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End of the first quarter was calm for the stock markets

April 01, 2019 16:00

Last week, the stock market atmosphere was calm, and the main indices have consolidated as the quarter was approaching an end. There were no important economic or political news events; therefore, investors have evaluated the quarter's results as particularly positive.

The global stock market has its best quarter since 2012. If we take only U.S. stock markets into consideration, such good results haven't been seen since 2009. The S&P500 index showed its best performance since 1998, and has appreciated 12.9% in the first quarter of 2019.


Dow Jones, NASDAQ, and S&P500

Among main U.S. indices, the best performer was the Dow, which increased 1.7%, and the worst performer was Nasdaq composite, which appreciated 1.1%. The main index, S&P500, appreciated 1.2% to the 2,830-point level, and the whole week's trading took place near the 2,800 resistance level, which has remained unchallenged over the last quarter. Overall, the stock markets have significantly appreciated in the first quarter, although these tendencies were propelled neither by economic data nor by the bond market, therefore investors should evaluate higher risk in their long positions.


Shanghai Composite

Main China's stock index, the Shanghai Composite has only marginally changed during the week, depreciating -0.4%. During the first quarter, the index has recorded one of the best results among the big economies, appreciating 24%. Among the economic datasets was the manufacturing sector's Purchasing Managers Index, whose value increased from 49.2 to 50.5 points. This appreciation of the index shows marginally better sentiment among the business participants in the manufacturing segment.


Bonds

In the U.S. bond market difference between 2 and 10-year bonds remained stable at 0.14% level. Nevertheless, the overall bond yield curve further moved downwards, which shows increasing investor demand for safer assets.

Last week, the inverted yield curve between 3 month and 10-year bonds remained negative, becoming positive just last Friday. Currently, it is probably the most discussed topic in the market, because over the last 50 years, when the difference of the yields became negative it has correctly predicted future economic crises.


Commodities and Manufacturing

In the commodity market, the sentiment was rather lukewarm. WTI type oil price appreciated 2.0% to 60.2 USD per barrel. In the metals segment, copper price appreciated 3.4%, aluminium appreciated 1.3% and the price of iron ore marginally increased from 84 to 86 USD/T.

Among different sectors, the best performer was the manufacturing sector, whose value increased by 2.6%. Services and consumer goods companies also appreciated 1.8% and 1.6% accordingly. Among the worst performers were utilities companies, which depreciated -0.3% and technology sector, whose value increased only 0.1%.


Stocks

Last week, significant attention was paid to Lyft's initial public offering (IPO), during which the company offered 32.5 million shares and sold them for 74 USD/share. At this price, the overall value of the company is 24 billion USD. It is interesting, that during the first trading session stock price increased 20% to 88 USD and later depreciated, ending the trading day at 78.3 USD.

There has been a lot of discussion in the market about the financial results of Lyft, which do not provide solid enough ground for such high valuation. In 2018, Lyft suffered a loss of -1.0 billion USD, which has increased from the previous year's loss of -700 million. Although the company's growth is especially rapid and it has grown by 70% in 2018, bigger size did not provide opportunities to optimize the costs and increase profitability. Market analysts estimate, that if the costs would remain unchanged and the company would continue such rapid growth, profitability would become positive only in the year 2021. Other market participants are more conservative, by assuming that the company will be unprofitable for at least 5 years.

It is also interesting that Lyft is one of the leaders in the market, but is mostly concentrated in the United States and holds only about 30% of the market. The remainder of the market belongs Uber, which has announced that it is preparing the documents for an IPO and Uber shares are expected to be brought into the market over the next few months. It is speculated that Uber's value at the time of IPO will be about $120 billion, although the company generates losses every year.


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  3. Each of the Analysis is prepared by an independent analyst (Jens Klatt, Professional Trader and Analyst, hereinafter "Author") based on the Author's personal estimations.
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