ETF Edge - Green Shoots? IPO Market, Economy & More 6/12/23

Episode Date: June 12, 2023

CNBC’s Bob Pisani spoke with Matt Kennedy, Senior IPO Market Strategist for Renaissance Capital and Todd Sohn, Head of ETF and Technical Strategy at Strategas Securities – along with Kyla Scanlon, founder of financial education company Bread. They discussed the IPO market – with Cava going public later this week, are we finally starting to see green shoots sprouting after a very long drought? They also talked broader markets this summer, honing in on the potential for a major FOMO equity market move, even despite relatively thin inflows, and the broader economy ahead of Wednesday’s Federal Reserve meeting. In the “Markets 102” portion, Bob continued the conversation with Kyla Scanlon, founder of Bread.  Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

The ETF Edge podcast is sponsored by InvescoQQQQ, supporting the innovators changing the world. Investco Distributors, Inc. Welcome to ETF Edge, the podcast. If you're looking to learn the latest insights on all things, exchange, traded funds, you're in the right place every week. We're bringing you interviews, market analysis, and breaking down what it all means for investors. I'm your host, Bob Pisani. Today on the show, we'll discuss the IPO market with Kava going public later this week. Are we finally starting to see Groo shoots?

sprouting after a very long drought. Plus, we'll talk broader markets this summer. One expert is seeing potential for a major FOMO, fear of missing out, equity market rally, though intros are still pretty thin, and we'll drill down on the impact on rates from the Federal Reserve's big decision on Wednesday. Here's my conversation with Matt Kennedy, senior IPO market strategies for Lennonzoch Capital, Todd Sohn, head of ETF and technical strategy as Stratigis Securities, and Kyla Scanlan, the founder of Financial Education Company, Bred. Matt, you know, you and I have been doing this for a few years. It's often said the most important precursor for a return of IPOs is a strong stock market.

S&P, we're hoping for a 52-week high closed today. Is this the moment we've been waiting for? Is this what it's going to take to get the IPO market back on track? I think so. We do see a light at the end of the tunnel. All the pieces are finally in place for a pickup in the second half. You know, the main driver of new issuance is returned. and the Renaissance IPO index is up more than 25% year-to-date.

So investors are making money in IPOs. That return is more than double the S&P 500. Outperformance is the fuel that powers the IPO issuance engine. So if returns hold up, activity should gradually return, and I think it will be gradual. Yeah, well, let's talk about that in a minute. But the strong market is not the only thing helping here. Potential valuations of IPO candidates.

So we saw that with Kava. They talked about 17 to 19 last week. This morning it's 19 to 20. I mean, isn't that going to get the attention of other IPO candidates out there? Absolutely. There is a huge pipeline of IPOs that are just kind of in wait and see mode. And they're anxiously watching the market looking at dynamics like this. And I think that that looks like a green light for them, for sure.

Yeah. So you mentioned the Renaissance Capital IP. It was a disastrous 2022. Let's not bring it up. It beat the S&P, what, 25% so far this year it's up and 12% for the S&P. So it's got a great start. Major holdings are all the old tech holdover is, you know, Snowflake, Airbnb, Pallantir, DoorDash are all the major holdings here, all benefiting from the tech revival. So it seems to me it's the soft landing scenario dominating the market in 2023. And that's sort of been the big help in addition to the fact that, Tech's been strong, right? That's right. And many of these names are benefiting from the AI revolution.

They're in the AI space like Palantir, and that's kind of the perfect storm happening. But, you know, we do see them being replaced by some strong companies coming up. You know, Ken of you, recent IPO is eligible for addition to our index, Kava as well. Yep. So the IPO, Matt, we're up. 25% this year, as you mentioned. What about next? What's going to happen next?

I mean, I said I wasn't going to talk about last year, which is a disaster, but I want to just note the numbers were horrible. 7.7 billion was raised. For people who don't follow this, typically we'll see 50, 60, 70 billion raised. So we're at the half-way point this year. We've raised a little more than $7 billion, close to $8 billion. Is this going to change in the next? few weeks. I'm trying to figure out whether these two facts, Kava, raising the price and S&P at a new

high, is going to open the floodgates. I think that it will, you know, the way these things always work is it has to be a string of successes. And I think it's going to be one or two deals this week and then two or three deals and then three or four. By the end of the year, we are hoping for a much more normal looking market and certainly heading into 2024 if these returns hold up. Well, let's hope so. The list of companies waiting to go public is as long as my arm. Frango de Chow, that's been out there for, what, a year and a half right now? That's another restaurant company.

