3 Things You Need to Know This Week | IPO Activity, September PMIs, US Inflation

Transcript

Jessica Breiland:

Hello, and welcome to 3 Things You Need to Know This Week, our regular series designed to help you sift through the noise across financial media and understand what really matters for markets. To stay up to date with our latest market insights, subscribe to our YouTube channel or visit fisherinvestments.com. And with that, here are three things you need to know this week.

First, IPO activity.

Recent IPO activity has turned heads with companies like SeatGeek, Canva, StubHub, Klarna and others anticipated to go public this year. But while some investors may be eager to uncover the next Google or Meta, it's wise to remember: IPO could just as easily stand for "it's probably overpriced." Despite the excitement that often surrounds IPOs, the long-term performance of these companies historically tend to fall short of expectations— in fact, from 1980 through 2017, newly listed companies trailed similarly-sized peers by an average of 3.3% a year over their first five years. This pattern underscores the speculative nature of these investments, where standout winners are frequently outnumbered by underperformers. Rather than focusing solely on potential returns, IPO activity might be more insightful as a barometer of market sentiment— if a lot of companies are doing it, particularly if they're speculative or low-quality companies, it may indicate the market is leaning toward euphoria. Conversely, a slowdown in activity often reflects increased caution and skepticism. Euphoric or overly optimistic stock markets are often considered a warning sign of an impending bear market. But, as current levels remain below the level seen in 2021, when coupled with other market fundamentals, we still see more room for this bull market to run.

Next, September PMIs.

This week, we get a fresh look at global economic activity with S&P Global releasing preliminary September PMIs for the US, UK, Eurozone and Japan. PMIs, or Purchasing Managers' Indexes, are economic indicators derived from monthly surveys distributed to private sector companies. Readings above 50 indicate more firms reported expansion, while readings below 50 suggest more contracted. So, what does recent PMI data tell us? Well, composite PMI for August showed expansion across these four major economies, with rising PMIs in the UK, Eurozone and Japan. All four countries' PMIs are well above their springtime dips amid heightened tariff uncertainty. Importantly, the overall global composite PMI, which collects data from across 40 countries, has stayed expansionary all year. The big takeaway? Despite ongoing concerns about tariffs, inflation and other perceived recession risks, the global economy has been resilient thus far, continuing to chug along. And that's a positive backdrop for stocks.

Finally, the US inflation report.

On Thursday, we'll get the latest data on the Fed's preferred inflation gauge personal consumption expenditures, known as PCE, offering additional insights into recent inflation trends. Many worry tariffs are set to accelerate inflation ahead, with some concerned that the fed has abandoned its fight against inflation by cutting rates. If PCE surprises to the upside, that could inflame those fears. If it surprises to the downside, some may interpret this as clearing the way for further rate cuts. We caution against getting drawn into speculation over future Fed actions. Predicting monetary policy in advance isn't necessary for long-term investors, in our view. Monetary policy is just one factor affecting the economy, and it has a long and variable lag, giving investors plenty of time to assess the likely eventual impact of central bank decisions after they are announced. More broadly, we believe inflation is fundamentally a monetary phenomenon that occurs when there is too much money chasing too few goods and services, leading to price increases economy wide. While tariffs might raise prices for some goods and services, they don't increase the overall money supply. And right now, money supply growth remains modest. When we take that alongside with other factors, we believe inflation is likely to stay milder than what many consumers currently expect.

And that's it for this episode of 3 Things You Need to Know This Week.

For more of our thoughts on markets, check out This Week in Review, released every Friday. You can also visit fisherinvestments.com. Thanks for tuning in and don't forget to hit like and subscribe!