The Market Bull – May 10, 2019
25% tariffs sent the major averages to large losses in early trade, but Trump stopped short of applying tariffs to almost all Chinese imports. Since Monday the Standard and Poors 500 Index fell 28 points or 1%, while the NASDAQ slipped 65 points or .8%.
With a 25% tariff now being applied to 200 billion dollars’ worth of Chinese imports the various inflation measuring metrics should tick up temporarily as these costs get passed along to consumers through higher prices. While the Trump administration stopped short of applying the tariffs to all Chinese imports as threatened. Given the almost complete breakdown in discussions on the subject after 11 rounds, you have to wonder how far off that event is. Additionally the Chinese have indicated that they will take some retaliatory steps themselves as trade wars always degenerate into a tit-for-tat zero-sum game. Still rumors of a deal persist and this helped the major averages to close with modest gains after a bruising morning session.
The April Consumer Price Index or CPI came in slightly below expectations with a .3% gain on another big jump in energy prices. The year ago rate increased to 2%, the Fed’s desired target but far below the long-term average for the series of 3.1%. Today’s sharp increase in tariffs is expected to add about .2% to the annualized CPI rate hardly a dramatic change.
A lot of investors lust after Initial Public Offerings or IPO’s believing them to be a sure path to easy riches. Studies have shown that in fact a lot of IPO’s just don’t perform that well. Uber’s IPO being a case in point, after pricing at the bottom end of its range Uber came out of the gate at $42 only to lose 7% on its first day of trading closing at $41.57. A recent piece by Chief Investment Officer shows that IPO’s often fail to live up to their hype. This despite frequently starting out with an initial pop. IPO’s tend to trail the broader market by some 17.8%, and when compared to companies of a similar size IPO’s tend to trail by 6.3%. So the study shows that established companies are actually better investments than IPO’s despite all the excitement.
Standard and Poors 500 Index closed at: 2,881.40 up 10.68
NASDAQ finished the day: 7,916.94 up 6.35
Gold ended trading at: $1,286.80 up $1.60