Reddit's been out there. Instacart's been out there forever. The British semiconductor giant arm, that could be the biggest one in years. Heaven knows there could be a $30, $40, $50 billion valuation. And then there's hopefuls. Look at this list here. Panera bread, Stripe, Impossible Foods, Fanatics, Fripe, Impossible Foods, Fanatics, Flipcarts, Tub Hub. A long list here.

I know you don't like doing this or be putting on the spot, but who might be next? I think Fogo is a natural candidate. It's been on file, and if Kava does well on his first day, that will certainly give it the green light, and maybe some other restaurant IPOs, too, like Panera. Beyond that, you know, there are some smaller, less well-known names in industries that are doing well, like biotech, energy, insurance. As for those huge tech unicorns, I think we'll see a few companies in the second half, but really, I think, more like 2024. Those still need time to grow into their valuations and kind of pivot to profitability.

2024. I'm just trying to get through the first half of the year at this point. You got to temper your expectations a bit. But then again, you know, I'm in the business of, you know, making stories out of things. So I'm actually more optimistic than you might be, Matt, at the, at the time. this point. But thank you very much, Matt. Always appreciate your thoughts. Good to chat with you. Let's broaden out the ETF conversation, bringing Todd's Sony. He's the head of ETF and technical strategy, strategic securities. Todd's, there's a lot of moving parts, stocks, bonds, and

ETFs these days. You had a great piece out last week. We have the S&FB breaking maybe to a new 52-week high. We'll see if that happens today. You've written that with equities continuing to improve the potential for a FOMO title wave is building. What is that? So, and oddly enough, today's the eighth months since the October low, June 12th. And what stands out to us is the sheer amount of money that has gone to money market funds since that low. And given you're at 5% yields with no volatility, that's great. But you're at a ratio of 15 times to what you're seeing in equity flows, particularly

since the regional banking episode has happened. And so I think a lot of folks, investors are off sides in terms of their position. they don't believe in this rally. It's a very uncommon bottom, if this is the bottom, right? You really didn't have the broad-based surge. You didn't really have much of a dash for trash, right? Small caps are still lagging behind. But the further and further away, you get from 4325.

That's the last August high. I think that FOMO case is really going to build, and investors are going to realize that they're underweight equities and need to catch up. Perhaps some of that money comes from money market funds. You know, why is it that equity inflows have been so anemic this year? And you might say, well, everything else, because tech is outperformed, but tech

ETF inflows have been even negative, even the QQs, XLK, the technology ETFs, even Kathy Wood, the ARCS funds. It's very strange. There's a lot of disbelief towards this tech rebound. I think everyone has this mindset of

the Fed's not done with their interest rate hikes and that's going to negatively impact these names and that it can take years for them to rebound in terms of leadership, right? That's what happened in the tech bubble. We're in a different scenario now. And I just think a lot folks were burned last year. 2022 was a rough, rough year.

And so you're not seeing the flow breath in terms of all the corners around in the market. You know, a lot of these products are not getting inflows. The Maddox are particularly not seeing much of a bite. And I think that's really why you're seeing such anemic inflows overall. I keep talking about the pain trade being higher. The pain trade exists in the ETF business too. I mean, people are off sides. They don't believe in the rally.

They don't believe that we're not, that we're not going to have some horrible recession. And so they're positioned the wrong way. And as the market keeps rising, it eventually forces people back in that are active traders. You're going to have to. And I do think that the money market component. Some of that money will be sticky, right? Because everyone's happy with 5% yields. That's halfway to a decent equity year.

But those who are more actively trading involved are going to have to take money out, and that's going to help boost. We started out the year with all the wag saying, oh, this is going to be the year when the equal weight ETF is going to outperform the RSP, because that's more value-oriented. But as you pointed out, it's underperformed. But that happens a lot, right? People try to think they can pick these things and say, oh, you know, there's a reason that market cap S&P 500 is the standard and not equal weight.

