Is the Hot IPO Market Foretelling a Bust in the Bubble?

Is the hot IPO market once again a sign of a bubble?

Despite the disappointing IPO results of Uber and Lyft (both of which currently trade below their IPO prices), the tech IPO market has been relatively robust. As highlighted below, the IPOs of CrowdStrike and Chewy have been very successful so far, as has Fiverr International. All three of these trade 50% or more in excess of their IPO prices.

Slack Technologies is doing its IPO this week. Expectations are that it will be a very successful IPO. Technology IPOs conducted in 2019 are up 30% on average, with ten of the twenty-six IPOs up over 50% from their IPO prices (according to Dealogic). By comparison, the Nasdaq composite is up 18% in 2019. Overall, the IPO market is expected to set a record in terms of dollars raised this year.

But many of these hot IPO companies are posting huge operating losses. We have seen this before! And each time we do, it has preceded a bust in the prices of the asset bubble. Will we see it again? It is extremely likely we will see it again, and we are watching this situation very closely.

Economic and Investment Highlights

Last Week

West Texas Intermediate futures fell to $51.14 on the New York Mercantile Exchange on Wednesday, the lowest settlement level since January, over worries of global growth and fears of an oil glut.

CrowdStrike shares soured 71% in post-IPO trading on their first day of trading as a public company. Chewy shares rose 59% in its post-IPO trading.

U.S. inflation slowed in May with the Consumer Price Index (CPI) rising by only 1.8% from the previous year.

White House press secretary Sarah Sanders will leave her post at the end of June. While she is leaving on good terms with the White House, it nonetheless may create some instability in the White House, especially during the transition to her successor.

The U.S. is adamantly claiming that Iran was responsible for two attacks on fuel tankers in the Gulf of Oman. The U.S. believes Iran is trying to disrupt the flow of oil.

Retail sales rose 0.5% in May from April.

The Dow Jones Industrial Average, the S&P 500 and the Nasdaq rose for the week, 0.4% for the Dow, 0.5% for the S&P 500 and 0.7% for the Nasdaq.

The Week Ahead

This link takes you to Econoday’s Economic Calendar and Economic Events and Analysis which shows the upcoming economic reporting events scheduled in the week and months ahead.


Note: The comments that follow are derived from the economic indicators referenced in the Resources section of this newsletter and other sources in this report.

The Aruoba-Diebold-Scotti Business Conditions Index (ALS) has been trending up the last several weeks and is now very close to the zero line. The ALS Index advanced slightly again this past week. This is a very positive indicator for the economy on a short-term basis.

The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2019 is 2.1 percent on June 14. This slight adjustment continues to support the ALS model assessment of an improving short-term economic environment.

The New York Fed Staff Nowcast stands at 1.0% for 2019:Q2 and 1.3% for 2019:Q3.

The Chicago Fed National Activity Index (CFNAI) showed a decline in economic activity in April. The Chicago Fed National Activity Index (CFNAI) was –0.45 in April, down from +0.05 in March. All told, these short-term economic indicators are a neutral to positive analysis for the economy, at least on a short-term basis.

All told, these short-term economic indicators are a neutral to positive analysis for the economy, at least on a short-term basis.

Expectations that stock prices will rise over the next six months is at 22.5%, an unusually low level, in the latest AAII Sentiment Survey. The historical average is 38.5% for the survey. Please see the AAII Sentiment Survey for the complete results.

The latest Gross output (GO) reading suggests slow economic growth as we enter 2019.

On a longer-term basis, the forecasters in the Philadelphia Fed’s Survey of Professional Forecasters (as of May 10, 2019) predict real GDP will grow at an annual rate of 1.9 percent this quarter and 2.1 percent next quarter. On an annual-average over annual-average basis, the forecasters predict real GDP to grow 2.6 percent in 2019, 2.0 percent in 2020, 1.9 percent in 2021 and 2.3 percent in 2022. The forecasters predict the unemployment rate will average 3.7 percent in 2019, 3.6 percent in 2020, 3.7 percent in 2021, and 3.9 percent in 2022.

