Ladies and gentlemen, the weekend! In this space each week, Greg and I share some of our favorite articles, notes, and graphics from the past week along with our commentary. Please feel free to provide feedback and forward along to others if you enjoy. We appreciate you taking the time to read. 

If you are a client, we truly appreciate your business. If you are not a client, please click below to learn more about our firm and contact us.

This Rally Have Legs?

“The questions we want to ask ourselves, as we wonder whether or not this rally has legs are,

'Did we see what we usually see right before the market bottoms?'

The answer is Yes.

'Are we now seeing what we usually see around the 2nd inning of a new bull market?'

The answer is Yes.

'Does this look like all the other times the market put in a major bottom and started a new bull market?'

The answer is yes.

'So is this time different?'

You tell me!”

Take stock charting and technical analysis with a grain of salt. History doesn’t repeat itself, but sometimes it rhymes. There were some sentiment and momentum readings that turned the corner recently and look much better than earlier this year. 

How will the Inflation Reduction Act impact the economy?

"From an economic standpoint, the Inflation Reduction Act should have the following impacts:

• Inflation – Despite the name, it may not have a measurable impact on reducing inflation, which is being driven higher by energy and food prices, rents, and consumer goods and services spending.

• Deficit – However, it should reduce the deficit by about $300 billion over the next decade, improving federal finances and leaving enough fiscal space to avoid reaching the debt ceiling until 2024.

• Growth – Although it should help federal finances, substantially less fiscal stimulus ahead compared to 2020 and 2021 represents a fiscal drag to economic growth.

• Profits – Together, we estimate the 1% tax on share buybacks and the 15% corporate minimum tax would subtract 3% from S&P 500 earnings growth in 2023, with the corporate minimum tax accounting for 2.6 percentage points of the total 3% reduction."

We went into some of the provisions of the Inflation Reduction Act last week, but this article does a good job of breaking down the projected economic impact.

The highlights are the new 1% tax on buybacks and 15% corporate minimum tax which are expected to detract 3% from corporate earnings growth in 2023. At the same time, the bill does not have much of an impact by way of fiscal stimulus, especially compared to the bills that we became accustomed to during the pandemic. 

Can a Zebra Change Its Stripes?

“Andreessen Horowitz announced Monday that it’s cutting its largest individual check ever — $350 million — in WeWork founder Adam Neumann’s new real estate company [Flow]…

Andreessen Horowitz has a lot of money to deploy and this is a way to invest a lot of money at once. That’s one of the things that drew SoftBank to Adam Neumann in the first place. SoftBank needed a founder who could spend SoftBank’s billions. Now Andreessen Horowitz finds itself in the same situation. The firm is investing out of more than $12 billion — across venture, growth, crypto, bio, gaming, and its seed fund. All that money has got to go somewhere and what is more cash consumptive than a real estate business with Adam Neumann at the helm?”

Although earlier this year venture capital funds were warning about rising interest rates and a potential recession, money appears to still be flowing towards risky projects.

Infamously, Adam Neumann took WeWork to a $47 billion valuation at one point before burning through billions of cash and a spectacular crash in 2019. There’s already multiple documentaries covering the failure. But, that didn’t stop him from raising $350 million for a new residential real estate startup. 

Fool me once, shame on you. Fool me twice, shame on me.

Apple now makes up more than 7.3% of the S&P 500 Index and 13.7% of the Nasdaq-100 index. The concentration in the company at the top of the market is the largest that we’ve seen going back to 1980.

Thanks for reading. Have a great weekend!