9/21/18 – Stocks up on Light News

Stocks continued higher this week without significant news. Trade talks continued with the Trump administration announcing 10% tariffs on $200 billion of China trade. That was less than the 25% that was discussed most of the summer, but markets largely seemed to shrug off the news. On the week the Dow gained 2.2% while the S&P 500 increased 0.9%.

The most fascinating part of this week was watching the Canadian marijuana stocks trade. Canada is legalizing marijuana for recreational use in mid-October. Several of these pot companies have seen crazy moves in the last few weeks. The market in Canada is pretty small, but valuations in these companies are astronomical at this point. Tilray, the largest and most traded showed what a roller coaster these speculative stocks can be. On Monday, Tilray closed at $120/share. By Wednesday, the stock briefly traded at $300/share, making the company worth more than half the companies in the S&P 500. Soon after touching $300, the stock cratered, closing the day at $214. Today, the stock closed at $123, almost right in line with Monday’s close. So, depending on when one bought this week, one could have made 250% or lost 60%. That’s a near unbelievable swing in one week and shows what can happen when small, speculative stocks catch significant retail investor interest. The valuations of these companies are still really stretched. Tilray is expected to generate total sales of $100 million in 2019 and had a peak market valuation of $28 billion. Companies simply don’t trade at 280x projected sales. For comparison, Walmart trades a less than 1x sales.

Oil increased this week, gaining 2.7% to close at $70.83/barrel. The yield on the 10-yr Treasury moved higher, closing at 3.06% from 3.00% last week. The average rate on a 30-yr fixed rate mortgage moved higher to 4.65%, from 4.60% last week.

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