Stocktake: European selloff, sleepy states, IPO perils, Apple’s cash pile

European sell-off looks temporary European shares tumbled last week, with Germany's high-flying Dax index bearing the brunt of the selling – Wednesday's 3.2 per cent decline was the largest one-day fall in more than a year.

It’s been coming.

The Dax had risen by 26 per cent in 2015, an extraordinarily rapid rise that left the index trading at a 15 per cent premium to the Euro Stoxx 50 – the widest differential in at least a decade.

The Euro Stoxx 50, too, has been soaring; between February and March, it outperformed US indices by 20 per cent, the biggest outperformance in 15 years.

Buying Europe had become a crowded trade, as had the euro’s downward spiral against the dollar.

Investors have begun scaling back expectations for US rate hikes in 2015, however, resulting in the euro rebounding from $1.05 to $1.12 in recent weeks.

The euro’s rebound has hurt the share prices of European exporters, but recent market action resembles a pullback more than the end of the trend. Both Goldman Sachs and UBS last week maintained their bearish outlooks on the euro, citing the likelihood of US rate hikes and the European Central Bank’s commitment to monetary stimulus.

The underlying factors supporting European equities – a weak euro, ECB easing, improving earnings and economic momentum – remain intact.

Similarly, concerns regarding US valuations have not dissipated.

European weakness is likely to be short-lived; having underperformed the US since 2009, it’s likely Europe will retake the baton soon and lead the way in 2015.

US action stuck in sleepy streak The volatility in European shares contrasts with that seen in the US, where the market action has been, to put it mildly, sleepy.

How sleepy? Well, it’s now been more than 90 days since the S&P 500 experienced a daily move of 2 per cent – the second-longest stretch of market calm since the bull market began in 2009.

More notably, it's been 34 days since the Dow Jones index has made either a one-month low or a one-month high – according to money manager Dana Lyons, that's the longest sleepy streak since 1931.

Apple's fruitful cash pile Investors have become accustomed to extraordinary numbers from Apple, but the company's ever-growing cash pile – $194 billion, as confirmed last week – never ceases to astonish.

Apple’s cash pile is now almost the same as Amazon’s total market capitalisation. It exceeds the market value of Oracle, Disney, Coca-Cola and IBM.

In fact, if Apple was to spin off its cash into a separate company, the new firm would be the 17th biggest in the S&P 500, Bespoke Investment Group noted last week.

Indeed, if one strips out the cash, Apple would be trading at just over 10 times its estimated earnings.

In other words, despite being worth almost twice as much as any other company on the planet, Apple still looks cheap.

Beware the perils of IPOs Online craft retailer Etsy has become the latest company to remind investors that the old adage about IPO standing for 'It's probably overpriced' is worth heeding.

Huge demand for shares on its market debut last month – it was the second most-traded stock on the platform of retail broker TD Ameritrade – resulted in Etsy more than doubling in price.

Etsy’s $3.3 billion market capitalisation meant it was trading at 84 times estimated earnings, setting the scene for a mighty 40 per cent sell-off over the coming weeks.

Last week was also a bad week for Twitter shareholders, the stock losing more than a quarter of its value after a disappointing earnings report.

Twitter shares have almost halved since December 2013, when post-IPO hype briefly drove the stock to insane heights.

Obviously, not all IPOs fare so disastrously, and enthusiasts can point to Facebook, which has more than doubled since its 2012 IPO.

However, Facebook is the exception to the rule. Data confirms new companies tend to badly underperform in their early years.

When it comes to IPOs, only fools rush in.

No 'easy money' in stocks "Has the easy money been made in stocks?", US magazine Barron's asked last week.

The question sounded familiar to Motley Fool columnist Morgan Housel; Barron's asked the same question in 2009 and 2014, he tweeted, while other high-profile publications used almost identical headlines in 2010, 2011, 2012 and 2013.

The notion of “easy money” has always been a dubious one. Investors felt apocalyptic in early 2009, while the following years were dominated by coverage of crisis in Europe, banking woes, double-dip recession, America losing its AAA rating, the US government shutdown and the possibility of default, turmoil in the Middle East, elevated valuations and, well, you get the picture.

Investing only seems easy in hindsight.

There are always concerns – irrespective of what the talking heads might say.