π Navigating End-of-Year Market Dynamics: Insights from Max & Tim Oceanic Ventures
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Welcome to the latest edition of Roll Right In/Money, where we, Tim and Max from Oceanic Partners and I, Fabian from StudioAlpha, guide you through the complex tapestry of the current market climate. This blog is a summary of our recent podcast episode and is a 3-minute read.
π 2023 Final Spurt: As 2023 winds down, we're on the cusp of critical year-end financial movements. With central bank decisions looming and Q3 earnings reports rolling out β yes, including Apple's last weekβs β the market's heartbeat is racing. Add the spice of geopolitical tensions to the mix, and we've got an enthralling yet unpredictable scenario.
Pic: The Gaza War Reverberates Across the Middle East (Source: EFP)
From our vantage point, several key themes have emerged. Despite a gentle ebb in inflation, a stronger growth outlook has been clouded by a hawkish tilt in interest rate projections and a yield rally. Add to that the heightened sensitivity to risk due to geopolitical uncertainties, and you have a market on its toes.
π₯± Lame IPO Landscape: The IPO scene we've been tracking, featuring stars like Klaviyo, ARM, and Instacart, hasn't quite found its breakthrough, hovering at or below their IPO prices. It mirrors the broader market trend, with major indices slipping into correction territory, spiraling over 10% since July's peak. This shift in market sentiment is palpable. The VIX, a measure of market volatility, has hovered around 20 since mid-October β a signal we haven't seen since May. Gold soared past $2000 for the first time since 2020, a classic harbinger of risk aversion.
Pic: ARM stock price (source: Google)
ππ½ Google & friends: Even the tech titans β our 'Magnificent 7' β can't seem to buoy the market as they did throughout the year. Having surrendered all gains since May, their support is waning.
Why the downturn? The earnings season has brought a mixed bag of results. While some tech giants like Netflix have impressed, others like Tesla have fallen short of expectations. The spotlight turned to Alphabet and Microsoft, with Alphabet stumbling post-earnings despite solid performances, revealing the high stakes of the cloud business and AI workloads. Microsoft, however, soared with Azure's growth, underscoring the market's bet on AI's future.
Yet, as Amazon's AWS met expectations, the ad revenue landscape painted a different picture with robust growth in Q3, hinting at an ad spend slowdown in Q4.
π Is the engine stuttering? Despite pockets of strength, the overall market momentum remains stalled. Guidance for the future is cautious, reflecting the market's sensitivity to potential downturns over optimism.
And what about the broader economy? It remains tethered to familiar drivers: inflation, interest rates, and yields, each intertwining in complex patterns. The Federal Reserve's measured approach to rate hikes reflects this, with no surprises expected in November and a modest hike by year's end.
Bond yields, especially the significant move of the US 10-year bond towards 5%, also weigh heavily on stocks. The real, inflation-adjusted yields are of particular importance, correlating strongly with stock valuations.
What's more, the inverted yield curve signals market predictions of a potential Fed rate reversal. Yet, with the yield curve close to flattening in a bear steepener dynamic, fiscal concerns loom large, especially considering the US's staggering deficits and debt.
π§ Whatβs next? As the year draws to a close, the market seems to be holding its breath, not quite ready to succumb to the gravity of economic pressures. Yet, the resilience of the US consumer, a standout in the recent GDP report, may not be sustainable in the long term.
As we look towards the horizon, the question remains: Will the market's tightrope walk lead to a breakthrough or a break down? For investors and startups alike, the answer to this will shape the strategies and opportunities in the coming year.
Clip: Mavericks in Half Moon Bay that we talk about in the episode; get the groove before you read the summery β¦
π₯ In a nutshell: You don't need to grasp every detail discussed in our episodes. Just keep tuning into our Roll Right In podcasts and blogs. Over time, you'll naturally become more comfortable with the topics. Here's todayβs summary:
1. Market Sensitivity: A mix of moderating inflation, uncertain interest rate projections, and geopolitical tensions have left the market highly sensitive and unpredictable.
2. IPO Performance: High-profile IPOs like Klaviyo, ARM, and Instacart struggle, reflecting the broader market trend with major indices entering correction territory.
3. Tech Sector Volatility: Even major tech companies, previously market stabilizers, are showing signs of weakness amidst a mixed earnings season.
4. Economic Indicators: The interplay of inflation, interest rates, and bond yields remains critical, with the inverted yield curve and the fiscal situation adding complexity.
5. Consumer Resilience: The surprising strength of the US consumer in recent GDP reports, though potentially unsustainable in the long term, provides a glimmer of hope.
As we look ahead, these factors not only impact the stock market but also have significant implications for venture capitalists and startups, shaping strategies and opportunities for the coming year. Stay tuned for more insights into how these market dynamics influence the private market landscape.
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Well, thatβs it for now. See you again next week. Thank you for reading and posting your questions and feedback!
Your are the best,
Fabian
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