Is That All You Got?
Global equity markets fought off quite a hard hit last week. Almost every major market was off 2% or more at their lows on Tuesday. But as Rocky Balboa said, “it ain't about how hard you hit. It’s about how hard you can get hit and keep moving forward.” Well equities seem to be able to take quite a punch right now. Looks like this rebound caught a few by surprise, see this Zero Hedge article. Looking at major global indices, most fought their way back to close up 1-2%. The one exception was China’s Hang Seng and it also started this week off roughly. As I write, Europe is also mostly down again. Can the equity markets hold on?
Something not holding on is the deals market. It's been on fire and looks to be continuing. Yet another big deal hit the tape last week. Zoom Video (ZM) announced it would acquire Five9 in a $14.7B all-stock deal. This is just another in a long line of deals hitting the tape this year, as we’ll see below.
For this week, it will mainly be Earnings results and Deals driving news. Aside from those, the Fed meets for two days on July 27th and 28th, so we’ll also get to hear from Chairman Powell again.
On the individual name side, it’s hard to focus in week’s like this. Names are coming in hot and heavy, but there’s always something good. Tesla (TSLA.O) and MicroStrategy (MSTR.O) are two of those that you can’t seem to look away from. I want to see if Visa (V) and Mastercard (MA) give us decent insight on the economy. On the data side, Ford (F) has a huge positive predicted surprise and a ton of disagreement from analysts, but I don’t see anything going on in the options. That's a name to keep an eye on.
Nice update from Callum Thomas on the topic Roger Hirst and I discussed a few weeks back. Commodity capex is still contracting and I will be listening for any changes in that this earnings season. On the other end Tech+ Capex is hot. As Callum points out, this should help maintain the bull market in commodity prices. 
Another ZeroHedge article that caught my eye was this one around the record year for the Banking desks with almost $2T of deal value for US based acquirers. The part that was interesting was the part where Goldman’s David Kostin notes that companies are funding the mergers with less stock and over paying. The article also mentions Goldman’s estimates of $324B in cash M&A for 2021 and another $340B in 2022. That’s huge for continuing the trend we saw last week from the big investment banks with Banking desks taking over from Trading as the main driver of revenue. The article also notes that Kostin mentions regulatory risk is probably going to increase over the next few years.
Continuing this investment banking theme, I read this article from last week. I wasn't planning on including, but as the banking article continued to stack up, it fit the context. This piece looks at how likely any startup will become big enough to attract the eyes of the bankers. Unicorns, which make it to a $1B valuation, are happening more and more than ever. The article notes that we had 245 in H1 of 2021. Any private company has a 1 in 40 shot to make it there or about a 2.5% chance. The article attempts to answer why. My thoughts are that the Ivy endowments are a major help. It’s not them alone, but that thought process.
Something not holding on is the deals market. It's been on fire and looks to be continuing. Yet another big deal hit the tape last week. Zoom Video (ZM) announced it would acquire Five9 in a $14.7B all-stock deal. This is just another in a long line of deals hitting the tape this year, as we’ll see below.
For this week, it will mainly be Earnings results and Deals driving news. Aside from those, the Fed meets for two days on July 27th and 28th, so we’ll also get to hear from Chairman Powell again.
Earnings Watch
Last Week
We started to see some real volume of names reporting last week, so I’ve included the data summary of a few more names. It’s the top 30 by market cap and a few others that stood out. Of the things I mentioned going into last week, Verizon (VZ) didn’t give me anything crazy. A slight beat and raise for them with maintained Capex numbers. American Express (AXP) did have a huge beat. It opened up nicely but couldn’t hold that strength and closed the week up just 1.3%. The outliers were IPG and CROX with huge beats and great performance, and on the negative side SAM, SNBR, HCSG, and NTGR were all off more than 10%. Boston Beer (SAM) was by far the worst. It missed by 29% and fell by more than 25% to end the week on huge volume.