There's a reason for that. I'm sympathetic to the idea of equal weight because it allows you to get a little bit more diverse exposure. But as you say, the market is voting for Apple, Microsoft, and these top five weights. And I know there's a lot of consternation, right? Top five stocks are almost a quarter of the index. But this is how market cap weighted indices work. The biggest names and the best players are supposed to have the greatest influence.

Now, if you're just trying to gauge market health, that's where the Equate S&P 500 comes in. That's where the VXF, the Vanguard extended market fund comes in, just to judge how participation's going. But it's really, I mean, this is a dream for passive, and it's a nightmare for active investors right now. And small caps are finally starting to do better, but only recently. In the last few weeks, since, frankly, the jobs report, we started seeing small caps. This is a sign that people are starting to quasi-believe the soft landing, but I wouldn't say it's convincingly turned around. Small caps are tough because they have too many regional banks that are struggling,

and they have a lot of boom and bust biotech. So if the IPO market gets running in, maybe that helps biotech, and that should help lift small caps. So, you know, you can get your beta exposure for small caps, IJR, SP, SM, I want to say from State Street. But if you wanted to go a little bit different exposure and you want more discretionary and industrials, RWJ, it's a revenue-weighted small-cap,

NTF. So you're getting away from the banks, you're getting away from health care. I think that's interesting, and I would also consider global small caps. They've acted way better than U.S. small caps because they're more cyclically oriented, and perhaps that's saying the recession case is not happening this year. I want to bring in a new guest to ETF Edge.

Kyla Scanlan is the founder of Financial Education Company, Bread. We met while I was promoting my book on Josh Brown's podcast. Several months ago, I was impressed with what I heard, and we've been invited on the show. Kylo, welcome to ETF Edge. Thanks for having me. Oh, thank you for coming. Tell us about bread.

So bread is sort of an idea still. It's this idea that we have to sort of gamify financial education specifically. And so you can see what I'm doing with my TikToks and my newsletter. It's all about how do we get people involved in the economy at large? And that's what bread is around. You mentioned TikTok and you don't know this, but she's a bit of a social media. phenomenon on YouTube, on TikTok, on Twitter.

You've got a podcast. Let's appreciate it. I think it's cool. Is that right? You've got a newsletter. She's an economy by yourself. So tell me how you're doing this. I mean, I've been doing financial literacy for more than 30 years at CNBC, but it's hard. How do you communicate ideas about financial literacy and financial education in social media these days? So I think there's two threads to it.

You have to make it fun. And so I do different skits where I'll pretend to be Jerome Powell, pretend to be different stocks. And that really gets people involved because they're like, oh, that's funny. I can look at that and laugh. And then I think the other part is incorporating philosophy, incorporating different poems. And that really humanizes finance and brings people in in a way that they normally wouldn't expect. Yeah, there's all sorts of interesting topics you've tackled. Are we manifesting a recession?

using Home Depot as an economic indicator. What's going on in crypto? All sorts of interesting. But one of the things you do is she creates these daily short form videos to explain the economy. I'm always amazed like you can point things, you know, at yourself and do 30 seconds on the economy. Tell us about how you do that.

Is that the way to get across to younger people? Is that how they're communicating? Tell us about your business. I think that there's a couple ways to think about it, right? TikTok, you do it every day, because people are going to watch it pretty much every day. And the more iterations that you have, the more likely that you are going to hit people.

And then I have such a breadth of content because I want people who learn different ways to have access to whatever they need. So if they want to watch a video, they have that. If they like reading, they have that. If they're listening to podcasts, they have that. So it's just like how many iterations can you have with people and how can you make it as fun as possible?

It's exhausting being an industry to yourself, isn't it? I mean, it's difficult. People talk to me all the time about, oh, I don't want to be a journalist anymore. I just want to, you know, point a phone at myself and become a TikTok star. But it isn't that simple, is it? I mean, if you didn't have something important to say, you wouldn't become an influencer, which is a word I don't like anymore.

