Bonanza

Bonanza.  Stocks surged yesterday, extending Friday’s gains as investors rushed into all sectors on positive sentiment.  A stream of mergers, traditional IPO’s, and SPAC offerings have given investors confidence that the market is healthy.

N O T E W O R T H Y

Market timing, from a different perspective.   For the purpose of integrity, I have to start out today’s piece with a reminder that we are still in the midst of a pandemic, 1 million people have now lost their lives to COVID-19 globally, the US Economy is struggling to emerge from a recession, millions of Americans have lost their jobs in the past 6 months, there is a highly contentious Presidential election just 35 days away, and virus cases around the world and the US have been on the rise in recent days.  In the past few weeks, equity markets have certainly displayed their fair share of indigestion related to the aforementioned.  However, given the reality of the situation, markets are behaving rather well and upbeat.  All of the major indexes are well off their March lows while the S&P500 and Nasdaq are in the green for the year.  Treasury yields remain low with very little volatility and inflation, though always looming in the backs of our minds, has remained rather tame.  This out-of-sync environment has left institutional money managers a bit uneasy.  Their urge is to stay on the sidelines until economic and social conditions catch up to the market, but that would put them at a disadvantage if stocks continue to rise in anticipation of the better days that await us once the virus is contained.  The broad investment community voices their opinions in the market.  If they believe that better things are around the corner, they buy stocks and push prices up… and vice versa.  Though we have had some tough correction days in recent weeks, it is pretty clear that, for now the broader investment community believes in a brighter future.  What about the companies behind the stock and bond markets?  What opinions do they have on the markets?  They are mostly clear with us in their forward guidance and confidence in their businesses, but wouldn’t it be nice to know what they think of stock and bond prices?  They actually do, but indirectly.  If you were a corporate treasurer looking to raise capital in the stock and bond market, you would start with assessing market conditions.  A strong market where you could sell a large amount of shares at higher prices would clearly be optimal.  Remember from a company’s perspective, though they are happy when their stock goes up, a successful offering ends on the offering day.  Last year, when Uber went public at $45 per share there were two stories to be told.  The company’s story: Uber raised $8.1 billion in capital through the IPO.  The investor’s story: Investors who received shares at the $45 offering price saw their investment get as low as $25 within 6 months.  Though they have recovered somewhat, IPO investors are still underwater with the company’s shares trading at $35.56.  The message here is that Uber still was able to raise $8.1 billion at an advantageous level.  I am sure that you have noticed a recent uptick in public stock and bond offerings.  Already public companies have offered massive secondaries as their stocks rose in the recent market upswing, and private companies have been lining up for IPOs to access the public markets at a record pace.  Many of these companies are young with very little track record of earning success and yet their offerings are rivaling, in size, companies with long standing records of success in business.  Why would so many companies clamor for access to public funding now? Remember that the company’s goal is to attain funds in the most advantageous levels.  If companies believe that markets will be higher or stronger in the upcoming months, they would certainly wait to take advantage of those conditions.  Similarly, if companies believed that they could offer bonds with lower coupons in month’s ahead, they would certainly wait for that opportunity.  That makes this recent rush to public markets noteworthy.  Big Hit Entertainment, which features K-Pop super-band BTS, is known for successfully launching, marketing, and branding artists. They are going public and their shares have priced at the high end of their range, placing the company’s value at around $4 billion.  If you haven’t heard of the K-Pop genre or BTS, it is OK. What you do know is that the company believes that now is an advantageous time to raise capital from the public.  Oh, and the company is being listed in South Korea, but don’t worry, there are plenty others lined up in the US in the days ahead.

THE MARKETS

Stocks rallied yesterday as a raft of announced mergers gave investors confidence that companies are healthy.  The S&P500 rose by +1.61%, the Dow Jones Industrial Average climbed by +1.51%, The Russell 2000 Index jumped by +2.40%, and the Nasdaq Composite Index added +1.87%.  Bonds were unchanged and 10-year treasury yields were also unchanged at 0.65%.

NXT UP

– S&P CoreLogic Case-Shiller Home Price Index (July) is expected to have grown by +0.10% compared to being flat in the prior month.

– The Conference Board’s Consumer Confidence Index (Sept) is expected to have increased to 90 from 84.8.

– Today’s Fed speakers include Held, Williams, Harker, Clarida, Williams, and Quarles.

– On the earnings front, McCormick beat estimates this morning and we will hear from Micron Technology after the bell.

– The first Presidential debate is scheduled for tonight, which certainly has the potential to inject volatility, if not lively commentary, to the markets.

daily chartbook 2020-09-29