This was a bit of an odd week for the markets—Europe finished up (0.5%), US and Emerging markets were down slightly (-0.9% and -0.6% respectively), and Pacific which had been the best performer for the year took a bit of a drubbing finishing down 2.0%.
Looking back on the week, I’m actually surprised that the markets didn’t finish lower than they did. And I’m a bit amazed that Europe was able to finish up. I suppose that Europe has been trading at such a discount for so long because of the Greek situation and the generally slow economic recovery there, that any news short of disaster is coming across as good news.
So with that, what were the drivers of the market?
On Wednesday the US Commerce Department announced that the economy’s growth slowed to just 0.2%. That’s still growth so let’s not get carried away, but that is a far cry from the 2.0% to 2.4% that it had experienced over the past year or so. A FAR CRY.
It seemed that this caught the markets by surprise as the bottom fell out of the market over the next two days. I always wonder about these things because the government report was reflecting the January to March time frame—that was over a month ago. So shouldn’t everyone already know if the economy was growing quickly or slowly? I guess there is some finality when the government puts its official stamp on things, but I would just think this is old news and certainly not something to drive the markets down almost 2%. But it did, so what do I know?
I still think the US economy is in a very strong position. Unemployment is low, profitability seems high, and pretty cool innovation is taking place (see below). As you would expect from me, I’m not worried about this blip, just another good time to buy more stocks through my 401k.
Social media armageddon:
Three of the biggest social media stocks took turns taking an absolute dump this week. On Wednesday morning Twitter stock fell 20%; on Thursday Yelp fell 20%; and on Friday it was LinkedIn’s turn, falling 20%. All three of these social media darlings all had weak earnings which showed they weren’t going to keep growing at the break-neck speeds that would mean they would have 10 billion users by next year (who knew?). What’s remarkable, is they all had remarkably similar moves as each step up to the gallows.
In a perverse way this actually seems healthy (of course, if you owned one of these stocks your wallet may not agree). There are a lot of social media stocks out there, and history has shown us that most will fail but the strongest will emerge as amazing companies. There were a ton of search engine companies in the late 1990s and Google emerged; there were a ton of e-retailers and Amazon.com emerged. Are we in the shaking out period for social media? If you look at the charts Facebook seems to be the one that survived unscathed. I think the race is far from over, but you can definitely look at the first quarter of 2015 as a sign that Facebook is pulling away from its rivals even more than before.
On Friday Tesla finally confirmed the rumors that it was introducing a new battery product to the market, the Powerwall. A colossal battery capable of powering a house for a day or so. The media was quick to comment—some hailing the idea as genius and others deriding it as a neat product that won’t meet any market need.
The truth will probably fall somewhere in between. Rarely is the first iteration of a product the one that really changes is successful from a commercial perspective (the iPad is a notable exception). However, you can really start to see where Elon Musk thinks the future is heading. His Solar City solar panels will generate electricity which will charge your Tesla automobile and your house during the day. When the sun goes down the extra power from your solar panels which went into your Powerwall will run your house until morning.
It’s an incredibly ambitious endeavor. Of course, the technology right now is too expensive for all except early adopters, but just like computers or cell phones, if the volumes go up then the prices will come down and that’s a whole new ballgame. I have no doubt that in 20 years, most of us will have solar panels on our roofs and industrial batteries sitting along side our hot-water heaters. Will those batteries be Tesla brand—Who knows? History tells probably not. It’s rare that the first entrant will ultimately win the race. But some company will win the race, and they will make their shareholders boatloads of money.
I hope you have a great weekend, and check back on Monday to see me break down the financial considerations of buying or renting your home.