FINANCIAL MARKET UPDATE 4.20.2021

AUTHOR: JOSH JENKINS, CFA

STORY OF THE WEEK

LIFE-ALTERING INNOVATION WITH SUBPAR RETURNS

New innovation has an exceptional ability to capture the imagination of investors. The prospect of hitting it big, coupled with the feeling that everyone else around you is getting rich, can entice even the most disciplined among us to take excessive and imprudent risks. Despite the obvious ability to change the way we live, many of the companies behind the largest technological leaps in decades past have turned out to be poor investments.

In 1994, Netscape’s Navigator web browser became the most dominant player in the space a few months after its launch. In 1995, the company went public through a widely successful IPO that saw one of the largest first-day price spikes on record. Despite its rapid growth, the company had not yet turned a profit. While it’s not unusual for a money-losing company to go public these days, this was a novel concept in the 1990s. The world took notice of Netscape, which went from relative obscurity to a multi-billion dollar valuation with blinding speed, all while spawning an entirely new industry. The IPO became known as the “Netscape Moment” and is regarded as the start of the dot com bubble.

The bursting of the technology bubble a few years later was the demise of many tech startups, with the survivors fetching a fraction of their former values. In the end, the decline in the tech-heavy NASDAQ index would erase nearly 80% of its value. Netscape itself was virtually destroyed by Microsoft’s Internet Explorer prior to the market meltdown. The maneuvering Microsoft employed to accomplish this coup ultimately led to the famous antitrust suit against the company in 1998. Netscape was eventually acquired by AOL, a late 90s technology darling in its own right. At its peak, AOL was valued at over $200 billion. After a merger and subsequent spinoff from Time Warner, AOL sold to Verizon for under $5 billion in 2015.

History is littered with the corpses of companies that changed the game, only to be quickly disrupted by new competitors or further technological innovation. Research in Motion (Blackberry) brought us the smartphone, only to be conquered by the iPhone. Myspace became the first social network with a global reach and quickly ceded its popularity to Facebook.

As I look around today, electronic vehicles (EVs) and cryptocurrencies are among the potential world-changing innovations that investors are trampling each other to access. As was the case in the ‘90s, this level of excitement has caused their prices to inflate to bubble-like levels.

Netscape may have beaten Microsoft to the punch, but it was the latter that had the last laugh. While similarly late to the party, rest assured [insert your favorite luxury car manufacturer here] is doing everything it can to close the gap as well.

While it’s pretty clear EVs are here to stay, I think the jury is still out on cryptos. Bitcoin generally gets the lion’s share of attention, but according to CoinMarketCap.com, there are over 400 different cryptocurrencies with a value of $100 million or more. Even if (big if) cryptos reinvent the way people transact, who’s to say it will be Bitcoin that does it? There is clearly a host of other candidates, and it’s entirely possible the ultimate winner has not been developed yet. After all, the government and the big players on Wall Street are just starting to test the waters. As an investor, you can be right about cryptos but still lose all of your money because you picked the wrong one.

It was obvious to everyone in the 1990s that the internet would change the world, and they were right. Unfortunately, that knowledge was not exactly helpful in generating (and retaining) wealth in the stock market. The riches being generated by today’s game changers could prove just as fleeting.

WEEK IN REVIEW

  • According to Factset, 9% of S&P 500 companies have reported Q1 earnings as of Friday, with 81% of those reports beating estimated earnings and 84% beating estimated revenue. The earnings growth rate that blends the companies that have reported with the estimates of companies that have yet to report is 30.2%. This represents an increase over the estimated earnings growth rate at the end of the quarter (23.8%) and would be the largest YoY growth rate since 2010 (34%).
  • A cryptocurrency that was originally created as a joke based on the once-popular Doge memes has seen its value explode this year. According to the Wall Street Journal, Dogecoin is up 8,100% YTD, or roughly double the gains of the S&P 500 since 1988! The crypto is currently worth either $50 billion or nothing, depending on who you ask. The Wall Street Bets Reddit Forum has been credited with organizing some of the buying power that has caused the price of the coin to rise. Participants in the forum have dubbed today (4/20) Doge Day, with a goal of pushing the currency’s price from $0.39 to $1.00.
  • This week will be relatively quiet for economic data. On Thursday, we will get an update on jobless claims as well as the Index of Leading Economic Indicators. Last week, however, there was a batch of much stronger than expected economic reports. The Commerce Department reported that retail sales for the Month of March increased 9.8%, handily beating economists’ expectations. Additionally, unemployment claims unexpectedly sank last week to a pandemic low of 576,000.

HOT READS

Markets

  • How the Pandemic Made Lumber America’s Hottest Commodity – Video (WSJ)
  • Retail Sales Explode in march as Consumers Use Stimulus Checks to Spend Heavily (CNBC)
  • U.S. Unemployment Claims Sink 193,000 to Pandemic Low of 576,000 (MarketWatch)

Investing

  • SPAC Hot Streak Put on Ice by Regulatory Warnings (WSJ)
  • The Most Annoying Bull Market of All-Time (Ben Carlson)
  • Five Superpowers (Josh Brown)

Other

  • 15 Years of Spotify: How the Streaming Giant Has Changed and Reinvented the Music Industry (Variety)
  • ‘Crush Them’: An Oral History of the Lawsuit That Upended Silicon Valley (The Ringer)
  • Key Investor in $100 Million N.J. Deli Has a History of Legal Problems, Ties to Criminals (CNBC)

MARKETS AT A GLANCE

Source: Morningstar Direct.

Source: Morningstar Direct.

Source: Treasury.gov

Source: Treasury.gov

Source: FRED Database & ICE Benchmark Administration Limited (IBA)

Source: FRED Database & ICE Benchmark Administration Limited (IBA)

ECONOMIC CALENDAR

Source: MarketWatch

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ABOUT THE AUTHOR

402.763.2967

jjenkins@lutz.us

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JOSH JENKINS, CFA + CHIEF INVESTMENT OFFICER

Josh Jenkins is the Chief Investment Officer at Lutz Financial. With 10+ years of relevant experience, he specializes in assisting clients with portfolio construction, asset allocation, and investment risk management. In addition, he is responsible for portfolio trading, investment research and thought leadership for the division. He lives in Omaha, NE, with his wife Kirsten.

AREAS OF FOCUS
  • Asset Allocation
  • Portfolio Management
  • Research & Data Analytics
  • Trading System Operation & Execution
AFFILIATIONS AND CREDENTIALS
  • Chartered Financial Analyst®
  • Chartered Financial Analyst Institute, Member
  • Chartered Financial Analyst Society of Nebraska, Member
EDUCATIONAL BACKGROUND
  • BSBA, University of Nebraska, Lincoln, NE

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