Janet Yellen Boosts Dow While Groupon Loses and Alibaba Registers for IPO

The three things you need to know on May 8.

May 7, 2014 at 11:00PM

Hey, Charles Barkley -- now this is how you rebound. Fresh after falling 130 points Tuesday, the Dow Jones Industrial Average (DJINDICES:^DJI) popped 118 points thanks to some kind lovin' words about the economy from the Federal Reserve chairwoman.

1. Fed's Yellen gives upbeat view of U.S. economy to Congress
Before it gets brutally hot in Washington, D.C., Federal Reserve Chairwoman Janet Yellen strolled over to Capitol Hill on Wednesday for her scheduled testimony to the Joint Economic Committee concerning the state of the economy. Yellen's perspective? The economy "paused" in the first quarter of 2014, but she expects the economy to grow at "a somewhat faster pace" in Q2.

To be more specific, Yellen emphasized that brutal winter weather kept the nation's GDP growth at an un-cool 0.1% in the first three months of the year. But last week's big monthly employment report showed that an expectations-topping 288,000 new jobs created in April, signaling more momentum for the improving labor market. The only buzzkill words were about the stalling housing market. Prices aren't rising the way they did last year, so the chairwoman is watching this risk to the recovery.

The takeaway is that investors were even more pumped about her comments on stimulus. As the unemployment rate has dropped, the Fed's been scaling back its "quantitative easing" stimulus policy that keeps interest rates low in order to encourage borrowing and risk-taking. Investors love them some stimulus juice and were happy to hear Yellen mention that since the inflation rate has remained low, the central bank isn't worried and will keep its stimulus policy in place.

2. Groupon drops 21% as new business plan starts with big losses
The former daily deal company Groupon (NASDAQ: GRPN) announced losses in its first quarter of $38 million, much larger than the $4 million loss last year. The cause of the major worsening in un-profitability was its need to plow tons of money into marketing -- how else will consumer know that it got a corporate makeover?  

No more daily deals? People got sick of Groupon's Daily Deal emails and their overstuffed inboxes, so they unsubscribed. The infamous "deal-fatigue" killed this business model. Now it's about "buying local." We don't mean the "buy local, cage-free, organic wool socks" kind of thing. Instead, CEO Eric Lefkowsky wants people to check the Groupon App whenever they're figuring out what restaurant to go to or store to shop at. This means longer-lasting deals and a unique version of e-commerce that people check out for their neighborhood.

It's also angling to be Amazon.com by selling physical goods online and shipping free, sometimes, to your home. It announced Tuesday that it will increase some shipping costs and ship more goods from a Kentucky distribution center -- but how will it survive in the crowded online shopping market? Investors don't know.

The takeaway is that Groupon's new model could work, but investors don't have faith. The widening losses last quarter prompted investors to dump the stock -- it dropped 21% Wednesday -- until it proves that this business model isn't just its corporate flavor of the day.

3. Alibaba officially files for planned summer IPO
Need a summer blockbuster? Spiderman 8: Caught in the Web could be fun, but Wall Street's big summer blockbuster will be Alibaba's initial public offering. Like Facebook in 2012 and Twitter in 2013, this Internet company will "go public" in 2014 and people will go crazy about it.

If you've never heard of Alibaba, it's the giant Chinese company that's growing even faster than everything else in the People's Republic. The company offers the same products and services as Amazon.com, eBay, and PayPal -- all in one.

Yahoo! knows Alibaba, since it already owns 22.6% of its shares. The company bought a big stake in the company back in 2005 (probably right before Mark Zuckerberg turned down their $15 billion offer for Facebook). It turned out to be brilliant, as their original 40% investment cost just $1 billion then, and that chunk of shares could be worth over $80 billion now. The e-commerce conglomerate is estimated to be worth as much as $200 billion.

The company filed with the SEC, which is the first step to going public in the United States. Uncle Sam is flattered that the Chinese company chose to list its stock in the USA, and it's a sign that the company is serious about raising tons of cash when it sells it shares for the first time to the public this summer. 

Thursday:

  • First-quarter earnings reports: MercadoLibre, Monster Beverage, Wendy's
  • Weekly jobless claims

MarketSnacks Fact of the Day: At the awesome low-budget grocery store Trader Joe's, each location has its own artist, and three of the company's top 10 selling products are pumpkin related. Its most popular product, though, is its ginger snap cookie.

As originally published on MarketSnacks.com

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