General Comments
Based on Sunday night’s Superbowl, we can expect a 0.5 per cent loss in the S&P. The good news, though, is that the S&P has historically lost 2.1 per cent when the Patriots win. While based on limited information (there have only been 46 Superbowls), there are several interesting correlations between the game and market behaviour. For instance, “in a year when there’s a Super Bowl rematch, the S&P 500 has risen, on average, 19 per cent,” which is good news as the Patriots and Giants played each other in 2008. Even without a rematch, the index has gained 13 per cent, on average, when a previous winner plays in the Superbowl again.
Company News
As expected, Facebook filed for its IPO on Wednesday. An interesting outcome of this was a positive impact on other social media websites. LinkedIn, Zynga and Groupon all increased in share price Thursday. At their IPOs in 2011, these companies were considered “warmup” acts for Facebook. Their increase Thursday speaks to several points, including: 1) The sector’s integration. Much of Facebook’s revenue actually comes from Zynga. And 2) Customers switching allegiance from Facebook to other companies. This last point may be especially true when considering Facebook’s growth potential (which some analysts are questioning).
Potential problems for Facebook:
1) Much of the company’s revenue comes from advertisements. Unfortunately, users are increasingly switching to phone applications, and Facebook does not have an add strategy for this medium.
2) China continues to block Facebook and other Chinese social media websites are filling this market niche.
3) The company is not particularly diversified in its revenue streams.
4) Over 800 million people already use Facebook. While market penetration is not complete in all countries, this could pose a problem.
5) Mark Zuckerberg continues to have complete control.
North American Markets
As per usual, North American markets closely followed European economic news last week, moving up as agreements were reached between European leaders, and down when it looked like talks were falling through. As many analysts consider January markets indicative of the rest of the year, confusion remains. What was especially interesting throughout January is which stocks did well and which did not. One analyst commented, “January’s winners are last year’s losers.” For instance, Bank of America and Netflix both did particularly well in January, but were considered “losers” in 2011.
That being said, January ended up (even if the markets did not on Tuesday). February also started strong, as encouraging news from the manufacturing sector in US, Europe and China buoyed markets Wednesday. The TSX closed up 0.5 per cent, the Dow closed up 0.7 per cent and the S&P rose 0.9 per cent on Wednesday. Better than expected US labour news pushed markets up on Friday as the US labour market revealed that 243,000 jobs had been added last month. This was double the expected number and led to a 2 per cent drop in the US unemployment rate. As a result, US markets did extremely well and the Dow reached a new four-year high. If unemployment results like this continue, questions concerning monetary policy and further QE by the Fed will gain traction.
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