Can we get a – is there a better word for influencer that we can start using? I say educator for myself. Yeah. Our creator is nice, too. I think influencer is valuable. I just don't think when you think about finance and the economy. You're not necessarily influencing people. You're educating them.

You're helping them along a journey that they're good. going down alone. You're just alongside them. I think influencing is a hierarchy. But get back to my point, it's a lot harder as a financial literacy. Maybe you're not doing fashion but it's a lot harder to do that and be successful. And I guess the question is, it's not just you pointing your phone at yourself and talking. What is it to keep people engaged? How do you get at that? Well, I think there's like two thuds again. Like I think one aspect is always iterating on the style of content. So I recently started doing whiteboard series where I'll draw it, right? Before that, I was doing Talking Head series where I was talking to the camera.

Before that, I was doing a lot of skip-based stuff where I'd pretend to be different things. But I think it's just like trying different things and seeing what resonates with people and just being creative in that journey. Because finance is so fun. You can be so creative with it. We just don't always do that. Todd, how about you? How about your TikTok, you know, 30-second videos? I wish I had as much of the following as, Kyla.

But I will say, she mentioned the word humanized finance. And I think that translates to ETFs in a way. ETFs have democratized, humanized investing. It's allowed access at a low-cost fee for everyone around the globe to get involved. And so what I think she's doing is tremendous for the average person. Those of you want to know numbers, 156,000 followers on Twitter, that's pretty good for finance. I've been on Twitter for 15 years. I probably have 120,000.

You have more than I do. Not that that annoys me at all. I don't know. I'm wondering how did you do that, but it impresses me a lot that you're trying to figure that out. So what's important to your community these days in the financial area? What gets them going? I mean, I think it's a lot about the Federal Reserve. Like, what is the Federal Reserve doing?

How does that impact them? What does the labor market look like? You know, I have a lot of young people like myself that follow me. And they're like, well, I have a job. Like, what's going on with the labor market? And so I think it's those sorts of things, the everyday experiences that sort of feel pie in the sky. Like when we talk about the Federal Reserve, it's oftentimes very abstract. It's like they're raising interest rates, but what does that really mean?

So I think people want to know how things impact them directly. So what are they worried about right now? They're worried about a job, right? Are they going to have a job? Are they optimistic about the future? This is the one thing that really gets me depressed. You know, I hear younger people aren't optimistic about the future. I mean, no matter, we weren't unhappy in the 70s with things that the United States was doing,

but we were optimistic. We never thought like, oh, we're all going to, you know, eventually go to hell in a handbasket. I never felt that way ever. And yet I worry sometimes I hear that. Is that a real concern? I mean, so I've actually written about that before, like, Dumerism. I feel like that is a really enticing philosophy for people to subscribe to, because it sort of removes agency from your life. You're like, oh, everything is just bad and I'm existing within that.

So I do see a lot of young people applying that, but then I also think there's a lot of hope in the younger generation, too. I think people are really excited for what could happen. It's a, you know, you're just sowing the seeds that just need to be watered a little right now. There's a belief system that it is a bias. It is a buy-in. You have to believe that the future is going to be better. In our case, we cover finance. So I always say you have to believe capitalism is the best, for all its problems,

it's the best system that we have for dealing with things. You have to believe that, you know, the U.S. economy improves, has always improved and gotten better. Lifespans are getting longer. Generally, people's health is better. You know, the economy may be periods of flatness, but it's always generally still improving. And people look at me like, oh, I guess so, but why don't I feel better then? Yeah. It's hard getting through a certain mental state.

You're right. Dumorism is a great word. I love that word. Did you see that poll? Like the Fed just released the economic well-being report. And I think it's 73% of Americans feel great about their own finances, but 18% feel good about the rest of America. So, you know, those three quarters of the country is like, I feel awesome, but everything

around me is really, really bad. And so I think that discrepancy and that disparity leads to, you know, what you're describing too. It's just like people trend towards dumarism because they think the world around them really sucks, even if they're doing okay. Yeah, but you're not a dumerous yourself. No. No, first night. No, you got a new book coming out. Not yet, but I'm gonna give you a chance to plug it. It's called In this economy, how money and markets really work. When is it coming out? Who's publishing it? February 2024 and Payman Random House is publishing it. Yeah. And what's it

like writing a book? I'll tell you about what was right, right? Book. I just, my second book just came out, but I want to know what you think. How are you doing with it? I remember when we were on the podcast together, compound and friends, you were talking about, you know, writing a book is a journey. And I was like, oh, this sounds interesting. And it sure is a journey. It's been really fun, but it's been really interesting, like revisiting ideas like GDP, jobs reports, like how do we sort of talk about these things? How do we apply them to 20, 23 and beyond? So it's taking all these, you know, academic theory ideas and applying them to the real world. So it's been fun. The publishing industry, for those who you don't know, makes absolutely no economic sense at all.

I wrote a story after the book came out, thinking of writing a book, you might want to reconsider because it doesn't make any economic sense. You do it because you have this intense need to say something. And that has to be the overriding motivation for you. Are you good at long-term planning? I mean, a book is a series of little pieces that you have to keep executing on almost every day.

Are you good at that? I think so, yeah, it's been really fun. Each chapter is its own segment, right? so they can each be read separately. So that's been kind of nice, too. I don't have to, like, weave, weave, weave a story, which is nice. Oh, that's wonderful. Well, I've really enjoyed chatting with you.

This is her first time on, folks. We'll have you back again. Now it's time to round out the conversation with some analysis and perspective to help you better understand ETS. This is the Market's 102 portion of the podcast. We'll be continuing the conversation with Kyla Scanlan from financial education firm Red. Kyla, this is your first time on ETF Edge, and it's been a delight chatting with you. You spend a lot of time trying to de-meadvent.

mystify the financial markets to your followers. And you've become a real social media star. I'm looking at great numbers here. 166,000 followers on TikTok, 156,000 followers on Twitter, 28,000 subscribers on YouTube. As a financial reporter, those are good numbers. Believe me, because I compare them to me. So you're doing really well.

Tell me about how your viewers, your listeners are feeling these days about the economy in general and about how, for example, inflation? Yeah, I think people are feeling pretty nervous. I think that when they look around and they see metrics like the labor market is too hot or it's too cold and nobody can really figure out exactly what's going on in the economy, it seems. And then they see inflation heading all-time highs or going back down, but now the Fed has to raise

rates again or the Fed's going to pause. There's all these different information sources coming at them from all angles. And so I think people are just trying to figure out what's going on in general, but there is definitely a general sense of nervousness. Do you think are they optimistic still, though, about the future? I mean, we talked before about doomsterism, which is a word that you've used before, which I think is a very relevant word, that people don't feel that optimistic about the future. I hope that's not so.

And you seem to be pointing out what attitudes you need to have to sort of successfully move ahead into the future. But what do you tell people who think, oh, heck, I'm 30 years old and I'm never going to get Social Security and there's not going to be a job for me. I mean, how do you combat that or should you be combating? Do you feel the need to? I mean, I try to, definitely in the newsletter. Like, I'll talk about curiosity

and how important that is. I'll talk about hope. I'll talk about the financial value of optimism. And then I'll just point out these discrepancies. I think a lot of times people just need to be told that they're not crazy, that things around them tend to be a little weird, especially post-pandemic.

So that's what I try to do is just provide a voice of reason and then show them the path of, like, what the economy is doing and why it's doing what it's doing. So in a sense, you're a calming voice. I try to be. A voice of reason. You know, I know you're anxious, but let me explain what's going on. And it doesn't mean you shouldn't be anxious, but here's reasons. Here's how to look at things better. And it makes people feel better, right? Ideally, yeah, I think so. I think people just want to know what's going on.

