.
- Oil dropped for a third straight day.
- Bitcoin briefly dipped below $7,000.
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Stock Market Bounces Back—What’s Going On?
The markets shot back up yesterday, following Monday’s disaster when the Dow stumbled through its worst one-day point loss ever (1,175 points) and the S&P suffered its largest percentage beatdown (more than 4%) in six years.
So before you decide whether or not to cash out that 401K or start maxing it out again, we'll shed a little light on a) what might have caused the flash crash and b) how to understand it.
Just like that one wildcard friend, there’s no certainty when it comes to the stock market.
But here’s what might’ve caused the rout:
* Bond yields: As 10-year bond yields rise—and they’ve been rising—investors might turn from equities to these alternative, safer assets.
* Inflation: concerns of rising inflation are unsettling to investors. Higher inflation => more Fed interest rate bumps => higher borrowing costs for companies => less economic growth.
But those are more long-term concerns. In the short-run you can probably thank...
* Algorithmic trading and automatic sell orders: think of it like a snowball effect—computers have triggers that say, “if these stocks fall a certain amount, sell,” which causes even more selling.
* Shorting the VIX: for months, investors placed massive bets against the VIX—a measure of volatility in the stock market—hoping times would remain calm. These bets totaled more than $3 billion. But when the VIX jumped above 37 points (its highest mark in two years) most bets were washed away. That led to more fear and concern, potentially leading to more frantic selling.
How to understand the recent sell-off
First, take a deep breath. As legendary activist investor Carl Icahn put it, “The market itself is way over-leveraged,” but for now “things will probably bounce back.” And they did...
* Consider strong economic fundamentals: the unemployment rate remains at historic lows (4.1%), consumer confidence is at all-time highs, a massive corporate tax cut (from 35% to 21%) should continue to fuel record earnings, and so much more.
* Even if the markets dip again, corrections happen, and they’re healthy. The markets having been cruising since President Trump took office. Even with this correction, the S&P is still up ~23%.
The bottom line: This looks like a blip on the market’s radar. Keep calm and carry on.
Pinch Us, We’re Dreaming. Snap Enjoys Very Solid Q4
Snap (+23.04% after hours) hopes this good news doesn’t disappear as fast as its pictures: the photo-messaging company soundly beat expectations, with revenue jumping 72% to hit $286 million. This quarter marks the first time Snap beat analysts’ benchmarks since its March 2017 IPO.
* Daily active users rose 18% to 187 million.
* Average revenue per user grew 46%.
* Cash burn fell 49% (even though Snap posted a net loss of $350 million).
This clearly isn’t the same old Snap. For one, it’s (slowly) rolling out an app redesign that will allow users to share Stories outside the Snapchat platform. Snap also automated its advertising sales process, which it hopes will make it an attractive—and cheaper—alternative to Facebook and Google.
We hate to be “that guy,” but when you jump up and down about shares inching above IPO-levels, you know there’s a lot more work to be done.
Big Pharma News: Allergan Beats and Alabama Sues Oxy Maker
Alabama is the latest state to sue opioid drug companies, filing a lawsuit against OxyContin-maker Purdue Pharma. Why? For deceptively marketing prescription painkillers and feeding the opioid epidemic.
State Attorney General Steve Marshall alleges that Purdue's misrepresentation of the drug's benefits and risks enabled its over-prescription for chronic pain.
Insult to injury: the drug generated billions of dollars in sales while Alabama paid the price—a public health crisis and triple-digit overdose deaths. Purdue denied the allegations, noting its drugs have been FDA-approved and only account for 2% of all opioid prescriptions.
Allergan has less of a legal headache
Allergan (+2.02%) beat its Q4 earnings and revenue expectations thanks to Botox demand, as sales jumped nearly 17% to $864.3 million. The company looks like it’s smiling about that.
More good news: the positive test data for Allergan's migraine treatment, Ubrogepant. Scheduled for another trial, the pill will be submitted for FDA approval next year.
