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Alibaba Steals the Show & Leads Stocks Higher

Market Digest – Week Ending 9/19

Stocks marched higher as much anticipated Fed minutes gave little indication about the timing of potential rate increases. Chairwoman Yellen said rates would remain near zero for a “considerable time”, but indicated there was room for faster action if data supported it. Chinese web-commerce company Alibaba issued a massive IPO on Friday, with shares rising 38% on the first day, surpassing Amazon with a $230 billion market cap.

Weekly Returns:

S&P 500: 2,010 (+1.3%)
FTSE All-World ex-US: (-0.4%)
US 10 Year Treasury Yield: 2.57% (-0.04%)
Gold: $1,216 (-1.1%)
USD/EUR: $1.283 (-0.9%)

Major Events:   

  • Monday – The OECD cut its growth forecast for the US and Eurozone economies to 2.1% and 0.8%, respectively. It cited an array of geopolitical concerns and low inflation in Europe.
  • Tuesday – China’s central bank announced it will inject $81 billion into state owned banks to support economic growth.
  • Tuesday – The US poverty rate declined to 14.5% for 2013, the first decline since 2006.
  • Tuesday – A German court overturned a ban on Uber, but left the door open for the case to be revisited in the future.
  • Wednesday – In its policy statement, the Fed said it expected to keep short-term interest rates near zero for a “considerable time”, but that it would continue to evaluate new data.
  • Thursday – Larry Ellison, who is worth approximately $48 billion, announced he will step down as CEO of Oracle. Shares declined 4%.
  • Thursday – In a close election, Scotland voted to remain part of the United Kingdom.
  • Friday – Alibaba sold $21.8 billion of shares in a massive IPO. Shares finished up 38% for the day.

Our take:

Alibaba’s IPO on the New York Stock Exchange was a big success, raising over $20 billion and providing a nice return to those allocated IPO shares. That is a good thing because it ties the US and China closer together economically. But I’d remain somewhat cautious about having excessive exposure to Chinese investments. China is still a highly corrupt economy. Who knows if US investors will get a fair proportion of cash flows.

It’s been interesting to see the demand and hype among American investors to get a piece of Alibaba. It is very difficult to use traditional methods to derive an appropriate valuation, but the market has determined that (at least for now) Alibaba is worth $230 billion. That makes it about 4 times bigger than EBay, 50% bigger than Amazon and just a hair smaller than Wal-Mart.

No doubt the IPO benefitted from some good timing. We’re 5 years into a bull market and have not had a meaningful correction in about three years. The environment is ripe for greed. And we’re seeing some, but not as much as one may expect at this point in the market cycle. That suggests there are likely to be more good times ahead.

The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.

Craig Birk leads the Personal Capital Advisors Investment Committee and serves as Chief Investment Officer. His focus is translating improvements in technology into better financial lives. Craig has been widely quoted in the Wall Street Journal, Bloomberg, CNN Money, the Washington Post and elsewhere. Prior to Personal Capital Advisors, he was a leader within the portfolio management team at Fisher Investments, helping assets under management grow from $1.5 billion to over $40 billion. Craig graduated from the University of California at San Diego and has earned the Certified Financial Planner® designation.
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