The markets were rather boring for the first half of the day. By 1PM EDST, the S&P 500 (SPX) was nominally down. Then some sell programs hit the tape. You could tell it was sell programs because all categories of stocks – small cap, mid cap, large cap, technology, value, high dividend – were sold across the board. The justification for the sell-off was attributed to Twitter (TWTR). TWTR reported disappointing results a few days ago and the company’s IPO lock-up is expiring. By 1PM that stock was down over 5%. It closed lower by nearly 18%. I think that justification was the lazy way of explaining the market. I have been in this business long enough to spot sell programs when they occur and that was what happened yesterday. Likely, pension plans were at work yesterday and are the real culprits. High Frequency Traders (HFTs) will also get blame because yesterday was the anniversary of the flash crash; but HFTs are only toll takers not position takers. Add to all of that a sprinkling of more Ukraine concerns.
Alibaba File for Initial Public Offering
The big news yesterday came after the close. Some of it was earnings related. Most of it was the filing of Alibaba’s initial public offering (IPO). Recall that Yahoo (YHOO) owns about 24% of the Chinese internet company and will sell about 40% of its holdings. Valuations for Alibaba range from $100 billion to $200 billion. Alibaba is a combination of Ebay (EBAY), Google (GOOGL, GOOG) and Amazon.com (AMZN), plus a few other companies. On the scale of the Chinese economy and the world perhaps, this could turn into the largest market capitalization company in the world. We have several months until Alibaba does go public, so expect plenty of analysis, commentary and even hyperbole along the way. I have yet to read the filing but plan to do so when I have a chance.
Earnings were excellent for Walt Disney (DIS) and lousy for Whole Foods (WFM). Luckily we have an investment position in Disney in our growth portfolio and just a small trading position in Whole Foods for our Food & Restaurant portfolio. This is the third consecutive poor earnings report for Whole Foods. Put simply, Whole Foods is no longer the only source of fresh and organic products for consumers. I will take my lumps on Whole Foods and move on. My price target for Walt Disney is $90.
Janet Yellen to Speak Today
There are no economic releases today but FOMC Chair Janet Yellen will be speaking on Capitol Hill, so that will catch some attention. I hope that she has learned how to speak publically and will stick to the FOMC’s recent statement. The earnings calendar is rather deep but uninspiring.
I am going to classify yesterday as a one day blunder and expect a mild rebound today as the market regains its footing. The technicians will be declaring a downtrend, the bears will be saying here comes the “big one” and the investors will be gobbling up stocks that still look attractive.
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Disclosure: At the time of this commentary Scott Rothbort, his family and/or clients of LakeView AssetManagement, LLC was long GOOG, GOOGL, YHOO, DIS, WFM — although positions can change at any time.
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