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Since the beginning of 2018, the vast majority of influential economists predicted the inevitable collapse of the stock market. Many of them were driven by a famous rule: “What goes up must come down”. Unfortunately, people are conditioned to underestimate uncertainty and should therefore not believe any predictions about the future. As someone once joked, “Economists exist to make the Weathermen look good.”
The first thing that traders or investors should learn is to be always prepared to surprises. Some might argue that all the predictions were fulfilled, mentioning that the Dow fell 5.6%, the S&P 500 was down 6.2% and the Nasdaq fell 4% in 2018. It is true that this was the worst year for stocks since 2008 and only the second year the Dow and S&P 500 fell in the past decade. But one shouldn’t also forget that since this fall, S&P 500 broke several all-time-highs multiple times…
Nevertheless, talking heads and financial “gurus” keep saying that the crisis is about to come. Theoretically, they might be right as the current economic expansion and stock market run (until recently) has been going on for so long. Moreover, it looks like a combination of global and domestic events are starting to convince Wall Street that time is now.
1. Trump’s trade war with China is causing a variety of concerns, ranging from its impact on US farmers to its potential to raise consumer prices to its economic effects in both China and the US.
2. Economic growth has slowed in Europe and is expected to slow in China next year.
3. Drama over Brexit is also causing ripples, as are signals from the US Fed that it will continue to hike interest rates, potentially dampening the stock market and economy.
4. In the US, the fiscal stimulus from the Republican tax bill, combined with a boost in government spending, is likely going to soon run out. The Congressional Budget Office estimates that GDP growth will be 3.1 percent in 2018 and decline to 2.4 percent in 2019. It then expects GDP growth will slow to 1.6 percent each year from 2020 through 2022 and 1.7 percent annually from 2023 to 2028.
At first glance, one may say that IPO market confirms the idea of the global economy downhill. According to Pwc track data, US IPO markets in the first quarter of 2019 priced 30 IPOs, raising $7.6 billion, slightly below the Q1 average for the past five years of 35 IPOs raising $9 billion. This decline was primarily due to the Government shutdown lasting 3 weeks into January, coupled with broader investor uncertainty driven by policy debates around trade, Brexit and the appearance of slowing leading economic indicators, which could reduce GDP growth going forward.
We could even remember the recent failure of Lyft’s IPO, when high-flying stock has taken a dive just a day after debuting on the Nasdaq. To be more precise, just a couple days after, Lyft’s price per share dropped below $72, the price set for the company’s initial public offering on March 28. Currently it is trading at 61–62$ per share, what is almost 25% lower than its all-time high of 83$.
The cause of this extreme drop probably lies in Lyft’s report of losing $911 million in 2018, 32% more than the previous year. And that is despite the fact of doubling its revenue during the same time to $2.2 billion, what subsequently makes investor to rethink their perspective on the company’s future growth prospects.
It looks like everything is clear: fear, lack of stability and high volatility could not but warn about the upcoming financial crisis. However, an unexpected happened — Beyond Meat popped up the market, more than doubling its shares price.
According to Reuters, the stock opened at $46, well above its IPO price of $25. Shares surged minutes after starting to trade and were halted due to volatility. They traded up to $72 during the day, before closing at $65.75.
Beyond Meat, which has warned it may never turn a profit, closed with a market capitalization of around $3.8 billion, based on shares outstanding including underwriters’ option.
The question then becomes was it a one-time thing, or large banks, hedge funds and private investors hungry for new and lucrative opportunities? Of course, there is no way to answer this question conclusively, and only time will tell us the truth.
Can one steak revive the whole industry? was originally published in Hacker Noon on Medium, where people are continuing the conversation by highlighting and responding to this story.
Disclaimer
The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.