07/02/14   Fireworks Abound

Editor’s Corner

Ron Rowland

As July 4th approaches and the U.S. celebrates another anniversary of her independence, there are plenty of fireworks going off around the country and the world. Some manage to soar, and others fail to dazzle.

Facebook (FB) is the front runner for fireworks dud. It was recently revealed the company conducted a controversial study on nearly 700,000 unknowing users in 2012 that altered news feeds in an effort to see if it impacted their emotions. Facebook changed the number of positive and negative content items in the news feeds presented and measured what effect that had on the tone of the updates the users then posted. It is one thing to collect data in an attempt to market or improve products, but altering people’s emotions have many claiming that the company crossed an ethical line. For all the hoopla, the stock price has not suffered and it seems many users are angry but not quite enough to stop using the product.  They are making their unhappiness known front and center on their Facebook pages.

GoPro (GPRO) shot up some sizzling fireworks with its IPO last Thursday. The stock lit a fuse and had a 30% jump in its first day of trading. The stock added to those gains and closed today around $42, or 75% above the issue price. Some call this a success, but we call it a failure. IPOs are usually conducted to raise as much money as possible for a company so it can invest in its future by funding growth or reducing debt. While GoPro’s issue price was at the high end of the range, it is clear there was so much demand that a higher price could have been achieved. Just think about how many millions went to well-connected investors instead of the company, hence, our classification as a failure.

The U.S. soccer team has been adding red, white, and blue fireworks to the field in Brazil, and fans have been brimming with pride as they cheered on the national team. The country’s soccer team had its best showing in the World Cup since 2002, as this year’s run came to a close Tuesday in a 2-1 loss to Belgium. Another reason for pride – U.S. goalkeeper Tim Howard set a single game World Cup record with 16 saves. Some companies used the opportunity as a morale building exercise and set up viewing parties in conference rooms or allowed employees to join crowds watching at outside venues – while still on the clock. Employees called in sick. Even some of the workers not splitting their time with the sports channel ran into bottlenecks as networks became saturated with streaming video of the game. Yahoo Finance estimated employers would see nearly $700 million in lost productivity.

Have a Safe and Happy Independence Day.

Investor Heat Map: 7/2/14

Sectors

The top half of the sector rankings are in the exact same order as last week.  The only notable change being the tighter range of their momentum scores as #1 Energy was the one category in that set to lose momentum.  The bottom half provides a little more excitement.  Consumer Discretionary has been at or near last place for the last three months, but it managed to post the highest momentum gain this week and jump four places to seventh.  The other climbing category was Telecom, taking one step up to 9th.  Financials gave up one ranking position and fell to eighth.  Consumer Staples and Industrials fell in tandem to the bottom, with Industrials losing the fight by a hair and winding up in last place.

Styles

Mid Cap Value found itself atop all our June rankings and remains there to start off the third quarter.  The other two Mid Cap categories also maintained their relative rankings.  Small Caps managed to climb at the expense of Large Caps.  The Small Cap categories moved up 3-4 spots in the rankings, while the Large Cap categories fell anywhere from one to five spots.  Large Cap Value was the only style category to lose momentum, and that pushed it down five places to seventh.  Micro Cap led the charge with a momentum increase of 10 and climbed out of the basement, but it didn’t catch up with the other Small Cap categories.  Mega Cap followed the lead of the other Large Caps and fell in the rankings to take over last place.

Global

Canada and Japan swapped spots from last week, and Canada finally finds itself in the top spot after not having been there since September 2011.  Even then, its one week stint was with a momentum score of -23.  It can certainly boast a better score this time, but we’ll have to wait and see if it can hang on to the #1 ranking for a second week as Japan is only three points behind.  We had two other sets of global regions trading places this week.  Our second set was the U.S. climbing ahead of Emerging Markets to grab third.  The final set is at the bottom, with the E.U. taking over last place from Pacific x-Japan.  World Equity held steady in 5th and EAFE in 7th.  China continues its volatility among the global categories, this week climbing two spots and squeezing into 6th.  The U.K. stepped up one rank to eighth.  Latin America was the only global category with a decrease in its momentum score this week and suffered the worst drop of three spots.

Note:

The charts above depict both the relative strength and absolute strength of various market sectors, styles, and geographic locations on an intermediate-term basis. Each grouping is sorted (top to bottom) by relative strength. The magnitude of the displayed RSM value is a measure of absolute strength, which is our proprietary method of measuring and reporting the intermediate-term strength as an annualized value.

 


“You have to love a nation that celebrates its independence every July 4th, not with a parade of guns, tanks, and soldiers who file by the White House in a show of strength and muscle, but with family picnics where kids throw Frisbees, the potato salad gets iffy, and the flies die from happiness.”

Erma Bombeck (1927 – 1996)


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