Alibaba soars but fails to take the market with it

Alibaba’s first day of trading was a blowout, but its massive success failed to lift the rest of the market on Friday.

The two big-cap indexes, the Dow Jones Industrial Average and the S&P 500, closed narrowly mixed, the former recording a 0.1% gain while the latter lost that much. Tech and small-cap stocks were lower, however, with the tech-heavy NASDAQ losing 0.3% and the small-cap Russell 2000 and S&P 600 both dropping 1.1%. That also proved to be the trend of the week. The Dow and S&P 500 gained 1.7% and 1.3%, respectively, while NASDAQ recorded a more modest 0.3% increase. The two small-cap indexes both finished in the red, with the Russell 2000 losing 1.2% while the S&P 600 fell nearly 1%.

The much-anticipated first day of trading in Alibaba shares more than lived up to the hype, as the stock jumped 38%. After a delay of more than two hours as traders sorted out orders, BABA opened shortly before noon at $92.70, 36% higher than the already rich $68 where underwriters priced the stock the day before. Within 10 minutes the stock nearly hit $100, reaching its high point of the day at $99.70, before settling down and closing at $93.89, giving the Chinese online retail giant a market cap of $231 billion. (By way of comparison, Amazon’s market cap is $153 billion). More than 270 million shares changed hands, about 10% of those outstanding. Shares of Yahoo, which sold more than 121 million shares from its stake in BABA for an after-tax profit of about $5 billion, fell 2.7%.

European stocks were mixed on Friday but mostly higher for the week, while sovereign bond yields dropped in a relief rally after the Scottish independence vote failed. Yields on Spanish 10-year bonds dropped eight basis points on Friday and 15 bps for the week to close at 2.20% after the Scots voted 55%-to-45% to remain in the United Kingdom. Investors have been worried that a Scottish independence victory would raise prospects for a similar secession vote in the Spanish province of Catalonia in two months. Yields on comparable Italian bonds fell seven bps Friday and nine bps for the week to close at 2.37% while benchmark German bund yields fell four bps Friday and for the week to end at 1.04%. Yields on 10-year U.K. gilts fell three bps on Friday to close the week at 2.37%; yields had surged more than 20 bps since the end of last month after polls indicated that the Scottish measure had a fair chance of passing. In stocks, the Stoxx Europe 600 rose 1.2% for the week following Friday’s 0.2% gain, its third straight increase. 

Asian stocks were mostly higher Friday but mixed for the week. Japan’s Nikkei 225 jumped 1.6% Friday and 2.3% for the week, closing at its highest level since November 2007, as the yen dropped to 109 to the dollar, its lowest level since 2008. The yen has dropped from about 101 in the past two months and from less than 97 since early last October, which should help to boost Japanese exports. The Nikkei has gained more than 16% over the past four months. Hong Kong and Shanghai both rose 0.6% on Friday, possibly due to the Alibaba effect, but were lower for the week, by 1.2% and 0.1%, respectively. Hong Kong stocks have lost about 4% over the past two weeks. The Chinese government this week announced an $81 billion low-rate loan program to try to stimulate economic growth.

Leading U.S. economic indicators rose a weaker than expected 0.2% in August. Street forecasts called for an increase of twice that much. The disappointment was somewhat offset by an upwardly revised reading in July to a 1.1% increase from the 0.9% originally reported. U.S. Treasury securities prices were higher Friday and for the week, lowering yields about 3-5 basis points at the long end.

Reports/dates/facts/links worth paying attention to over the next week:

  1. September 22: Chicago Fed national activity index (August); existing home sales (August).
  2. September 24: New home sales (August).
  3. September 25: Durable goods orders (August); weekly unemployment claims.
  4. September 26: Second quarter GDP, first revision; University of Michigan consumer sentiment index (September).

Copyright © 2014 by Wright Investors’ Service, Inc. The views expressed in this blog reflect those of Wright Investors’ Service, Inc. and are subject to change. Statements and opinions therein are based on sources of information believed to be accurate and reliable, but Wright Investors’ Service, Inc. makes no representations or guarantees as to the accuracy or completeness thereof. These views should not be relied upon as investment advice.

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