Like, if you exist in a system that you have no idea what's happening at any moment, that's going to be confusing. It's going to be disorienting. We see a ridiculous amount of disinformation lies in the media these days on social media, particularly regarding politics and numbers and things like that. Is there lies, disinformation, nonsense about financial issues as well? Yeah, I think it's really valuable to be a dumer. If you are lying to people and if you're getting them scared and then you're like, subscribe to my newsletter where I'll tell you how not to be scared and to profit from being afraid, that's a valuable fight. financial strategy. You know, doomerism is also entertainment. It's a form of community. We're very lonely on average. And so people are just finding a lot of solace in these online

pockets of just being negative. I find that amazing that the levels of people reporting loneliness is remarkably high. And yet social media, I mean, 15 years ago when we started using, we were supposed to do the opposite. It was supposed to create this global community. And what's happened? I mean, I think it's still, you have a community, but it's sort of like Apple and these goggles. that they have, right? Like, we're going to put on these goggles and we're going to be able to go into the Metaverse

or VR AR. And I think that's a good idea, but I think that fundamentally it's still very lonely. Like, we don't really have third spaces in the United States. We have home and work and pretty much nothing else. So I think people are just seeking out community and togetherness. And, you know, we had the pandemic, which sort of removed a lot of that for a while.

And we haven't been able to find it again. You, in addition to tackling big topics like doomsterism, you have some very interesting practical stories. So you did want to using Home Depot as an economic indicator. Explain how you wrote about that. Yeah, so that wasn't even my idea. That is just the idea that if housing is the business cycle, that paper from I think Edward Limer,

so Home Depot is essentially the business cycle too because you're able to see not only how the regular people, residential people are buying house supplies, but you're also able to see industrialize what they're purchasing and how they're purchasing. So if Home Depot has bad earnings, that means that the housing industry might be struggling a little, bit or that homeowners are feeling a little weird, and that'll be a great indicator for the

rest of the economy. Yeah. Let me, last week I was at a conference where Gary Gensler spoke, the head of the SEC, and this was a day after he announced legal action against Binance and against Coinbase. And it was remarkable how strident he was about the entire crypto industry was rife with, he He called it frauds and hucksters. He used those words. And compared it to some of the silliness that were on in the 1920s with people selling fraudulent

property in Florida. And one of the reasons the SEC was created in 1930s was there was so much fraud in the 1920s. They created the SEC to create legal protections for people buying things like land and securities. But he has intimated before that, for example, a lot of these exchanges are not on operating legally because they're selling securities, tokens, that he believes are securities. But he was very strident. The tone has gotten harsher. This suit against Binance seems to imply criminal activity. It was quite serious in my opinion, and yet the Department of Justice did not follow on with any criminal suit at all. There was none. So I'm sort of curious about what

you think is going on right now and how people should be looking at this. I mean, it's really interesting because for the past few years, you've had big institutional investors going into these companies. Like, Coinbase went public, right? You know, they're publicly traded company, and it's pretty bizarre to file against them. But Gary Ginsler came into office, I think, three days after Coinbase went public. And so he wasn't in office when they did go public. So I think that discrepancy can be answered with that. But then it's also this big question about are crypto securities, are they commodities?

And it seems like the SEC is like, no, these are securities. and they're going to be regulated as such. Because for a long time, the crypto industry has been looking for regulation, and I feel like it's been dragged out quite a bit, and it's been regulation by litigation, like just lawsuits. So I think this is sort of the end path for how to be regulated. Do you think if Coinbase would try to go public today, that Gensur would try to stop them arguing that they...

I think so. Yeah, I think so. Yeah, I mean, I think that the lawsuits against them are pretty intense. And it just shows the path that he wants to take it. How should people view cryptocurrencies? You know, you and I have talked about this before. I've said I'm a big bull on blockchain and the possibility, sort of neutral on cryptocurrencies.

But young people love investing in cryptocurrencies. What's the right way to look at this? I think it's, so getting to the point of like blockchain, I think it's a philosophy of what it could be. I think that Gary Gensler is right, that there's been a lot of fraud, SBF, for example, FTX, that whole debacle. That is sort of the crypto industry at large.

Like, it just became really ripe for bad financial actors. So I think that it's the idea that we could have a decentralized system, that we could have these gut checks on how things actually work, and that we could have a blockchain powering all of that. But I think that it'll take some time for that to actually come to fruition. All right. Kylo, thank you very much. Really enjoyed chatting with you.

I hope we'll come back and chat with us again. Absolutely. That's it for today. I'm Bob Pisani, and thank you for listening. Make sure you tune in next week. And in meantime, you can tweet us your questions or topic ideas at EPF Edge. See you in VC. InvescoQQQQ believes new innovations create new opportunities.

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