This Week
We’re now into the heavy reporting period. This week is huge with more than 175 names and 50% of index market cap of the S&P 500, 330 names and 50% market cap of Russell 1000, 416 names and 23% market cap of the Russell 2000, and 54 names and 25% of market cap for the S&P TSX reporting. The largest TRBC Business Sectors, sort of like the GICS Industry Group, are Software & IT Services at 36% and Technology Equipment at 13% of the Russell 3000 plus S&P/TSX names reporting. I took a look at the average (straight not market cap weighted) YoY growth expected and the Software & IT services is a weak -5.3%. Microsoft (MSFT.O) +31%, Alphabet (GOOG.O) +90%, and Facebook (FB.O) +69% are balanced out by many smaller names with bad expectations like Twilio (TWLO.K) -250%,Pinterest (PINS.K) -284%, and Spotify (SPOT.K) -80%.On the individual name side, it’s hard to focus in week’s like this. Names are coming in hot and heavy, but there’s always something good. Tesla (TSLA.O) and MicroStrategy (MSTR.O) are two of those that you can’t seem to look away from. I want to see if Visa (V) and Mastercard (MA) give us decent insight on the economy. On the data side, Ford (F) has a huge positive predicted surprise and a ton of disagreement from analysts, but I don’t see anything going on in the options. That's a name to keep an eye on.
Equity Capital Markets (via Refinitiv’s IFR)
Last Week
This last week’s deals performed a little better than the previous week in the US. Less than 25% of the deals were trading down. The best name was actually out of India. Indian food delivery company, Zomato (ZOMT.NS), was up as much as 83%, but closed up 66% from it’s offer price of 76 Rupees. Here’s a good writeup of the company, if you want to know more about the stock.This Week
RobinHood (HOOD) is looking to start trading this week at a valuation of $2.3B, and that’s just the start of another huge week of offerings. The US should have a minimum of 14 new issues this week, but it could reach as many as 17 or 18. A few of the other big names are Clarios International ($1.8B), Powerschool ($790M), Duolingo ($$85M), Traeger ($420M), and Dole ($600). For the US, IFR notes that July could finish with 45 IPO pricings, but that’s still behind the crazy month of June, which priced more than 50. Europe and Asia have a few deals, but not nearly the pace of the US. Hong Kong listed for China Telecom, which has cleared the regulators and is set to list on the Shanghai Stock Exchange at a valuation of $8.4B.Best of the Week
I loved this interview on credit. Greg is the director of Credit at Verdad Capital. The biggest argument he makes is that excess return from this group comes from identifying improving and declining credit conditions. He says the vast majority of those come from BBB and BB. Buying when spreads are wide is also misguided. Why aren’t there more Quant FI managers? It’s hard to get the data and the place people think is the place to be is overcrowded. You know the old Yogi Berra quote, “Nobody goes there anymore, it’s too crowded.” I look at the Starmine Combined Credit rating from Refinitiv, because it’s a faster credit indicator than the traditional agency ratings. Greg notes that the market will tell you ahead of the public process of the agencies.Greg Obenshain - Quantitative Credit - Listening time: 53 minutes
Best of the Rest
Excellent discussion around the global macro trade moving from inflation to deflation. Darius is a wealth of knowledge and he shares a ton around inflation and monetary policy at both a high level and some detailed data points. There is a ton of data here, as he shared a 79 page chart deck, but they only spoke to about 20 or so. I found his chart around regime cycles the most interesting. Also, do not miss Patrick’s post-game report. There he mentioned one point around the breadth of the markets that I find challenging. The percentage of names above their 50 day moving average was in the 20s last week, but the index as a whole didn’t respond much. The leadership of US equities is so top heavy that even a dip in the vast majority of names doesn’t move the index.Darius Dale: Inflation is officially on hold but just for now - Listening time: 64 minutes
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One for the Road
Many people look at a good salesperson, an Olympic athlete, or as Ben writes, a comedian and see the finished product. There's a ton of work that goes into them perfecting their work. For example, the reason that you don’t even know you’re being sold to is because those salespeople are the best. They practice their pitch often and practice any tangents as well. With the Olympics going on right now, you can also see how easy those athletes make it look. This article talks about the amount of work some comedians do for one single 5-10 show appearance. The next time a colleague gives a great performance, don’t assume it’s because they just are good in front of people. They usually practice, ALOT!!Making it Look Easy is Hard Work
Thanks for reading. May you take any bumps that come your way.
Michael
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