Wells Fargo Daily Advantage

Good Evening, Investor:

Thursday, May 5, 2016

A strong rally in crude-oil prices initially boosted stocks, but gains faded along with oil and the major indexes closed essentially flat.

The Dow crept 9 points higher, with 15 of its 30 components gaining ground; the S&P 500 Index declined less than one point; and the Nasdaq slipped 8. Decliners narrowly led advancers on the NYSE and by seven to four on the Nasdaq. The prices of Treasuries strengthened. Gold futures fell $2.10 to close at $1,272.30 an ounce, and the price of crude oil gained 54 cents to settle at $44.32 a barrel. Oil had rallied much higher earlier in the session on reports that Canadian oil production would be hampered by wildfires in Alberta.

In earnings news

- Tesla Motor Corp.'s first-quarter revenue jumped 22% to $1.15 billion, but its quarterly loss widened from $154.2 million in the year-ago quarter to $282.3 million. The electric car manufacturer's shares (TSLA) sank 4.96%, however, on concerns that its new production goal of 500,000 cars by 2018—two years ahead of schedule—was unrealistic and perhaps too capital intensive.

- For the year that ended March 31, Chinese internet retailer Alibaba reported a full-year profit of $11 billion (71 billion yuan), surging 193% from its prior full-year profit. The company was helped by nearly doubling its sales of mobile devices. Revenue for the quarter that ended March 31 was $3.7 billion, or 24.2 billion yuan, up from 17.4 billion yuan. Its quarterly profit slipped 1.4% to 7.6 billion yuan. Alibaba's shares on the NYSE (BABA) jumped 3.97%, as the company's rising revenue indicated a better-than-expected resilience among China's consumers.

In other business news

- Initial claims of unemployment jumped 17,000 to 274,000 last week, according to the Labor Department. The increase was more than expected, but total claims remained at historically low levels, indicating a stronger job market. The four-week moving average was 258,000, up 2,000. The string of low numbers of claims for unemployment could show up in another strong jobs report on Friday from the Labor Department.

- The pace of China's services-sector growth slowed in April, according to the Caixin China services Purchasing Managers' Index. The index fell from 52.2 in March to 51.8; a reading above 50 indicates expansion.


Many signs point to the popping of the unicorn startup bubble, which would be a really unfortunate collision of metaphors. A unicorn, to refresh, is a startup that's allegedly worth more than $1 billion. This is supposed to be rare, much like unicorns themselves (people tend not to focus on the fact that unicorns aren't so much rare as nonexistent, which would perhaps put too fine a point on the question of whether these lofty valuations should exist as well).

But the byzantine math that supports these valuations is breaking down. There were fewer deals for fewer dollars in the first quarter. Mega-rounds of investment ($100 million or more) were down, as were the number of firms that became unicorns. Talk of a bubble is rampant. Investors in the first dot-com bubble burst of the early 2000s probably remember the deathwatch websites that counted the number of fallen dot-coms; unicorns now have their own site counting the number of "downrounds," or subsequent rounds of fundraising that entail lower valuations than earlier ones.

But the most salient indicator of the problems facing the Silicon Valley startup industry might be this: The number of ping-pong tables bought by tech firms is cratering. According to The Wall Street Journal, first-quarter sales of ping-pong tables to Silicon Valley–area firms sank 50% quarter over quarter. The Journal's research shows that the more venture capital rounds of funding there are in a quarter, the more ping-pong tables are ordered. In a ritual as old as time, or perhaps about 18 years old or so, tech startups that get big enough to rent office space or expand existing square footage immediately buy ping-pong and foosball tables. The games are so established in startup culture that it doesn't even make sense to call them perks; they're necessities, like an internet connection at each worker's desk (assuming the startup office has desks and not randomly assigned floating platforms called "Idea Clouds").

Perhaps ping-pong tables will join the host of other uncommon economic indicators, like the Big Mac Index or the Company Holiday Party indicator (where rising or falling percentages of company holiday parties says something about the general business environment). In this case, one might say that the Idea-Cloud-riding ping-pong players have rallied their unicorns to bubble-bursting widths. Sometimes it's fun to imagine what people living a hundred years ago would make of certain sentences.

Jeremy Ryan
Social Media Managing Editor


The opinions stated are those of the author and are not intended to be used as investment advice. The views are subject to change at any time in response to changing circumstances in the market and are not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally, or any mutual fund.

Wells Fargo Asset Management (WFAM) is a trade name used by the asset management businesses of Wells Fargo & Company. Wells Fargo Funds Management, LLC, a wholly owned subsidiary of Wells Fargo & Company, provides investment advisory and administrative services for Wells Fargo Funds. Other affiliates of Wells Fargo & Company provide subadvisory and other services for the funds. The funds are distributed by Wells Fargo Funds Distributor, LLC, Member FINRA, an affiliate of Wells Fargo & Company. 243216

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