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How This Ends (Half Three)


The enterprise capital sector has been in a sustained downturn for nearly eighteen months. How does this downturn finish? Nicely, it could have already ended, however let’s see about that. We’ll 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 12 months at roughly 10,500.

However this 12 months 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 instances like this. As I specified by the prior variations of How This Ends (right here and right here), I consider post-pandemic inflation compelled the Fed to boost charges aggressively, blowing an enormous gap within the asset bubble that constructed up through the pandemic.

Final week we obtained some nice information. Inflation is method down within the US. Which means 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 traders 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. However it 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 return collectively.

So my guess is we’re largely via this downturn. We’ll know for certain in a few quarters.

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