A daily market update from FS Insight — what you need to know ahead of opening bell

“The people have the power. All we have to do is awaken the power in the people.” — John Lennon

Over the Holiday

U.K. inflation has reached the Bank of England’s 2% target for the first time in three years (FT)

Russia’s Vladimir Putin signed a mutual defense pact with North Korean leader Kim Jong Un (RT)

EV startup Fisker files for bankruptcy after suspending production (Axios)

Self-driving trucking company Waabi raised $200 million from investors including Khosla Ventures and Nvidia (Semafor)

OpenAI co-founder Ilya Sutskever announces rival AI start-up Safe Superintelligence (FT)

GoFundMe fundraisers to avoid eviction up 40% post-pandemic (MS)

Most stocks hyped as AI boom winners have fallen this year (FT)

State Street tech ETF set to add $10B in Nvidia shares (RT)

Nvidia’s ascent to most valuable company stirs dot-com bubble parallels (WSJ)

Hedge fund Bayview sold CDSs in first such deal since 2008, pointing to return of crisis-era structures (RT)

Multi-strat hedge funds are keeping over half of their profits in fees (BBG)

Convertible arbitrage sees inflows as investors pull from other strategies (BBG)

Indian stocks power through as China lags (WSJ)

Rich countries plan to buy more gold despite record price (FT)

LatAm allocation a ‘must’ for portfolios, says UBS CIO (RT)

ETFs could poach half of U.S. mutual fund assets (FT)

Hedge funds smell bargains as regional banks seek to slim down (WSJ)

CMBS buyers face first Europe AAA loss since credit crunch (BBG)

SpaceX documents reveal sweet stock deals offered to a16z, others (TC)

Musk tries to woo advertisers back to X / Twitter platform (CNBC)

Netflix launches mega retail experience (AX)

JPMorgan follows Goldman in lifting U.K. bonus cap (FT)

China’s central bank chief warns of weaker credit growth as property lending declines (FT)

Inside Citigroup’s most mysterious business (WSJ)

Armed gangs stage bank heists in Gaza (FT)

U.S. Secret Service, CISA host cybersecurity training for critical-infrastructure directors (WSJ)

Willie Mays, Major League Baseball’s ‘Say Hey Kid,’ dies at age 93 (WSJ)

Chart of the Day

MARKET LEVELS

MORNING INSIGHT

Good morning!

The median multiple of the S&P 500 is still 16X P/2025 EPS – very reasonable in our view. Softer incoming data this week points to weaker inflation trends, which, in turn, is supportive of the Fed moving cuts forward.

More in the Macro Minute Video linked here.

TECHNICAL

SPX continues to push higher, albeit at a slower pace and on lighter volume in recent days. Technology, to its credit, continues to lead all sectors on a 1-week, 1-month, 3-month, and YTD basis.

The degree to which other sectors have begun to fall behind has grown a bit more pronounced lately, as nine equal-weighted sectors are now lower over the past month. However, this divergence between the average stock and large-cap Technology certainly hasn’t gone unnoticed, and countless posts on Financial Twitter (X) are now mentioning this, and doing so in a negative context.

Our thinking is that this divergence will be resolved eventually, but it doesn’t have to be right away. Furthermore, this also doesn’t suggest that a broader-based rally is imminent to the detriment of Technology.

Click HERE for more.

CRYPTO

In our latest video, we discuss the recent market rinse, how it is not necessarily inconsistent with what we are seeing in the equity market, and the metrics we will look for to mark a local bottom.

Click HERE for the video.

First News

Upper Chamber Goes Atomic. The U.S. Senate has passed a bill (88 votes to 2, now awaiting President Joe Biden’s signature) that aims to accelerate construction of new nuclear power stations and includes incentives to develop advanced technologies and speed up the permitting process, which can take years (we’ve written about this before: Chicken/Egg Arbitrage). Nuclear power has bipartisan support. Democrats see it as crucial to decarbonization; Republicans view it as the road to reliable energy and jobs. Across the Pond, Britain’s Labour Party, expected to form a new government next month, plans to ease energy permitting within weeks of the election by lowering the planning barriers for building onshore wind farms. In 2015 planning rules that allowed anyone to veto the development of onshore wind effectively banned it in England. Semafor

Power to the People? One can safely admit publicly that private assets have been all the rage year-to-date. With every passing month, the financial press asks more questions. For example, what happens when publicly visible funds interface with private equity assets? Some funds book superb one-day windfalls when buying private-equity stakes on the secondary market. Investors holding stakes in private-equity and other funds are allowed to estimate their fair value by relying on what the funds’ managers say they are worth, known as their net asset value (NAV). Thus instant markups lead to instant gains, all within the acceptable bounds of accounting rules. Funds’ performance instantly improves, which helps attract more investment.

The accounting standards say investors using the NAV category may need to adjust this number, and when these adjustments come, they tend not to be to the upside. BlackRock recently cut its $22 billion valuation of Byju – a 1% stake in the former Indian edtech darling, worth ~$200 million – to zero. Then there are the pension funds that invested in PE and now struggle to exit.

Per data from Boston College and JPMorgan, large U.S. public pension funds have an average 14% of their assets in PE, while large corporate pensions have ~13% in PE and other illiquid assets such as private loans and infrastructure. As the climate for exits has changed with rising interest rates, the PE funds now struggle to distribute back the cash and this pushes them to sell assets on the secondary market. According to Jefferies, secondary-market buyers last year paid ~85% of the value the assets were assigned 3-6 months before the sale. This is where the excellent single-day mark-ups are coming from.

All this isn’t deterring retail investors, who want a piece of private equity. Unable to afford not to be democratic, Blackstone faces a first-world dilemma: it’s done a first-rate job of gathering assets, but in a deal-scarce market, it needs to partner with smaller firms to invest the capital. Competitors like KKR and Carlyle are also correcting course to attract individual investors to their funds. Where this increased interaction of high finance with what are perhaps the less-than-tutored masses will lead is likely a subject for tell-all books by muckraking financial journalists ~5 years from now. FundMarketer