A daily market update from FS Insight — what you need to know ahead of opening bell
“Some form of suffering is always inevitable. The process of taking action is the process of choosing your pain.” — James Clear
Overnight
National Association of Realtors agrees to slash commissions in $418M settlement (Axios)
North Korea fires missile as Blinken visits Seoul (BBG)
Putin wins Russia election in landslide with no serious competition (RT)
Reddit’s $6.5B IPO is oversubscribed by up to five times (RT)
Uber to pay $178 million to settle lawsuit from Australian taxi drivers (WSJ)
Niger ends U.S. military ties following accusation of Iran uranium deal (WSJ)
Heady news: Viagra may also be good for your brain (WSJ)
Ryan Reynolds-backed payments processor nears buyout deal (WSJ)
CEO of Hertz Global Holdings has decided to step down (Hertz)
Trump economic advisers float three names for Fed Chair (WSJ)
Tick-killing pill, a potential new weapon against Lyme disease, shows promising results in human trial (Ars Technica)
Nvidia AI developer conference kicks off with new chips in focus (Yahoo Finance)
Swisscom agreed to acquire Vodafone’s Italian business in an $8.7B deal (BBG)
Saudi Arabia’s PIF is in early talks to acquire the kingdom’s flagship carrier Saudia (BBG)
U.S. bullish options skew at most extreme level since 2008 (FT)
U.S. PE funds struggle to cash out from China (FT)
Consumer debt is stinging like never before (BBG)
UBS is targeting M&A opportunities in US (RT)
Super Micro Computer stock has been outperforming Nvidia (WSJ)
Nasdaq 100 YTD is beating Apple by most since 2013 (BBG)
US equity funds drew record inflows last week (FT)
~40% of Japan’s $4T offshore funds to ignore first BOJ hike (BBG)
Mike Lynch goes on trial over Silicon Valley’s ‘largest fraud’ (FT)
Goldman bumped pay for top three execs by 24% (RT)
Home buying costs may fall amid groundbreaking antitrust settlement (WSJ)
U.S. is investigating Adani Group over potential bribery (BBG)
U.S. is investigating Meta for role in drug sales (WSJ)
Honda and Nissan will partner on EV development (AP)
First news
- Although saved by multiple bells so far, commercial real estate is bringing delayed pain to the economy, hitting banks first.
Charts of the Day
MARKET LEVELS
Overnight |
S&P Futures +20
point(s) (+0.4%
) overnight range: -1 to +21 point(s) |
APAC |
Nikkei +2.67%
Topix +1.92% China SHCOMP +0.99% Hang Seng +0.1% Korea +0.71% Singapore -0.03% Australia +0.07% India +0.15% Taiwan +1.0% |
Europe |
Stoxx 50 +0.21%
Stoxx 600 -0.0% FTSE 100 +0.14% DAX +0.2% CAC 40 +0.06% Italy +0.12% IBEX +0.32% |
FX |
Dollar Index (DXY) -0.01%
to 103.42 EUR/USD +0.1% to 1.09 GBP/USD flat at 1.2736 USD/JPY +0.07% to 149.15 USD/CNY +0.02% to 7.1982 USD/CNH +0.0% to 7.2059 USD/CHF -0.05% to 0.8834 USD/CAD +0.02% to 1.3545 AUD/USD +0.11% to 0.6567 |
Crypto |
BTC -0.29%
to 68076.01 ETH -1.25% to 3587.66 XRP -1.21% to 0.6117 Cardano +0.25% to 0.6805 Solana +3.57% to 208.89 Avalanche +7.56% to 62.78 Dogecoin -3.65% to 0.1477 Chainlink +3.16% to 19.22 |
Commodities and Others |
VIX +2.22%
to 14.73 WTI Crude +0.97% to 81.83 Brent Crude +0.8% to 86.02 Nat Gas +5.74% to 1.75 RBOB Gas +0.8% to 2.743 Heating Oil +1.6% to 2.771 Gold +0.11% to 2158.36 Silver -0.19% to 25.14 Copper -0.34% to 4.099 |
US Treasuries |
1M +0.9bps
to 5.3696% 3M -0.1bps to 5.374% 6M -0.3bps to 5.3198% 12M -1.1bps to 5.0463% 2Y -1.5bps to 4.7128% 5Y -0.2bps to 4.3239% 7Y flat at 4.3258% 10Y +0.2bps to 4.3083% 20Y +0.7bps to 4.5562% 30Y +1.3bps to 4.4415% |
UST Term Structure |
2Y-3
M Spread narrowed 0.6bps to -69.5
bps 10Y-2 Y Spread widened 1.5bps to -40.9 bps 30Y-10 Y Spread widened 1.1bps to 13.1 bps |
Yesterday's Recap |
SPX -0.65%
SPX Eq Wt -0.19% NASDAQ 100 -1.15% NASDAQ Comp -0.96% Russell Midcap -0.09% R2k +0.4% R1k Value -0.02% R1k Growth -1.11% R2k Value +0.66% R2k Growth +0.15% FANG+ -1.21% Semis -0.74% Software -2.8% Biotech +0.28% Regional Banks +0.53% SPX GICS1 Sorted: Energy +0.23% Utes +0.11% Indu +0.08% Materials +0.08% Fin -0.05% REITs -0.09% Cons Staples -0.11% Healthcare -0.35% SPX -0.65% Cons Disc -1.14% Comm Srvcs -1.17% Tech -1.29% |
