Axios Markets: Behind Wall Street’s soaring valuations

1 big thing: Behind Wall Street's soaring valuations | Friday, December 11, 2020

Open in app View in browser   Presented By Raytheon Technologies   Axios Markets By Courtenay Brown ·Dec 11, 2020 😎 TGIF. If this email was forwarded to you, sign up here. (Today's Smart Brevity count: 996 words, < 4 minutes.) 🚲 Clip in with #TeamAxios (including me!) on Saturday at 11am ET/8am PT for a Peloton fundraising ride. Proceeds benefit restaurant workers impacted by the pandemic. Riding or not, you can donate here. More details. 🎙️"I don't have to be who you want me to be; I'm free to be who I want." — See who said it at the bottom of the newsletter.     1 big thing: Behind Wall Street's soaring valuations Illustration: Rebecca Zisser/Axios   Fears of the "B"-word (bubble) are growing louder. There's a staggering split screen: a teetering economy with millions unemployed in a pandemic that's killing thousands per day and newly public tech companies riding high on nosebleed valuations. Yes, but: Investors acknowledge the backdrop is bad. They say investors are piling into and betting on companies like Airbnb and DoorDash for better times ahead. What they're saying: "The public markets have adopted a venture mentality," Joe Kaiser, a director at Mercato Partners, said during an Axios event earlier this week. Investors are thinking about what a company like a DoorDash can do five years from now, Kaiser said. "That's why we're seeing valuations that look frothy," relative to the economic backdrop. The other side: The soaring valuations show "the extreme exuberance and unprecedented liquidity in the market," James Gellert, who runs financial analysis firm RapidRatings, told the New York Times. Airbnb's valuation is now roughly $86 billion —  a big leap from its $18 billion valuation in April, when the company took a huge hit as the pandemic rocked the economy. DoorDash was last valued at $16 billion by private investors — but as of close yesterday, it's worth over three times more than that. The buildup: Earlier this week, there was record volume in the main IPO exchange-traded fund — which swaps in new, sizable public companies shortly after they debut. (The ETF is up about 3% so far this month, following its best monthly gain ever in November.) The big picture: Stock market investors' euphoria over these tech stocks is another manifestation of the risk-on mentality that's ballooned even more in recent weeks, as the possibility of a vaccine and a return to normalcy appears on the horizon. Plus: "You just have this worldwide phenomenon of capital infusion, money printing, low interest rates — where capital is being forced into equities markets," said Arjun Sethi, co-founder of venture firm Tribe Capital. The bottom line: If the companies can't keep up with public market expectations, "you could see some carnage pretty quickly," Kaiser said.     Bonus chart: This week's IPO rush Data: FactSet; Chart: Sara Wise/Axios One more: AI software company C3.ai went public this week — priced at $42 per share (already higher than its upwardly revised IPO range). It opened on Wednesday at $100 and finished 120% higher. Yesterday it closed up another 40%.     2. Catch up quick The European Commission told EU leaders a "no-deal" Brexit is most likely, echoing an earlier warning from U.K. Prime Minister Boris Johnson. (FT) Cuba is ending its dual currency system in January, effectively devaluing the peso as it faces an economic crisis. (Reuters)     A message from Raytheon Technologies The future of aerospace and defense is here     At Raytheon Technologies, nearly 200,000 engineers, scientists and researchers are pushing the limits of known science to explore deep space, advance aviation and build smarter defense systems that protect all of us here at home. That's the future of aerospace and defense. Learn more at RTX.com     3. Jobless claims' blind spots Data: U.S. Department of Labor, FRED; Note: Unadjusted; Chart: Axios Visuals New applications for unemployment benefits last week hit a three-month high — the latest sign that the labor market recovery is stalling. Yes, but: Besides confirming the likely direction the job market is moving in, it's unclear if layoffs are better than the numbers suggest, or even worse. Why it matters: Economists have said for months the timeliest government data about the labor market is shoddy at best. What's going on: The claims upswing "likely overstates the trend, in the pace of firings, due to the catching up of processing claims following the Thanksgiving holiday," Joe Brusuelas, chief economist as RSM US, wrote in a note. What we don't know: How recent reports of growing backlogs in places like California are swaying the weekly figures. How many people are falling through the cracks as they exhaust unemployment benefits. Continued claims in regular state programs have been falling as people shift into the program that offers an additional 13 weeks of benefits. When those are exhausted, they can move to the Extended Benefits program — but that's only offered in 33 states. Plus: A new disclaimer appears for the first time in Thursday's report that redefines how we've talked about the continued claims figure for months. It's meant to be interpreted as the number of weeks of benefits that have been claimed, not the number of people who are collecting unemployment through various programs — to account for instances of double counting. What it means: As of Nov. 21, Americans have collected 19 million weeks worth of benefits across all programs — but that doesn't necessarily mean 19 million people are collecting these benefits.     4. The partisan climate war over Wall Street Illustration: Aïda Amer/Axios   Axios' Ben Geman writes: Another political battle is brewing over how financial regulators and banks deal with the risks of climate change. Driving the news: Nearly 50 GOP House members this week fired a shot across the Federal Reserve's bow as the central bank increases its focus on climate. Their letter (via Politico) warns the Fed against widening "stress tests" of banks to include climate-related risks, alleging the concept is rife with methodological flaws. It also criticizes Fed plans to join the Network for Greening the Financial System, a coalition of central banks, arguing it could bring "harmful restrictions." Last month, for the first time, the Fed included climate among the risks described in its formal Financial Stability Report. Why it matters: Wall Street and its federal overseers are now a major front in climate policy and advocacy wars. Sign up for Ben's daily Generate newsletter here.     5. Wall Street's embrace of bitcoin continues Any doubts that bitcoin is now a kosher investment for Wall Street can likely be put to rest, CoinDesk's Zack Seward writes for Axios. Driving the news: MassMutual announced Thursday a $100 million bitcoin investment. It also bought a $5 million stake in NYDIG, the firm that facilitated the purchase. The investment is a drop in the bucket for a company that controls $235 billion in its general investment fund, as the Wall Street Journal noted. However, MassMutual is the latest in a string of big players buying into bitcoin's "digital gold" narrative.  The big picture: Wall Street stalwarts started warming to the original crypto coin in recent months at a time when rampant stimulus could drive inflation, and established investors like Stanley Druckenmiller, Bill Miller and others made public statements on bitcoin's utility as a store of value .If you're interested in more news about cryptocurrencies, click here to get notified when Axios expands its coverage.     A message from Raytheon Technologies The future of aerospace and defense is here     At Raytheon Technologies, nearly 200,000 engineers, scientists and researchers are pushing the limits of known science to explore deep space, advance aviation and build smarter defense systems that protect all of us here at home. That's the future of aerospace and defense. Learn more at RTX.com   Have a good weekend. Dion is back in your inbox on Monday. 🥊 Quote: "I don't have to be who you want me to be; I'm free to be who I want." Who said it: Muhammad "The Greatest" Ali, after he became the World's Heavyweight Championship for the first time. On Dec. 11, 1981, Ali fought his last boxing match in Nassau, Bahamas. He lost in a 10-rounder to Trevor Berbick.   Axios thanks our partners for supporting our newsletters. Sponsorship has no influence on editorial content. Axios, 3100 Clarendon B‌lvd, Suite 1300, Arlington VA 22201   You received this email because you signed up for newsletters from Axios. Change your preferences or unsubscribe here.   Was this email forwarded to you? Sign up now to get Axios in your inbox.   Follow Axios on social media: