As we moved into the sultry days of summer, two key stories dominated investment news while a third continued to simmer on the back burner. Investors have been so busy looking into the future and fretting about the Fed that they have not paid much attention to the good news coming from the Standard & Poor’s 500. In the first half of this year, the S&P’s rally is the best recorded since 1998.
We have RetailMeNot’s initial public offering to thank for injecting some excitement to Nasdaq’s trading floors on July 19. RetailMeNot, an Internet company with a market capitalization of about $1 billion, generates digital coupons for some 60,000 stores and brands in the United States. The company launched its first public offering on Nasdaq. Shares (Nasdaq symbol = SALE) were initially offered at $21 each, and rose quickly to reach $27.70 per share at closing. The IPO sold some 91 million shares, giving the company a market value of approximately $1.4 billion by the time the bell rang. Coming on the heels of some disappointing performances by other publicly held consumer Internet companies, analysts suggest that RetailMeNot’s initial success could spur other big names in the consumer Internet segment to make the leap from private capital funding to public offerings. Since Facebook’s initial private offering over a year ago, there’s been little IPO action from Internet companies, with only a couple – Kayak (a travel search engine) and Trulia (a real estate website) – sailing forth into IPO territory.
Department of Justice Tackles Market Cheaters
On the regulatory front, the U.S. Department of Justice, which has been criticized for insufficient oversight of Wall Street in the past, took the unusual step of indicting a hedge fund company, SAC Capital Advisors LP, U.S., for insider trading. SAC Capital denies any wrongdoing and pled not guilty.
Why should individual investors care what happens to the firm’s wealthy owner and his aggressive team of hedge fund managers (hedge fund gurus being the Olympians of the financial management industry, believed to be smarter, faster and ahead of the curve)? By indicting the entire firm and not just a few of its leaders, the Justice Department is sending a clear message to all firms and investment managers. This case also reveals the lack of clarity around the whole issue of insider trading and market cheating.
The very definition of insider information is murky. Ask industry pros the difference between true insider information and rumors and you’ll get a variety of different answers. What does having an edge mean? When might conversations with influential friends at big companies be deemed a fair source, and when do their remarks become insider information?
It would be a major achievement if the Justice Department’s inquiries become the catalyst for better laws to clarify guidelines to keep trading fair. The outcome of this inquiry could change how the industry works in the future. It remains to be seen if the Justice Department is ready to take on this behemoth issue.
Finally, analysts, traders and investors continued to ponder what the Federal Reserve might do in light of Chairman Bernanke’s remarks about a possible reduction and eventual reversal of quantitative easing (the bond purchases used to help buoy the economy). Bernanke’s comments were used to support a variety of opinions – including opposing ideas – as to how the Fed would respond to the sell-off that greeted his remarks at the end of June. Perhaps it’s time to halt such speculation and enjoy some good news – namely the performance of the S&P 500 over the past six months.
The above commentary is general in nature and is not intended to replace the specific counsel of professional tax and investment advisors.