Can't Nobody Hold Me Down

 

Equity markets were up pretty much globally. Almost everyone was invited to the party. There were few markets in the red last week. Small cap, large cap, or sector, it didn't matter. Equities caught a bid. It was yet another all time high for the S&P 500. It just seems like equities, especially US large caps, are living the high life right now. Even when they’re knocked down, they get right back up again. That put the title song from the late 90s East Coast rap era in my head all weekend. 

Even though the Earnings and Capital Markets calendars will be light, this should still be a very active week in terms of equity trading. The Federal Reserve meets this week and traders will be listening for the pace of asset purchases, looking at the dot plots, and what sort of impact Omicron might have on any of these. Also, the week ends with quad witching. So the dealers will be hedging the opex, but also that means year end rebalances for many of the big indexes.

Earnings Season

Last Week

As mentioned above, it was a strong week overall for US markets. I believe that the strong earnings had something to do with this. Decent results from most of the big names reporting. I’ve highlighted a few below. Oracle and MongolDB are some positives and Stitch Fix on the negative side.

This Week

Adobe stands out as the largest name reporting. It’s more than 4x the size of the next largest name, FedEx. One smaller name that stands out for this week on the Earnings front is Sanderson Farms. It’s a $4B poultry processing firm. Predicted Surprise here is nearly 30%, plus the momentum on the EPS estimates is quite strong. There’s also a 7% Predicted Surprise on the Revenue side. The EPS mean alone is looking for over 400% growth year over year.

Equity Capital Markets

This might be the final week enough people will be around to raise equity. I missed this section in last week’s post, but we saw some good activity in 17 companies raising $10B from IPOs, follow-ons, and Convertibles. The Brazilian digital bank, Nu, was the largest transaction at $2.6B. The first trade popped 25% on first trade and finished up the week 31.7%. There was another $3.3B in SPAC IPOs issued last week.

Not much on the calendar this week. The only decent I can see is Samsara looking to raise $800M.

Best of the Week

I am fascinated by the use of technology to help people make faster and better decisions. As the article notes, it is sort of that ‘Money Ball’ for investing. Quick side note, if you haven’t read/watched this story from Michael Lewis, I cannot recommend it more. It really makes you think more about using data over your gut. It’s no surprise that it’s making its way into finance more and more. The article quotes an Accenture study that asset managers using this are seeing a bump in risk-adjusted returns. An example is they found analysts that produce short and more frequent research tended to perform better. The CEO of JP Morgan Wealth Management Solutions used all the work done in the firm to help automate 53% of all trades. Now, the CEO of Asset & Wealth Management is asking if they can replicate that across the front office. That’s both intriguing and scary.

Everyone Is Talking About Data Science. Here’s How J.P. Morgan Is Putting It Into Practice.

Best of the Rest

Above I mentioned that the S&P 500 has hit another all-time high. These tables from Charlie Bilello show some data around both the new highs per year and the ‘buy the dip’ mentality in US equities. There have been 26 instances of a 5% or greater selloff and all but two took about a quarter or less to overcome that. It’s sort of like trying to hold a ball under water.

6-Chart Saturday (12/11/21)

Researchers went through about two decades of early-stage venture capital. They were looking to see how powerful alumni networks were to the viability of start-ups. Their research led to the conclusion that the size of a founder’s alumni network may, in fact, be THE deciding factor of success. For about one-third of all early-stage venture investments, the founder and investors attended the same college or university. The surprise they’re noting in the headline is that it’s not just the Ivy Leagues either. In fact, the research showed a stronger impact for less prestigious schools. Ok, this is fine, but why does it matter? When investors and founders have education in common, they are 33% more likely to have an IPO, and 10% more likely to receive patents. That tends to be better for all investors.

The Key to Fundraising for Startups Is Alumni Networks. Here’s the Surprise.

Another historical piece, but this time on the business of US exchanges. It goes through the old version of trading via the exchange and into the Reg NMS time that broke down the doors to competition in the US. I remember that transition well. NYSE seats went for north of $2.6M when I started and dropped by 50% after Reg NMS increased the number of competitors. It is a well done piece on why things are the way they are around data. The major exchanges went from a monopoly on execution to a monopoly on data and the new rules basically helped them through that transition.

The Quest for Monopoly

The direct indexing market is expected to grow from $350 billion in assets under management (AUM) in 2020 to $1.5 trillion in AUM by 2025 according to Oliver Wyman. It looks like some of the big shops are getting ready for the arms race in this space. It started way back in 2003 with Eaton Vance’s acquisition of Parametric, which is now part of Morgan Stanley, but transactions have been gaining steam of late. Earlier this year, Franklin Templeton acquired O’Shaughnessy Asset management. I think that was mainly because of their direct indexing platform Canvas.

BNY Mellon's Pershing to Acquire Optimal Asset Management

This one surprised me a bit. Visa getting into crypto, but it’s really about education. This is because in a survey they found 40% of crypto owners would likely or very likely switch their primary bank to one that offers crypto. This would start to move traditional banks into competition with the likes of Coinbase, Robinhood, or BlockFi types.

Visa launches crypto advisory service for financial institutions, merchants

One for the Road

I wish I could be as good at anything as Amaury Guichon is at building things with chocolate. This video was shared by a friend, and although I tend to like to keep this blog business or finance related, I was in amazement and thought you’d all enjoy this as well. It’s 5ft (1.5M) tall and weighs in at 75lbs (34kg). His Instagram page is filled with these.

School of Chocolate

Thanks for reading. Have an amazing week.

Michael