Healing Capital Markets

Capital markets are showing some optimism and starting to open back up

Summary: Markets are showing some optimism that we have made it through inflation and interest rate shocks without creating significant recessionary pressures. As equity indexes rise, capital markets are starting to open back up. The Fed may raise interest rates one more time, but markets appear to be looking past this and are enthusiastic that the finish line may be approaching.

---

This week’s newsletter is sponsored by The Idea Farm Newsletter.

Do you want access to some of the same investment research as the pros? Meb Faber and The Idea Farm team give you the same research usually reserved for only the world’s largest investors, funds, and money managers. Many of them cost thousands, but now they’re yours for free. 

PLUS: They curate the top podcasts each week, send out quarterly global valuations, and even provide samples of the top paid newsletters. 

Visit The Idea Farm Newsletter to subscribe for free!

---

Editor's note: Welcome to this week’s edition of The Transcript. We have reserved all the quotes below the International section for our paid subscribers only. To enjoy the full newsletter, become a paid subscriber.

---

Macro

Markets look better than they were a year ago

"We have made it through the inflation shock and most of the way through the interest rate shock. I feel better about the way markets look today than they did 12 months ago" - Blackstone (BX 0.00%↑) President Jonathan Gray

“They’re back in the market. And we saw in the aggregate for the second quarter, buys were about 20% higher than sales. Our clients are showing some optimism." - Charles Schwab (SCHW 0.00%↑) CEO Walt Bettinger

It appears that the Fed has managed to slow down growth without creating a recession 

"We would say at this point, the efforts of the Federal Reserve Bank to slow economic activity down a bit seem to be taking hold and thankfully, without creating any significant recessionary pressures" - Hancock Whitney (HWC 0.00%↑) CEO John M. Hairston

We seem to be close to the end of rate increases

"After rapidly rising rates over 15 months, Fed reached a pause, if not a plateau, at its recent meeting. And while we may not be quite at the end of rate increases, I believe we are very, very close to it." - Morgan Stanley (MS 0.00%↑) James Gorman

The Fed may have one more raise in them 

"I think they're going to raise rates, it sounds like, one more time and then they're going to hold them here for a longer period of time to try to slow the economy...we’re getting through this. And I think that's one of the reasons why we see some enthusiasm in the market." - Blackstone (BX 0.00%↑) COO Jonathan Gray

“Our guidance now assumes a 25 basis point Fed funds increase at the July meeting, followed by constant rates for the balance of the year” - Fulton Financial (FULT 0.00%↑) CEO Curtis J. Myers

“Our rate path assumption includes a 25 basis point increase in the Fed funds rate in July. Following that, we expect the Fed to pause rate actions until March 2024, when we expect the Fed to begin to cut rates” - PNC Financial Services Group (PNC 0.00%↑) CFO Robert Reilly

After July, the next focus is Jackson Hole

“it's pretty baked in that the Fed will hike in July. Then you have Jackson Hole. That's going to be a very important meeting. And then what happens in November because if it's one hike every 2 meetings, between July and November, is a long time, and there will be a lot of data in that period. And so if they pass on November, it's going to be very hard for them to restart again” - Bank of New York Mellon (BK 0.00%↑) CFO Dermot William McDonogh 

Consumer spending is growing at about a 5% rate

"If you think about the US consumer, what we see with the 60 plus million consumers we have is the rate of their spending. Not only their debit and credit cards, which is the 3% you mentioned but across all the ways they put money out. Every day is growing at about a 5% rate." - Bank of America (BAC 0.00%↑) CEO Brian Moynihan

This is in line with growth pre-pandemic

"As you look at it now, our customer spending patterns are now more consistent with the pre-pandemic lower growth, lower inflation economy." - Bank of America (BAC 0.00%↑) CEO Brian Moynihan

And implies that consumers are in relatively good shape

"On the whole, I'd say consumers are in reasonably good shape." - Capital One (COF 0.00%↑) Richard D. Fairbank 

“Last quarter, I said that we thought the consumer in no way tapped out, and we still feel that's the case for sure” - AutoNation (AN 0.00%↑) CEO Michael M. Manley

Capital markets are starting to open back up

"We're seeing it begin to pick up in a few spots already, particularly equity capital markets and M&A dialogue. There's no question, recent economic data in the U.S. indicates the Fed's efforts to fight inflation are showing progress, and we are starting to see more optimism about the forward trajectory..when I go back and I look historically at other periods where the macro environment has created sharp drops in investment banking activity, they tend to last for a year or so and then they start to improve. And so I think we're starting to see that here. It definitely feels better. I think the inflation data has been better." - Goldman Sachs (GS 0.00%↑) CEO David Solomon 

"If we think about the last month of the quarter, we began to see more announcements. And we're seeing that really in sector-specific that have a strategic dialogue around them. So be that financials where you might see industry consolidation, energy where you're seeing transitional discussions and reasons to actually have strategic dialogue. So what gives us confidence is that you're seeing a broadening out of those strategic dialogues. Our backlog is building, and we're seeing it across various sectors we're having both backlog and discussions." - Morgan Stanley (MS 0.00%↑) CFO Sharon Yeshaya

“I think we are beginning to see this pick up in activity. And as markets rally, that tends to lead people to have more confidence to transact, which plays its way through ultimately to our customers. Right now, we're still - - there's a bit of a lag as you think about it in terms of fundraising activity, but a sustained good period for markets is very helpful for our ability to raise capital, particularly from institutional investors, also from individual investors." - Blackstone (BX 0.00%↑) COO Jonathan D. Gray

International