USD HY OaS |
All Sectors -1.4bp
to 352bp All Sectors ex-Energy -0.8bp to 339bp Cons Disc -1.8bp to 293bp Indu -2.5bp to 262bp Tech -1.1bp to 430bp Comm Srvcs -0.2bp to 552bp Materials -1.5bp to 322bp Energy -2.6bp to 289bp Fin Snr -0.3bp to 329bp Fin Sub -0.5bp to 249bp Cons Staples +1.2bp to 305bp Healthcare -1.1bp to 432bp Utes -0.0bp to 220bp * |
Date | Time | Description | Estimate | Last |
---|---|---|---|---|
3/18 | 10AM | Mar Homebuilder Sentiment | 48.0 | 48.0 |
3/19 | 4PM | Jan Net TIC Flows | n/a | 139.845 |
3/20 | 2PM | Mar 20 FOMC Decision | 5.5 | 5.5 |
3/21 | 9:45AM | Mar P S&P Manu PMI | 51.8 | 52.2 |
3/21 | 9:45AM | Mar P S&P Srvcs PMI | 52.0 | 52.3 |
3/21 | 10AM | Feb Existing Home Sales | 3.94 | 4.0 |
3/21 | 10AM | Feb Existing Home Sales m/m | -1.5 | 3.09 |
MORNING INSIGHT
Good morning!
We have 46 NEW SMID GRANNY SHOTS. The updated list appears below.
The new SMID Granny Shots follow the same methodology as our “traditional” Granny Shots. Recall, the granny shot stock ideas are the stocks that appear in at least two of our 7 investment strategies.
- We believe the SMID Granny Shots could benefit from the multiple themes and secular tailwinds as well, similar to the “traditional” granny shots.
Communication Services: CARG 4.35% , SSTK -3.45%
Consumer Discretionary: BLD -0.98% , CVNA 1.21% , DECK 2.49% , DFH 0.56% , HIBB, IBP -3.23% , OSW N/A% , PBPB 20.56% , SHAK -0.40% , TAST, TPX 0.93% , WING 2.44% , WSM -3.07%
Energy: REX 0.19%
Financials: AX 1.60% , CRD/A, ENVA 1.32% , HCI -0.10% , OPFI -1.81% , PAGS 0.87% , TREE -1.62%
Healthcare: IMGN, NBIX 1.42% , SMLR 5.04%
Industrials: AYI 1.80% , CDRE, GBX 0.05% , GMS 0.97% , HY -4.03% , MLI 0.95% , ROCK 1.20% , SCS 0.46%
Information Technology: BELFB 1.43% , DBX -3.01% , MS 0.85% .
TECHNICAL
Copper’s breakout should help FCX and SCCO push higher.
Silver is starting to show evidence of accelerating to catch-up with Gold’s push back to new all-time highs.
Click HERE for more.
CRYPTO
Polyhedra Network, the infrastructure company behind zkBridge, has raised $20 million in a strategic round led by Polychain Capital. Other investors included Animoca Brands, Emirates Consortium, Hashkey Capital, MH Ventures, and others. The strategic round values Polyhedra at $1 billion, representing one of the highest valuations among private deals in 2024. Polyhedra utilizes zk proofs at the base of its products to ensure security, scalability, and trust minimization. zkBridge is their key product, securing over 20 million cross-chain transactions between 25 chains. The funding will be used to escalate Polyhedra’s continued growth by hiring new employees and exploring new global markets.
ClearToken, a centralized crypto clearing house, raised $10 million in a seed round from investors including Laser Digital (Nomura), GSR, Flow Traders, LMAX Digital, and Zodia Custody. Clearing houses serve as a buyer/seller for all transactions, finalize trades, settle accounts, and regulate asset delivery, providing better risk-management and reducing counterparty risk. There is a lack of clearing houses within the crypto industry – partly due to blockchains’ inherent nature – but ClearToken believes many institutions will still prefer to use central counterparty clearing (CCP) services. ClearToken hopes to clear all regulatory hurdles in the U.K. and has begun the regulatory clearing house process with the Bank of England. They plan to offer preliminary settlement services this year and clearing services in the next 12-18 months.
MetaCene, a leading meta-MMO gaming platform, raised $10 million via a series A round led by Folius Ventures and SevenX Ventures. Other investors included The Spartan Group, Mantle Network, Animoca Brands, and Longling Capital. MetaCene is striving to create a borderless on-chain homeland, uniting MMORPG players, content creators, and Web3 enthusiasts. MetaCene was founded by gaming industry veterans from studios such as Blizzard, Shanda Games, and Perfect World. The funding will be used to accelerate MetaCene’s ambitious vision and attract top talent across tech, design, and community management.
