The hunger. Investors were hungry for something to spur equities and they got it yesterday in the form of big deals and positive vaccine trial news. Stocks ran up out of the gate with all sectors participating in the rally.
N O T E W O R T H Y
Get me some of that. Yesterday as I walked across the trading floor I noticed a pattern. More than a few of the folks taking calls were talking about a technology IPO happening today. To be clear, it was more like clients calling in and begging to participate in a deal that appears to be highly sought after… by almost everyone. Ah, a high demand tech IPO. My ears perked up and I listened to one rep describe to the client the nature of the company’s business along with its very limited, but impressive, financial track record. Not that it mattered, the client had already made the decision to get their hands on as much as possible. With the market back up, led by mega cap tech stocks, it is only natural that investors are interested in fishing new waters… demand. This renewed demand has lured the unicorns back to the watering hole. Remember the unicorns? They are loosely defined as privately held companies whose valuations exceed $1 billion. Most of these companies are only a few years old and backed by venture capitalists who helped usher the companies from idea to reality. To learn more about unicorns and venture capital, you can read my note on the topic here: https://siebert.com/blog/wp-content/uploads/2019/04/geek-out-topic-Unicorns-and-Venture-Capital-Investing.pdf . Looking ahead to fall, there appears to be a number of unicorns queued up to go public and quite a bit more watching carefully (those include Palantir, Airbnb, and DoorDash). According to CB Insights, a company focused on analyzing technology startups (amongst other things), there are currently 490 unicorns who have yet to jump into the public markets. For reference, there are only around 2000 public companies with valuations above $1 billion. That is a lot of unicorns. I write a lot about solid companies with strong leadership increasing the probabilities for long term investment success. With many of the upcoming IPOs coming to the market, it will be difficult to assess potential for success with very little track record. More importantly, even if a company has good prospects, it may be difficult to determine if the market will embrace the stock, regardless of its fundamental strength. Yesterday, I wrote about the market always being right (https://siebert.com/blog/index.php/2020/09/14/road-less-traveled/) in trying to help understand how company stocks continue to grow far beyond their theoretical value. I want to remind you that success doesn’t always happen overnight. Facebook, another highly sought after IPO, found its newly listed stock under water for over a year before it was ultimately embraced by the market. It has obviously done well since then (I know you chuckled at that). While I have you smiling I want to remind you of another former unicorn: Apple. Yes, Apple, whose market cap when it went public in 1980 was about $1.8 billion… and is now worth just under $2 trillion. But you don’t have to be a unicorn to be successful. Microsoft was only worth about $700 million when it went public in March, 1986… now worth around $1.5 trillion. With high demand, a hot market, and plenty of supply, investors need to be extra cautious when considering involvement in an IPO. Remember Pets.com, Vonage, and Webvan.com? Probably not.
Stocks rose yesterday, ignited by encouraging vaccine news from Astra Zeneca and Pfizer. A rash of mega mergers also helped elevate an appetite for stocks. The S&P500 climbed by +1.27%, the Dow Jones Industrial Average rose by +1.18%, the Russell 2000 traded up by +2.65%, and the Nasdaq Composite Index advanced by +1.87%. Bonds also rose and 10-year treasury yields added +1 basis point to 0.67%.
– Empire Manufacturing (Sept) may have increased to 6.9 from 3.7.
– Industrial Production (Aug) is expected to have grown by +1.0, slower than July’s +3.0% growth.
– Adobe and FedEx are expected to deliver earnings after today’s bell.
– If you missed any of my market notes, you can view them all in my daily blog here: https://siebert.com/blog/
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