May Monthly Market Commentary
Tariffs, IPOs…and Salty Chips
May. Springtime. Three-day weekends. It’s usually a time to celebrate Star Wars, not initiate trade wars, but that’s not how it went down this year. That, plus some chip drama and some new murmurs about Bitcoin made for a spicier-than-usual month in the markets. On top of that, the IPOs kept popping. Yep, 2019 has been ripe so far for some delicious market news.
Here’s some of the latest:
China China China
You’ve probably heard a lot about tariffs and China in the news, and lately, it’s turned into action. On May 10th, the US increased tariffs on $200 Billion of Chinese goods from 5% to 25% . China hit back immediately, announcing a $60 Billion retort on US imports.
Trump has touted protectionist economic policies since campaign days, and the recent move is definitely on the offense. That said, optimism on the outcome has waned significantly.
Market Impact
• We saw less movement in stock price and sales, which could mean investors were feeling a little uneasy about shots being fired.
• That said, the economic impact of the recent events has yet to be studied, and other investors are calling the hubbub overblown.
What it May Mean for You
• Just because a couple countries are engaged in a trade war doesn’t mean it’s completely bleak. Companies that are at least an arm’s length from the effects of tariffs may not be substantially affected.
What Types of Companies May Be Less Affected?
• Companies less reliant on human interactions typically have lower labor costs. Telecom, high-tech, or manufacturing, as opposed to retail, insurance, or medicine. Global competition puts extra pressure on these industries.
• The service sector is defined by its lack of goods production. What do English majors do for work after college? Examples include consulting, utilities, like energy and waste management, and real estate. Service sectors can be more sheltered from trade wars, in that they’re not producing “goods” that can be tariffed to begin with.
What Now?
Last week, President Trump threatened our neighbors in Mexico, Tweeting about a 5% tariff on all goods starting June 10 , until immigration policies are to the administrations liking.
This was against the advice of Republican lawmakers and top advisors, including son-in-law Jared Kushner. Interesting makings for a family therapy sesh. Stay tuned if the administration follows through.
Need Some Popcorn with All This Chip-maker Drama?
Last year, computer chip companies AMD and Nvidia were movers and shakers in the stock market, but haven’t quite recovered like others in the space.
A lot of interest in these companies was driven by the graphics processors used in bitcoin mining, but the increase in competition, as well as crypto hype cool-down, has dampened prospects.
Who cares? PC Gamers. You and your phone. The market. Sadly, Moore’s Law for computer chips doesn’t apply to market gains. When you figure out the analog for stocks, please let me know from your space-yacht-lambo.
GPUs vs CPUs – What’s The Deal?
If you play Fortnight, you know. For those of us who don’t, let’s break it down.
CPUs are Central Processing Units
• They’re used for your classical computer processing. It’s what IT checks when you complain about your laptop being slow, also known as a “processor.”
• It is also your external cyborg brain —Elon and I don’t always agree, but we do here.
Curious about who are the brains behind the brains? Often times, it’s Intel. Even iPhones have Intel processors(!). But not for long, because Apple got caught with Qualcomm’s tech and now they’re cosying up after a legal battle. AMD is the runner up in the chip game after Intel according to a few rankings . That AMD has a seat at the table with the behemoth is a big deal. Here’s a deeper dive on the bake off between AMD’s Ryzen and Intel .
GPUs are Graphic Processing Units
• They’re used for mobile and computer graphics (and crypto mining). This includes everything from facetiming with gramps, to watching IG content, to e-sports (projected to generate over $1B in 2019). Also, VR. I suppose it follows when you’re generating whole worlds in real-time, it’s intensive.
• In 2017 and 2018, because of the crypto-mining craze, the GPU chip market went a bit bananas. It’s since cooled off some but is still pertinent to new technologies and demand mentioned above.
• Here’s a GPU ranker for gamers and miners alike.
Supply (chain) and Demand
One more thing about these chips. They don’t come from nowhere. There is a supply chain in rare earth metals that China has been investing in for decades. Yep, we’re bringing it back to China! In 2017.
They have significant leverage in both rare metals used in chips, as well as manufacturing contracts upwards of 50%+ of cell phones . We know demand for computer processing and rare earth will only escalate with new consumer/military technologies, along with newer markets demanding more. You’ll definitely want to process all of this with a big, greasy, but diversified bag of chips.
Speaking of Processing…Bitcoin’s Back?
We’ve covered mining – but what about the value? Since the height of December 2017 , Bitcoin tanked, leaving a lot of speculative folks in a tough spot. But in the past couple of months, it’s really started to pick up. It started in April with a small climb, but in May it climbed from $5,300 to $8,900. Hmmm.
Why, Though?
• It could be due to more companies investing in blockchain, the underlying technology – for both transfer of value (crypto) and information (think: Internet of Things)
• Financial companies are dabbling in Bitcoin and others as an asset to manage
• With time, inevitably, comes analysis – we’re seeing less polarizing views come with time
Full disclosure: it’s no secret SoFi is working on crypto offerings within our trading platform. Noobs should read this before they go in too deep. Riding in a car has risks—that’s why you put on that belt. Same deal.
Crypto for the Long Haul
Some folks are buckling up to buckle down on crypto: a Long-Term Stock Exchange (LTSA) has been approved by the SEC.
Say What?
Regulators and enthusiasts alike recognize the boom-bust cycles and shady means of initial coin offerings (ICOs) and security token offerings (STOs) haven’t been all that great.
When you’re mainstream something (oh, maybe like cannabis?), it’s easier to regulate and mitigate negative outcomes. The LTSA is designed to allow for investors who are in it for the long game to participate in the offerings with more traditional, above-board methods.
Reminds me of a famous Warren Buffet quote, “The stock market is a device for transferring money from the impatient to the patient.”
A Game of “Would You Rather,” With the Fed
There’s one last thing. The Fed Rates! Everyone’s fave. The trade war has really put the Fed in a pickle . A sort of macro-economic game of Would You Rather that leaves them politically maligned in the short term or the economy wrecked in the long-term.
TBD if they’ll cut rates in July due to tariff pressures on the economy—which the president has been angling for, BTW.
One thing’s for sure, there’s never a dull moment.
Let’s see what happens in June. This school’s definitely *in* for summer.
The opinions and analysis expressed here are those of Gladie Helzberg as of June 2, 2019 and are for informational purposes only. Views may change as market, economic, and other conditions change. This information isn’t financial advice. Investment decisions should always be based on specific financial needs, goals and risk appetites.
Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.
Investing in an Initial Public Offering (IPO) involves substantial risk, including the risk of loss. Further, there are a variety of risk factors to consider when investing in an IPO, including but not limited to, unproven management, significant debt, and lack of operating history. For a comprehensive discussion of these risks please refer to SoFi Securities’ IPO Risk Disclosure Statement. IPOs offered through SoFi Securities are not a recommendation and investors should carefully read the offering prospectus to determine whether an offering is consistent with their investment objectives, risk tolerance, and financial situation.
New offerings generally have high demand and there are a limited number of shares available for distribution to participants. Many customers may not be allocated shares and share allocations may be significantly smaller than the shares requested in the customer’s initial offer (Indication of Interest). For SoFi’s allocation procedures please refer to IPO Allocation Procedures.
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