Click HERE for more.
FIRST NEWS
Office Space Race. While the Covid-19 pandemic dramatically increased office vacancies across the U.S., the logical, expected wave of distressed office building sales has yet to materialize, and although vacancy rates have risen from 11% pre-pandemic to 17%, exceeding levels seen during the 2008 financial crisis, only 3.5% of 2023 office deals so far have involved a distressed seller, per MSCI Real Assets data.
Several factors are temporarily staving off forced sales. A strong economy means most office tenants are still paying rent, and lenders hesitate to push borrowers into selling properties at depressed values. Complex office loans with multiple lenders also make foreclosures difficult. Some owners are doubtless holding out hope for a rebound in demand and interest rates to ease refinancing.
Delayed, yet inevitable
And yet, hope or not, the office sector’s fundamentals point to an eventual flood of distressed sales. CBRE Group estimates U.S. office owners face a $72.7 billion refinancing shortfall through 2025 as leases roll over and tenants downsize by a whopping 30-40%. Over 600 office loans have already been transferred to special servicers to deal with defaults, though only 5 have resulted in losses so far.
The delay allows some opportunistic investors such as Reven Capital to raise capital targeting the coming distress. Major real estate firms on the level of Blackstone and Brookfield are positioning on both sides: handing back office keys while also looking to lend to struggling owners.
While deferred, a rise in office fire sales appears inevitable given the sector’s, to put it mildly, challenging outlook – as offices present what some are calling ‘the buying opportunity of our generation’ for investors able to identify well-located properties amid the coming shakeout.
Cash-flush investors await commercial real estate shakeout
It’s true that U.S. commercial real estate transactions fell more than 50% in 2023, but bargains remain elusive. Global real estate funds operated by private equity firms were sitting on a record $544 billion in dry powder as of Q2 2023, up from $457 billion at the end of 2022, per Preqin data. The largest increases were in opportunistic funds targeting distressed deals.
Apart from the ones mentioned above, several more factors are, for now, stalling a fire sale of troubled assets. Many property owners secured loan extensions and forbearance during Covid, but that Band-Aid is being removed as regional banks, under regulatory pressure, pull back on commercial real estate lending, forcing some developers to find new financing sources.
At the same time, abundant capital from investors such as Manhattan landlord SL Green’s new $1 billion debt fund and Blackstone’s acquisition of a $17 billion Signature Bank loan portfolio is providing liquidity and delaying some distress situations. The two firms above, as well as Brookfield and Cohen & Steers – all publicly traded – are also bullish on distressed real-estate lending. Ironically, Blackstone and Brookfield are simultaneously vacating some of their offices.
Overall commercial real estate distress totaled $85.8 billion at the end of 2023, up from $56.9 billion a year earlier, per MSCI data. That is still well below the $194.8 billion peak during the 2008 financial crisis.
Some early opportunistic investors like Noble Investment Group have been acquiring pandemic-battered hotels at discounts. As more troubled assets are inevitably flushed out, they stand to scoop up property at cyclical lows. While stalled so far, that highly anticipated liquidation wave appears inevitable as the real estate cycle plays out.
Banks face growing commercial real estate distress
Inevitably the long-feared pain from the commercial real estate downturn is now hitting banks across the globe, with lenders on three continents disclosing major losses and damage from troubled property loans.
Shares of New York Community Bancorp infamously plunged by double-digit percentages after revealing problems in the bank’s commercial real estate book and setting aside $552 million for potential losses, up from $62 million last quarter. In Japan, Aozora Bank’s stock fell over 20% after warning its struggling $1.9 billion U.S. office loan portfolio will likely lead to its first annual net loss in 15 years. In Switzerland, private bank Julius Baer took a $700 million provision on soured property loans to Austrian landlord Signa Group.
The battering highlights banks’ frontline position in the commercial real estate downturn, given their large exposures to property owners and developers. Risks are acute for smaller and regional lenders with outsized commercial mortgages relative to big banks.
While the pandemic-driven office habits upending the sector took root nearly four years ago, the damage has been slow and uneven as landlords were cushioned by existing long-term leases gradually burning off.
With over $2.2 trillion of U.S. commercial loans maturing by 2027 according to Trepp, the reckoning appears to be accelerating as pricey loans unable to be refinanced come due. Of course, higher interest rates and weaker property cashflows amid the economic slowdown raise refinancing risks, and, predictably, analysts are warning of a potential vicious cycle as tighter credit leads to fire sales that further erode bank books.
The banking turmoil has revived broader systemic fears, though many investors remain sanguine that most institutions have ample reserves and falling rates could provide relief. Still, the widespread commercial property exposure means more banks are likely to feel growing strains. Analysts are warning that the pain in the office sector is just starting. A rolling recession may linger as the downturn cycle plays out. WSJ