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Sunday, April 14, 2024

How This Ends (Half Three)


The enterprise capital sector has been in a sustained downturn for nearly eighteen months. How does this downturn finish? Effectively, it might have already ended, however let’s see about that. We are going to know for certain in a couple of quarters.

The NASDAQ peaked at roughly 16,000 in November 2021. By June 2022, it was down 33%. It stayed down for all of 2022 and ended the yr at roughly 10,500.

However this yr the NASDAQ is up virtually 40%.

What’s driving this? If I needed to choose one factor, I’d say inflation and rates of interest. Yeah, these are two issues however they’re tied collectively in occasions like this. As I specified by the prior variations of How This Ends (right here and right here), I imagine post-pandemic inflation pressured the Fed to boost charges aggressively, blowing an enormous gap within the asset bubble that constructed up in the course of the pandemic.

Final week we received some nice information. Inflation is method down within the US. Meaning charges could have peaked and can stabilize or presumably come down. I don’t know if the Fed makes any extra strikes or not. However I’m not certain that basically issues. What issues most to markets is expectations and I believe inflation and rate of interest expectations have settled down.

Non-public capital markets, like enterprise capital, lag public markets by a couple of quarters. That’s as a result of it takes time for personal market buyers to react to the general public markets. The NASDAQ peaked in Nov 2021, however VC markets didn’t actually begin slowing down till the second quarter of 2022.

Now that the NASDAQ has posted a few sturdy quarters, I’d count on enterprise capital to reply. But it surely gained’t occur in a single day. We’re in the summertime doldrums. It takes time for VCs to boost new funds. And offers take months to come back collectively.

So my guess is we’re principally by way of this downturn. We are going to know for certain in a few quarters.

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