S&P 500 looks for support, plus venture fundraising, IPOs, nat gas, and Miracle on Ice
S&P 500 looks for support, plus venture fundraising, IPOs, nat gas, and Miracle on Ice
The Sandbox Daily (2.22.2023)
Welcome, Sandbox friends.
Today’s Daily discusses the S&P 500 index in search of support, venture fundraising grinds to a halt, dismal price action from recent IPO companies, the record six-month decline for natural gas, and a look back at the Miracle On Ice.
In fact, scroll to the bottom to see my father-in-law in Lake Placid the night that the Americans beat the Russians! Love you, Fredo!
Let’s dig in.
Markets in review
EQUITIES: Russell 2000 +0.34% | Nasdaq 100 +0.05% | S&P 500 -0.16% | Dow -0.26%
FIXED INCOME: Barclays Agg Bond +0.27% | High Yield +0.65% | 2yr UST 4.697% | 10yr UST 3.927%
COMMODITIES: Brent Crude -3.11% to $80.47/barrel. Gold -0.45% to $1,834.2/oz.
BITCOIN: -1.08% to $23,963
US DOLLAR INDEX: +0.33% to 104.522
CBOE EQUITY PUT/CALL RATIO: 0.68
VIX: -2.54% to 22.29
Stocks search for support
U.S. indexes are under pressure as sellers are once again in control. As a result, the S&P 500 (SPX) continues to churn below a major horizontal resistance zone near 4,100.
This level represents the 161.8% Fibonacci extension of the March 2020 pandemic crash and coincides with several key pivot highs and lows, making this a logical level for the recent advance to halt.
Recent data showing a strong consumer and healthy economy (jobs report, CPI, retail sales and PPI) have spooked investors into thinking the Federal Reserve will have to take interest rates higher for longer, leading the recent price declines of the S&P 500 back into a messy area of the 50- and 200-daily moving average.
Bulls would like to see the S&P 500 catch higher and break through this key level of interest to confirm a new uptrend at the index level. However, if prices remain trapped below overhead supply, we could see further corrective action.
Source: All Star Charts
Venture fundraising grinds to a halt
Fundraising globally by venture-capital firms hit a nine-year low in the 4th quarter of 2022, raising just $20.6 billion in new funds – a 65% drop from a year earlier and the weakest quarter since the 3rd quarter of 2015 ($20.4 billion). The most recent quarter is well off the cycle peak (1st quarter in 2022) in which VC firms raised $74.1 billion.
For much of the past decade, investors including pension funds, university endowments, and family offices raced to pour cash into venture funds, buoyed by zero-interest rate policy (ZIRP) and the belief that the industry could outpace the returns of other asset classes over time.
The slowdown that hit startups last year has now caught up with the investors who fuel venture capital, a reversal to the freewheeling funding environment that boosted Silicon Valley to astounding heights. Also, with fewer tech companies going public – typically a source of cash that limited partners use to reinvest in new ventures – dealmaking has come to a grinding halt.
Source: Wall Street Journal
Tough going for the IPO market
Although corporations begin as private companies, many eventually choose to go public or get acquired by public companies.
Initial public offerings (IPOs) typically occur in the growth phase and usually are driven by capital needs to fund growth and scale. For many founders, C-suite executives, motivated employees, an IPO is the ultimate goal to finally monetize their private share ownership of the business.
Unfortunately, many recent companies that went public are struggling in the current market environment where higher interest rates are discounting future cash flows at much lower values, leading stock prices lower as investors reprice enterprise value.
Oatly (OTLY), Coinbase (COIN), and Rivian (RIVN) have all fallen at least 80%, while Robinhood (HOOD), Bumble (BMBL), and DoorDash (DASH) have fallen ~70%. Some have fared ok, like Airbnb (ABNB) and Palantir (PLTR).
It would be easy to look at the performance of these companies and conclude that the IPOs were failures – but, from a business perspective, it’s almost the exact opposite. Robinhood raised close to $2bn from new investors at its IPO, Bumble netted $2.2bn, oat milk maker Oatly got $1.4bn and Rivian raised a whopping $12bn.
Investor sentiment has since turned, but at least each company built a war chest to weather the storm. In fact, those that remained private missed out, continue to burn through cash with no exit in sight, and face public markets lacking the appetite to capitalize the next IPO (i.e. Stripe).
Source: Chartr
Record six-month decline for natural gas
Natural gas prices are down by a record -79% over the last six months, truly a staggering decline.
Prices dipped below $2 per MMBtu (million British thermal units) today for the first time since the fall of 2020, ending a streak of over 600 trading days of trading above $2.
Last year’s peak in natural gas prices of $9.68 occurred exactly six months ago today, and with prices barely hanging on to a two-handle, prices are down close to 80% in what has been the largest six-month percentage decline on record.
There’s no analog to the magnitude of the current decline as the largest six-month decline prior to this one was 68%.
Even for a commodity, natural gas has been known for volatility, but the recent drop has been something to behold. Prices soared six months ago as investors looked toward a cold and cruel winter – especially in Europe as the region dealt with a potential major energy crisis – but today, many parts of Europe and the United States have seen exceptionally warm winters sapping demand for natural gas.
Source: Bespoke Investment Group
This day in history
"Do you believe in miracles? YES!" – Al Michaels
In one of the most dramatic upsets in Olympic history, on February 22, 1980, the underdog U.S. hockey team, made up of college players and misfits, defeated the four-time defending gold-medal winning Soviet team at the XIII Olympic Winter Games in Lake Placid, New York.
The Soviet squad – regarded as the finest in the world and a team that hadn’t lost an Olympic hockey game since 1968 – fell to the youthful American team 4-3 before a frenzied crowd of 10,000 spectators. Mike Eruzione, whose last name means “eruption” in Italian, scored the winning goal in the final period and became an instant household name. Two days later, the Americans defeated Finland 4-2 to clinch the hockey gold.
And here is my father-in-law (pictured right, full beard, white shirt, big smile) roller skating on the night that the Americans beat the Russians - he grabbed an Olympic flag flying in Olympic Village and carried it around Lake Placid with great pride and joy. He still has the flag framed to this very day!
Source: History
That’s all for today.
Blake
Welcome to The Sandbox Daily, a daily curation of relevant research at the intersection of markets, economics, and lifestyle. We are committed to delivering high-quality and timely content to help investors make sense of capital markets.
Blake Millard is the Director of Investments at Sandbox Financial Partners, a Registered Investment Advisor. All opinions expressed here are solely his opinion and do not express or reflect the opinion of Sandbox Financial Partners. This Substack channel is for informational purposes only and should not be construed as investment advice. Clients of Sandbox Financial Partners may maintain positions in the markets, indexes, corporations, and/or securities discussed within The Sandbox Daily.