Notable market news this past week (08-Oct-23)
Here is the Skeptivest roundup of the latest market headlines for the week
🏛️ US government bond sell-off
What caused the bond sell-off: This came after US job openings unexpectedly surged in Sep. A surge in white-collar postings highlighted the durability of labor demand and reinforces speculation that the Fed will continue hiking rates, leading to a sell-off in US treasuries that led to bond yields to soar.
Ripple effects are seen in: (i) falling oil prices, where investors are concerned over an impending economic slowdown from higher interest rates and (ii) REITs seeing a sell-off with higher cost of debt
What will stop a bond spiral: Barclays analysts suggested that unless a prolonged downturn in equities renews interest in fixed-income assets, global bonds are destined to continue their decline.
Is cash king?: William Eigen is sticking to the strategy that’s helped him thrive amid the worst bond rout in history. He maintains a substantial portion of his $8.8b JPMorgan Strategic Income Opportunities Fund in cash. At the end of August, 63% of the portfolio was allocated to cash-like instruments, predominantly commercial paper. The remaining portion, he notes, is mainly invested in short-dated, floating-rate investment-grade debt—a strategic move that stands to be profitable if yields continue their persistent upward trend, as observed over the past few months.
📉 VCs advise startups to postpone their plans for IPOs following underwhelming performances from Arm and Instacart
Pessimism on near term IPO market outlook: A volatile combination of a declining stock market, persistently high interest rates with no imminent relief, and lackluster showings from both Instacart and Arm has led numerous venture capitalists to counsel their portfolio companies against pursuing a blockbuster IPO this autumn.
- Instacart: Whose IPO on September 19 was seen as a key barometer for other private tech companies, ended the month below its $30 listing price, despite surging as much as 40% as trading began.
- Arm: Fluctuated above and below its $51 listing price in the two weeks following its IPO but ended the month almost 5% above it
Not helping that many former tech IPO darlings are not doing too well: On Friday, SmileDirectClub, the tooth aligner company, filed for Chapter 11 bankruptcy after over three years as a publicly traded company, during which it incurred losses and accumulated $850m in long-term debt. Additionally, after approximately 6 years as a public company, Blue Apron is in the process of selling itself to another food-delivery startup at a per-share price well below its more prosperous times in the market.
Ray of light - Bill Ackman's SPARC to de-SPARC with X?: Bill Ackman told The Wall Street Journal over the weekend that he would “absolutely” consider a transaction with X (i.e. Twitter) for his new investment vehicle. More on the SPARC structure below.
☕️ Quick fire happenings to note
🌏 Global macro
- Hamas and Israel at war: Hundreds are dead after a surprise attack by the Palestinian Islamist group Hamas, prompting Israel to declare a state of war and launch retaliatory strikes. The Israeli prime minister, Benjamin Netanyahu, has said that the country is “embarking on a long and difficult war”.
- McCarthy Is Ousted as House Speaker: On Tuesday, dissidents (members against his compromise with Democrats to prevent a government shutdown last weekend) from his own party ousted Republican Kevin McCarthy from the position of US House speaker. This vote marks the conclusion of his tumultuous nine-month tenure, throwing a divisive Congress into even greater disarray and an internal power struggle as it faces key deadlines on avoiding a government shutdown.
- US mortgage rates hit a two decade high, topping 7.5% for the first time since November 2000. As a result of increased mortgage rates and soaring home prices, applications have plummeted to unprecedented lows, contributing to one of the least affordable housing markets on record.
- Bill Ackman's Special Purpose Acquisition Rights Company (SPARC): Ackman disclosed last week that SPARC received approval from the US SEC to raise a min of $1.5b from investors for the acquisition of a private company. One of the biggest differences is a SPARC doesn't require up-front money from investors like a SPAC (which has a bad rep now) does. SPARC will only ask for money from investors once it has clinched and disclosed a deal to buy a company. It has distributed "acquisition rights" for free to investors in Ackman's previous investment vehicle, who will be given the option to invest once SPARC has a deal.
- Healthcare strikes in the US: On Wednesday morning, over 75,000 employees of Kaiser Permanente initiated a strike, posing a potential disruption to one of the largest healthcare providers in the US. This action adds to the ongoing series of labor disruptions occurring across the nation's economy in recent months - e.g. General Motors Co. said a historic strike by the United Auto Workers has already cost $200m in its first 2 weeks
- The UK establishes framework aimed at eventually prohibiting cigarettes nationwide: On Wednesday, PM Rishi Sunak declared his intention to incrementally raise the legal smoking age by one year annually. This move essentially translates to prohibiting the sale of cigarettes to individuals born after 2008. Nevertheless, Tobacco players are concerned over policies targeting vapes instead, given that significantly more young people vape than smoke.
🏦 Individual stocks
- Michelin will begin rating hotels: After 123 years of evaluating restaurants, the Michelin Guide is venturing into the realm of hotels. Instead of stars, it will use keys to rate the hotels. The 5 criteria used will be: (i) having a local character, (ii) individuality, (iii) excellence in architecture and interior design, (iv) top service and comfort, and (v) a consistent value-for-price.
- Alibaba's possible espionage activities in Belgium: Belgian authorities are monitoring Alibaba for “possible espionage” at the company’s main European logistics hub. As part of national security initiatives, Beijing mandates that Chinese companies furnish any requested data to the central government, including information gathered in foreign markets.
- BYD supremacy: BYD, the Chinese electric vehicle (EV) maker, is on the verge of surpassing Tesla as the largest global seller of electric cars. In the last 3 months, the company sold approximately 431,600 fully-electric vehicles, a figure only about 3,500 less than the number of cars shipped by Tesla. Beijing attributes its competitiveness in EVs to its supply chain advantages, particularly its strong capabilities in battery production.
- China Evergrande a Meme Stock?: China Evergrande Group's shares experienced a 42% surge on Tuesday as trading resumed, seemingly driven by speculative bets. The penny stock had been halted last week following the placement of its billionaire founder under police control.
🇸🇬 Singapore related
- Singapore's first SPAC to de-SPAC: Vertex Technology Acquisition Corporation has proposed a business combination with 17LIVE, the operator of the largest live-streaming platform in Japan and Taiwan
- Family office and money laundering: Singapore is investigating the role that some single family offices played in one of the city’s largest money laundering cases and weighing further rules on the sector