Reviews: Apple’s HomePod Sounds Great, but Siri Is No Alexa
Apple’s smart speaker, the HomePod, will finally go on sale this Friday. Despite arriving almost three years after Amazon Echo and costing far more ($350 vs. $100), the HomePod hopes to snag some of Alexa’s market share, estimated to be between 70-76%.
So what can the HomePod offer consumers? Integration with the Apple ecosystem and a killer sound system. But Siri leaves something to be desired.
Don’t take it from us, take it from the reviewers:
BuzzFeed: The HomePod “might be the Apple-iest Apple device in recent history.” Steer clear “if you don’t have an Apple Music subscription, an extensive iTunes library, or an iPhone.”
TechCrunch: “Apple’s HomePod is easily the best sounding mainstream smart speaker ever.” That said, “its overall flexibility is stymied by the limited command sets that the Siri protocol offers.”
WSJ: “If you want the smartest smart speaker, this isn’t it. But if you prize music above everything else, the HomePod isn’t a dumb choice.”
What Else Is Happening…
- Google will buy Chelsea Market in Manhattan for $2 billion.
- The European Commision is reviewing Apple's purchase of music discovery company Shazam after competition concerns.
- Tronc (+0.11%) is expected to sell the LA Times.
- PepsiCo (-0.79%) isn’t launching Lady Doritos after all.
- Did you pay full price for your iPhone battery replacement? Apple (+4.18%) is thinking about giving you a rebate.
- ESPN's streaming service will cost $4.99/month.
- The House passed a stopgap spending bill to fund the government through March 23.
Economic Calendar
- Monday Earnings: Booz Allen (+), Sysco (+)
- Tuesday Earnings: BP (+), Chipotle (+), Dunkin’ Brands (+), GM (+), Disney (+)
- Wednesday Earnings: Hasbro, Tesla, 21st Century Fox, Yelp
- Thursday Earnings: Activision Blizzard, CVS, Expedia, GrubHub, Twitter, Yum!
- Friday Earnings: No Events
Economic Events: ISM Non-Mfg Index (+)
Economic Events: International Trade (-)
Economic Events: Consumer Credit
Economic Events: Chain Store Sales
Economic Events: Wholesale Trade
From the Crew: What We're Reading
Brew Book Club, anyone? A few weeks ago we asked what you were reading and now we feel obligated to reciprocate. This week’s page-turner: Emily Chang’s Brotopia: Breaking Up the Boys’ Club of Silicon Valley (now available at your local Amazon Go).
Gender discrimination in Silicon Valley (and elsewhere) has been a hot topic lately (and forever)—and not just because of the excerpt Vanity Fair ran about “exclusive, drug-fueled, sex-laced parties.” Those six pages of the book are symptomatic of the much larger systemic issue.
Chang, a Bloomberg TV anchor, covers the pervasive sexism and inequality in a tech industry that prides itself on disruption and thinking outside the box. Don’t worry, she’s aware that “territory covered in the book may make people uncomfortable.”
It makes us uncomfortable that we’re only just learning some of these things.
The Breakroom
Question of the Day
Three people picked 65 apples altogether. At the first tree they each picked the same number of apples. At the second tree they each picked 3 times as many as they picked at the first tree. When they finished at the third tree, the group had 5 times as many apples as they had when they started at that tree. At the fourth tree the group picked just 5 apples.
How many apples did each person pick at the first tree?
(Answer located at the bottom of newsletter)
Business Trivia
Can you list three retailers that filed for Chapter 11 in 2017?
(Answer located at the bottom of newsletter)
Stat of the Day
6,500—the average number of members per Planet Fitness location, a steep number considering most of its gyms only fit 300 people at a time. How do they manage? Gyms design their business models around the “well if I pay for the gym that means I have to go” gym mentality. Specifically because most members never end up going.
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Breakroom Answers
Question of the Day: Each person picked one apple. (Explannation)
Business Trivia: Toys ‘R’ Us, Vitamin World, Rue21, Aerosoles, Perfumania, Gymboree, True Religion, Payless, RadioShack