For a more in-depth review and analysis of the economy, please see our mini-book on economic analysis and forecasting entitled: Simple and Effective Economic Forecasting.

Stock Market Valuations

Our estimates of the market valuations for two stock market indices, the Dow Jones Industrial Average (DJIA) and the Standard & Poor’s 500 (S&P 500), can be found in the file below:


We continue to believe the economy is in a stable but now more vulnerable state. Recent economic reports have been showing signs of weakening. Nonetheless, the economy has remained fairly strong. In fact, the extremely strong first quarter GDP showing and the strong labor market conditions still give us confidence that the economy, now in its tenth year of expansion, can continue to grow. But we are cautious on this outlook! Please see our complete Economic and Investment Review in the Winter 2019 quarterly issue of the Intrinsic Value Wealth Report Newsletter.

With the market rising again this past week, the broad market remains overvalued, although the Dow Jones Industrial Average looks more fairly valued than the broad market. But that does not mean that a market correction is imminent. Markets can and do stay overvalued for long periods of time. As discussed above and in the Economic and Investment Highlights section of this Commentary, we believe the economy is in a stable but vulnerable state that is showing signs of weakening. If the economy remains strong, the markets will likely remain strong. If the economy deteriorates, the markets may well correct. There are other events that could trigger a market correction, of course, but economic conditions are the most likely and foreseeable events that could make that happen.

We believe it is important to maintain a long-term view toward investing. This means that you should continue building your investment portfolio using the Cassandra Stock Selection Model to select individual securities that offer growth and value opportunities.

Chart for Review and Thought

Consumer Price Index for All Urban Consumers


We have been researching the use of crowdsourcing for investment ideas. We will be sending a survey out in the next few weeks to get your input on the economy and the markets; and to get any investment ideas that you would like to share. We will compile this input and distribute the results to you and our other subscribers.

Dr. Wendee will be speaking at the Las Vegas Investment Club on June 24th.  He will be speaking on the topic of his popular Forbes article, Nine of the Best Ways to Build Wealth. Please contact Mike Lathigee at mike@mikelathigee.com if you would like to attend.

Dr. Wendee will be speaking at FreedomFest during its annual conference in Las Vegas, July 17 – 20, 2019.

Dr. Wendee was a judge at the FundingPost June PitchFest Events on June 11 & 13, 2019 in San Diego and Irvine. Click on this link for details on the event:

Business 539 – Financial Management – On May 9, 2019, Dr. Wendee started teachingBusiness 539 – Financial Management at California Baptist University (CBU). Dr. Wendee teaches courses in Finance and Economics at CBU.

Management 3080 – Business Responsibility in Society – Dr. Wendee will be teaching Management 3080 – Business Responsibility in Society at California State University, Los Angeles (CSULA) starting August 22, 2019. Dr. Wendee teaches courses in Management at CSULA.

Dr. Wendee will be presenting a paper on enterprise value creation at the International Leadership Association’s annual global conference which is being held in Ottawa, Canada this Fall.

Dr. Wendee is attending the Institute for Portfolio Alternatives (IPA) conference at the Omni Hotel in Chicago this week.

IPA Conference at the Omni Hotel in Chicago

Intrinsic Value Wealth Creation pyramid

We always conclude our commentary with a discussion of the Intrinsic Value Wealth Creation Pyramid. The Intrinsic Value Wealth Creation Pyramid is designed to show some of the major categories for building wealth. It is the result of many years of study of the wealth building process; experience working with clients who have built considerable wealth; and my own personal experience building wealth. Newsletter subscribers should consult the Intrinsic Value Wealth Creation Pyramid as one of many useful investment tools while considering their investment plans.

The chart in this section is an expanded version of the Intrinsic Value Wealth Creation Pyramid Chart referenced in the Forbes.com article entitled, Nine Of The Best Ways To Build WealthI


See our Resources section for links to economic and other resources used in the preparation of this Commentary.

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