Summer is almost over -- at least for Wall Street.
Summer doesn't officially end until September 23 this year, but for Wall Street, summer is over starting next Tuesday.
I'm looking for yields to drift lower, with 4.9% on 2s and 4% on 10s. We could see some pressure early in the week, but I think the jobs data will be a catalyst for lower yields into this weekend and next week.
I think the Fed is looking to the data to provide an excuse to do nothing, and the totality of the data will give them that excuse.
Risk AssetsI expect stocks and credit spreads to do well with lower yields helping.
Look for China to pull out something bigger than the pea shooter they've been using so far in terms of stimulus. We may not get a bazooka but expect China to step up their stimulus game in the coming weeks.
IPOs, Private Equity, M&A
IPOs, private equity, M&A could command the headlines and spur some risk taking once we move beyond the summer.
ARM announced their IPO and we are hearing lots of chatter about the equity issuance (primary and secondary) perking up. While in theory that sucks some cash out of the market, I think it will spur risk taking. It will create some excitement and energy.
It will also free up private equity to be more aggressive, as they have been somewhat handcuffed. It could also generate some M&A activity as potential buyers, many of whom have been allegedly waiting for lower prices, might decide the lows are in and the importance of the acquisitions outweighs the risk of not timing it perfectly.
The fact is that despite the efforts out of D.C. to block Microsoft's (MSFT) purchase of Activision Blizzard (ATVI) , it looks like it is slowly but surely clearing hurdles. I don't have any insight into whether the deal will close or not (stock finished last week at $91.66 below the $95 closing price, indicating there is still some risk), but I do know that if this deal looks set to overcome the obstacles thrown at it by regulators, it will encourage more M&A. The overhang of a heavy handed regulatory body, particularly in the U.S., has slowed M&A activity, but losses in court for the regulators are encouraging.
I think we break the late July/early August lows in September.
For now, recession risk seems largely off the table. I think we can get to 4% on 10s without a lot of ugly talk about recessions.
I do fear, that for the 10-Year to get significantly below 4% (call it 3.8%) we will need to start fearing some form of "hard landing" scenario. We might get to that point, but I think we have a few weeks, as Wall Street Summer ends, to enjoy the markets, and then we can start getting nervous again.
I'd be remiss to mention it, but there is a new strain of Covid that is getting some attention from some people in my network. One real-estate developer went so far to say that it could slow the momentum that has been gathering for work from office.
It just made it on to my radar screen, so I will examine it more closely this week -- when I'm not busy enjoying the last days of summer, before a truly hectic travel schedule begins.