Market Digest – Week Ending 6/23/2017
The financial media was abuzz with the forced resignation of Uber CEO Travis Kalanick, but in general it was a dull week for equity markets. US indexes finished modestly higher while international stocks fell. Health Care stocks accelerated a month-long rally on speculation that the new GOP plan to replace Obamacare will either fail or be more generous to the industry than expected.

Weekly Returns:
S&P 500: 2,438 (+0.2%)
FTSE All-World ex-US: (-1.2%)
US 10 Year Treasury Yield: 2.14% (-0.01%)
Gold: $1,256 (+0.2%)
EUR/USD: $1.112 (-0.7%)

Major Events:
• Monday – Vice Media secured a $450 investment from private-equity firm TPG, valuing the company at $5.7 billion, making CEO Shane Smith a billionaire on paper.
• Monday – Argentina, which defaulted on many of its bonds in 2001, announced it would issue about $2.4 billion of 100 year bonds.
• Tuesday – MSCI said it would slowly add China A-Shares to its emerging market indexes.
• Wednesday – Cryptocurrency Ethereum experienced a “flash-crash”, at one point trading for as low as $0.10.
• Wednesday – Uber CEO Travis Kalanick resigned under investor pressure. Kalanick helped build the company to its latest valuation of $68 billion but has recently been involved in multiple scandals.
• Thursday – Qatar Airways said it will seek to purchase 10% of American Airlines.
• Thursday – Each of the major US banks passed a Fed “stress test”, potentially boosting the case to reduce legislation.

Our take:
Twenty years ago there were well over 7,000 publicly traded US stocks on major exchanges. Today there are only around 3,600. There are several reasons for this but one of them is that companies are staying private longer due to increasing amounts of private equity and venture capital available. Uber is perhaps the poster child for this trend, worth an estimated $68 billion at its last valuation yet still private.

So the management shakeup at Uber may be more than just an interesting story to follow for the drama. Uber had about $6.5 billion in revenue last year, which is a lot, but it also loses a lot of money. Most of us have had the experience of taking an Uber and wondering how it was so cheap. If Uber as a company loses its swagger and is forced to lower its valuation, it could start a chain reaction within the private equity ecosystem. Many believe private equity in general has become overheated. Historically, a bear market in private equity would likely be highly correlated with the public markets, but not really big enough to be causal. That may have changed. Still, for now, especially in the tech sector, the party is still going.