Managements remain optimistic. CEO comments during 2Q24 conference season largely mirrored those of the 1Q24 earnings calls, and if anything were perhaps slightly more optimistic about intermediate-term prospects, tempered barely, if at all, by second quarter M&A activity tracking well below the first quarter. Anecdotally there seems to be rising confidence in the strength of the economy and the ability to manage through regulatory challenges. Interestingly, for all the overwrought discourse about the U.S. elections in general-interest media, market participants don’t see it impacting client behavior very much, and they don’t appear to expect it to do so.
Fixed income underwriting strength driven by Treasuries, MBS. SIFMA data through the end of May show fixed income issuance remaining strong, though with a mix shift away from corporates and toward treasuries and MBS. While the small sample size precludes overly high confidence, through two-thirds of the quarter corporate issuance was just under half of the 1Q24 level, offering some sense of the magnitude of the activity that had been pulled forward into the first quarter, as that quarter saw a somewhat outsized share of 2024’s debt refinancings completed.
Figure 1: Fixed income issuance ($Billions)
IPO activity trending up slightly. Through early June, the level of both S-1 filings and IPO pricings was about in line with the full first quarter levels, suggesting positive (if only slightly so) momentum. Follow-on offerings are tracking well below first quarter levels, however.
Figure 2: US IPO pricings
Figure 3: US IPO filings
Figure 4: US equity follow-on pricings
M&A remains the weakest link surrounded by the greatest optimism. M&A announcements in the second quarter are tracking well-below the levels of recent quarters, which were themselves weak. At the same time, the just-winding-down conference season suggests something close to a consensus that most of the pieces are in place for a sustained rebound in M&A. The Conference Board’s CEO confidence index is now positive, if only just, and if Fed Funds futures are to be believed then autumn will see the onset of rate cuts. Anecdotal reports from advisory boutiques of what we might term precursor activity are bullish. Even regulatory headwinds to large transactions are increasingly viewed as manageable. Time will tell but just about everyone investors heard from during the second quarter seems to have conviction that 2025 will look very different from early 2024.
Figure 5: US M&A announcements
Figure 6: Global M&A announcements
Figure 7: CEO confidence remains positive in the Conference Board survey
Figure 8: 2Q24 earnings estimate trends, QTD
Source: FactSet
Figure 9: 2Q24 benchmark performance, QTD
Curve remains inverted, but market now pricing in two cuts in 2024. Whether the rate cut expectations currently priced into Fed Funds Futures will prove any more reliable than those that were once priced into futures of the 2023 vintage is, of course, anyone’s guess. We note that the scenario being priced in as of this writing could prove the best of all worlds for advisory boutiques, however; rate cuts could help catalyze more sponsor activity, while the realization that rates are unlikely to retrace overly much of their path over the past two years should continue to support robust restructuring activity.
Figure 10: The yield curve remains inverted
Figure 11: Fed Funds Futures imply 25bp cuts in September and December
Figure 12: Capital markets stock performance and valuation
Source: FactSet
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