Bloomberg - Evening Briefing - ‘Stupid’ valuations

Assumptions that have driven global financial markets this year appear to be getting a rapid rethink. In bond and currency markets, investors are racing to redeploy money amid doubts over the outlook of the US economy, which has led to speculation (or wishful thinking) that the Federal Reserve will cut rates faster or deeper than previously expected. Helping to drive the shift is weakening consumer spending. At the same time, stockholders have suddenly grown skeptical that technology companies’ massive investments in artificial intelligence will pay off any time soon. As a result, frightened investors have dumped shares of big winners such as Nvidia and Broadcom. Copper and other industrial metals are also reversing a recent run-up with China’s slowdown playing a role in their decline. Even a report Thursday showing stronger-than-expected US growth in the second quarter didn’t allay investor concerns about the path ahead. Wall Street can be quite nervy of course, and we’ve seen this happen before only to witness a new wave of confidence and  market records. But it does have to end sometime. Louis-Vincent Gave, chief executive of Gavekal Research, thinks this may be that time, telling clients “it does seem that an unwinding has begun of popular trades that brought valuations to stupid levels.” —David E. Rovella

This may also be the moment that means the difference between a soft landing and gouging the runway. The US inflation rate is now around 3%. Based on current trends, Mohamed A. El-Erian writes in Bloomberg Opinion, it should settle at 2.5%-3%, a range most economists would deem consistent with financial stability. This good news would normally open the window for rate cuts when the Federal Open Market Committee, the Fed’s top policy body, meets next week. This is especially the case given indications that the US economy is slowing more rapidly than the central bank may have intended. But El-Arian warns that the Fed’s current mindset means it’s more likely to maintain a cautious approach, which would be a mistake.

US President Joe Biden gave a historic speech Wednesday night from the Oval Office, explaining his reasons for stepping aside from the 2024 campaign. The focus of relentless media coverage of his age in the month since a disjointed debate performance, the 81-year-old Democrat witnessed a number of major figures in his own party publicly abandon him. Since taking office in 2021, Biden pushed through some of the most sweeping legislation seen since President Franklin Delano Roosevelt’s New Deal. Amid the coronavirus pandemic, Biden helped pass a massive Covid-19 rescue package and subsequent landmark investments in the fight against global warming, to rebuild national infrastructure and develop advanced semiconductor technology. But in the end, his administration’s accomplishments—including a quick economic recovery and record-low unemployment—couldn’t compete with the pain of residual inflation and America’s furious political polarization. Last night’s speech was something of a capstone to Biden’s presidency. Staff from across his administration poured into the executive residence to watch, some weeping as he spoke and cheering when he finished. Biden urged them to rally around the candidacy of Vice President Kamala Harris. “The great thing about America is here, kings and dictators do not rule—that people do,” Biden said as he concluded his speech. “History is in your hands. The power is in your hands. The idea of America lies in your hands.”

US President Joe Biden  Photographer: Evan Vucci/AP Photo

Trump’s campaign, meanwhile, is scrapping now-moot plans to characterize Biden as feeble and testing new attack lines on Harris. Two decades younger than the Republican nominee, the former prosecutor may seek to turn the mental acuity table on the 78-year-old Republican, given his penchant for meandering speeches and malapropisms. While Trump is likely to focus on the issue of immigration in his broadsides against Harris, a problem with that may be his public browbeating of fellow Republicans to block a bipartisan immigration reform bill just a few months ago.  

Illinois Governor J.B. Pritzker has scored an investment of more than $1 billion in quantum computing, a major coup as his name is bandied about as a potential running mate for Harris. PsiQuantum will become the anchor tenant at the state’s new quantum and microelectronics park that will be built at a former US Steel plant on Chicago’s South Side. As part of the agreement, the Palo Alto-based company agreed to invest a minimum of $1.09 billion, creating at least 154 full-time jobs.

The market for initial public offerings is slowly coming back and expected to gain traction next year, according to Nasdaq Chief Executive Officer Adena Friedman. “We’re seeing good progress and we think that going into 2025 we should see more momentum in terms of the pipeline of companies we have been talking to,” she said. The IPO market has been muted because of higher cost of capital, which impacts future earnings projections. If costs come down, “that could be a catalyst for more IPOs going forward,” she said.

Adena Friedman  Photographer: Hollie Adams/Bloomberg

Southwest Airlines will begin offering assigned seats, ditching the free-for-all policy that has been a defining feature of the carrier for more than half a century. The airline announced the seismic change to its business model Thursday alongside a new premium-class option and plans for redeye flights—shifts the company sees boosting sales and enhancing its appeal. But there’s more to it.

What can you get with $1 million in today’s housing market? A starter home. Just a few years ago, one might expect a large, well-cared for house with a lush lawn and maybe even a pool. But not anymore. The typical starter home—defined as the lowest third of residential values in a region—has a seven-figure price tag in 237 cities, including dozens surrounding New York, San Francisco and Los Angeles. That’s more than triple the number of cities just five years ago.

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More than a dozen prospective investors gathered at the Presidente InterContinental hotel in Mexico City’s ritzy Polanco neighborhood on a recent morning. They were there to hear a pitch on Miami real estate, many of them lured by a two-page newspaper ad touting luxury amenities in condos starting at $500,000. Interest in stashing cash in overseas properties has soared among wealthy Mexicans since the landslide win for President-elect Claudia Sheinbaum and her Morena party in last month’s elections. They’re seeking an escape as speculation swirls that the next government will boost taxes on the rich.

Wealthy Mexicans have found a new interest in purchasing properties in Miami. Photographer: Eva Marie Uzcategui/Bloomberg

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