Markets Seeing Drawdown, US Avoiding Default, and IPOs Hinting

8 de dez. de 2021

Yesterday became a continuation of Monday. Apparently, the first day of the week was not enough for the markets to satisfy their passion for buying at a lower price. As a result, Nasdaq showed one of the best days of 2021, and prices were again close enough to historical highs, which in itself hints at not being cheap.

In general, the motivation for buying outside the context of all these “buy the dip” and “fear of missing out” looks rather unconvincing. Yes, the markets want to sincerely believe that Omicron is the last round of a pandemic and that we will continue to return to normal life. But this belief is still very weakly supported by facts. From the facts so far, there is a 400% + increase in the number of diseases per week in the province of South Africa where the strain originated. From the facts, there is also an increase in the number of hospitalized by 6 (!) times in the same province (to the question of a milder course of the disease - of course, in the case of a mild runny nose and coughing, hospitalization is urgently needed). And these facts are not in a positive mood.

In fact, analysts at Goldman Sachs, after they lowered their forecasts for economic growth rates from 4.5% to 3%, and say that the consequences are obvious: the economic recovery will slow down (at best), supply disruptions will intensify, and the return the usual reality, including the normal functioning of the labor market, is at least postponed.

In general, perhaps the only objective factor in favor of the growth in demand for risky assets yesterday was the agreement between the Republicans and Democrats on the solution of the problem of the US government debt ceiling and the potential default of the States. But again, the probability of default was initially close to zero, so this is not a risk that has been pressing heavily on the markets.

But from what was pressing, absolutely everything continues to remain relevant and press further. The Fed will remind the markets of inflation and monetary tightening in a week. And Chinese developers today can raise a wave of panic, because judging by the incoming information, both Evergrande and Kaisa cannot make payments on their obligations and are on the verge of default (or even in a state of default).

In general, you should not take the extremely successful start of the week for risky assets at face value. Well, there is no proper fundamental background for such a significant growth in demand for risky assets. Another fact in favor of the fact that everything is not as great as it seems is the IPO market. 2021 is a record year in terms of IPO volumes. But everything is not nearly as cool as it seems. Of more than 50 high-tech companies that went public in 2021, all (!) are now in the minus relative to the peak values ​​of quotations. Moreover, this is not some 5-10% that can be attributed to local correction. These are full -30% + (Rivian), -60% + (Didi) and even -70% + (Robinhood).