Better days come ahead and I will help the folks here find opportunities when they come. Cash is an asset class now, and Interactive Brokers pays 4.8% on all uninvested cash balances - link below.
Key Investing Resource: Strategist Larry uses Interactive Brokers as his core brokerage. Feel free to check out IB. I currently park excess cash at Interactive Brokers. Check it out. It’s a great brokerage.
In our emails, we will provide the following coverage points:
“The S&P 500 has taken a roundtrip to January 2022 levels on forward earnings ($227) and on its multiple of 20x - a lost 18 months. But bonds and inflation have done a lot since then - the 10-yr yield jumped from 1.8% in Jan 2022 to 4.0%, real rates from -0.7% to 1.8% and Fed Funds saw the quickest ascent in history. Visibility on Fed policy, lower rates volatility, inflation cooling from 7% to 3%, and a pickup in GDP (+2.6% q/q SAAR vs. -1.6% in 1Q22) are all equity positive. And productivity gains (+3.7% YoY in 2Q) could at least partially offset higher borrowing costs.” - BofA
Macro Chart In Focus
Analyst Team Note:
Following the disappointing performance of many 2020 and 2021 IPOs, a recent survey by KKR reveals that investors are demanding a larger discount for investing in new IPOs.
The survey, which questioned investors overseeing over $10 trillion in assets, showed that 43% desire IPO candidates to offer a 20% to 30% discount to their publicly listed peers, an uptick from the traditional 10% to 15% range. This cautious sentiment stems from high valuations of past IPOs, many of which have yet to rebound, with only 20% currently trading above their initial offering price.
Despite the lingering hesitance, overall investment sentiment seems to be on the rise. According to KKR’s survey, the majority of long-only funds and hedge funds are actively deploying capital, with many holding under 5% of their assets in cash.
Two-thirds anticipate a resurgence in the IPO market within the coming nine months. However, investors' criteria have tightened, with a mere 3% willing to wait over two years post-IPO for profitability, a drastic drop from 23% in a prior survey.
Gas prices are hitting new highs with commodities up 22% on average from 2022 lows: iron ore (+41%); sugar (+47%); natural gas (+39%); beef (+38%); crude oil (+20%).
The five-year inflation breakeven rate is a measure derived from the U.S. Treasury market to gauge investors' expectations of future inflation over the next five years. It’s calculated by taking the difference between the yield on a five-year Treasury note and the yield on a five-year TIPS.
The market currently predicts the Fed will halt its tightening monetary policy due to cooling inflation, potentially cutting rates next year. However, the recent breakeven rate rise casts doubt on whether inflation will smoothly return to the Fed's 2% target.
Chart That Caught Our Eye
Analyst Team Note:
Goldman’s Marcus raised its high-yield account interest rate to a record 4.3%. Yet at the end of June, over 73% of U.S. outstanding mortgages, or about 39 million homes, had a mortgage rate below 4.375%, creating a unique economic situation where millions of homeowners are unwilling to move due to their low mortgage rates and current borrowing costs nearing 7% for a 30-year fixed loan. This discrepancy is exacerbating the scarcity of available homes in the market, while savers are benefiting from heightened interest rates in high-yield accounts.
Millions of Americans have a higher rate on their savings account than they’re paying for their mortgage.
Sentiment Check
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