Prof G Markets: Third Quarter Review — with Aswath Damodaran

IPO Market

The IPO market is undergoing significant changes, with recent deals like Arm, Klaviyo, Instacart, and Birkenstock not revitalizing the market as expected. Aswath Damodaran highlights a shift from IPOs as financing tools for building businesses to liquidity events for private investors. He notes, "The companies going public actually are much bigger than the companies that went public 50 years ago, but they're also less formed in terms of the business models" 1. This trend is evident in Instacart's IPO, where despite initial enthusiasm, the stock has struggled, reflecting broader market uncertainties and the lack of risk capital 2.

   

Economic Shifts

Macroeconomic changes are reshaping market perceptions, with high mortgage rates not yet impacting housing prices as expected. Damodaran points out that the market hasn't adjusted to potentially long-term high rates, suggesting a disconnect between economic realities and market behavior 3. He states, "Markets collectively seem to believe that we will continue without a recession, but with inflation, that this is here to stay" 4. This sentiment is echoed in the rising T-bill and T-bond rates, indicating a shift in market expectations despite the Fed's steady stance on interest rates.

   

Global Impacts

Global events, such as conflicts, are influencing specific sectors, notably benefiting weapons manufacturers. Damodaran observes that while oil prices haven't surged yet, they remain a critical factor to watch, especially regarding OPEC's future actions 4. He also discusses the challenges faced by legacy auto companies, which are struggling to adapt to the EV market and broader economic changes 5. He remarks, "Every time I read a news story, I actually get less upbeat about these companies on fossil fuels" 5.